Defense Logistics: Preliminary Observations on Equipment Reset	 
Challenges and Issues for the Army and Marine Corps (30-MAR-06,  
GAO-06-604T).							 
                                                                 
The United States is engaged in an unconventional war, not a war 
against military forces of one country, but an irregular war	 
against terrorist cells with global networks. Operations Iraqi	 
Freedom and Enduring Freedom are sustained military operations,  
which are taking a toll on the condition and readiness of	 
military equipment that, in some cases, is more than 20 years	 
old. The Army and Marine Corps will likely incur large		 
expenditures in the future to reset (repair or replace) a	 
significant amount of equipment when hostilities cease. The Army 
has requested about $13 billion in its fiscal year 2006 	 
supplemental budget request for equipment reset. Today's	 
testimony addresses (1) the environment, pace of operations, and 
operational requirements in Southwest Asia, and their affects on 
the Army's and Marine Corps's equipping and maintenance 	 
strategies; (2) equipment maintenance consequences created by	 
these equipping and maintenance strategies; and (3) challenges	 
affecting the timing and cost of Army and Marine Corps equipment 
reset. GAO's observations are based on equipment-related GAO	 
reports issued in fiscal years 2004 through 2006, as well as	 
ongoing related work.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-604T					        
    ACCNO:   A50477						        
  TITLE:     Defense Logistics: Preliminary Observations on Equipment 
Reset Challenges and Issues for the Army and Marine Corps	 
     DATE:   03/30/2006 
  SUBJECT:   Combat readiness					 
	     Defense capabilities				 
	     Equipment inventories				 
	     Equipment maintenance				 
	     Financial analysis 				 
	     Logistics						 
	     Military forces					 
	     Strategic planning 				 
	     Cost estimates					 
	     Abrams Tank					 
	     AH-64A Helicopter					 
	     AH-64D Helicopter					 
	     Apache Helicopter					 
	     Bradley Fighting Vehicle				 
	     CH-46E Helicopter					 
	     CH-53E Helicopter					 
	     DOD Operation Iraqi Freedom			 
	     Global War on Terrorism				 
	     M1A1 Tank						 
	     Operation Enduring Freedom 			 
	     Patriot Missile System				 
	     Sea Knight Helicopter				 
	     High Mobility Multipurpose Wheeled 		 
	     Vehicle						 
                                                                 

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GAO-06-604T

     

     * Summary
     * Background
     * Environment, Pace of Operations, and Operational Requirement
          * Environment and High Operational Tempo Have Increased Wear a
          * Army and Marine Corps Hold Large Amounts of Unit Equipment i
          * Initiatives to Develop More Extensive Maintenance Capacity i
     * Equipment Maintenance Consequences and Issues Created By Arm
          * Most Equipment Not Receiving Depot-Level Repair
          * Depots Are Not Operating At Full Capacity Due to Fewer Equip
          * Scope of Depot Repair Work Is Being Reduced to Meet Operatio
          * Army Concerned That Maintenance Contractors Are Not Meeting
          * Condition of Theater Sustainment Stocks Is Not Sufficient to
     * A Number of Challenges Will Affect the Timing and Cost of Ar
          * Army Modularity and Marine Corps Transformation
          * Requirements to Reconstitute and Reset Army and Marine Corps
          * Army and Marine Corps Will Need to Replace Active, Guard, an
          * Potential Requirements for Transferring Equipment and Provid
          * Lack of Comprehensive Sustainment, Modernization, and Replac
          * Army and Marine Corps Face Difficult Choices For Competing E
          * Depots Experience Difficulties With Executing Supplemental A
     * Concluding Observations
          * Order by Mail or Phone

Testimony

Before the Subcommittees on Readiness and Tactical Air and Land Forces,
Committee on Armed Services,

House of Representatives

United States Government Accountability Office

GAO

For Release on Delivery Expected at 1:00 p.m. EST

Thursday, March 30, 2006

DEFENSE LOGISTICS

Preliminary Observations on Equipment Reset Challenges and Issues for the
Army and Marine Corps

Statement of William M. Solis Director, Defense Capabilities and
Management

GAO-06-604T

Mr. Chairmen and Members of the Subcommittees:

We welcome the opportunity to appear before you today to discuss a number
of maintenance and equipment reset challenges facing the Army and Marine
Corps. The United States is engaged in what the Department of Defense has
termed the long war. This is not a conventional war against military
forces of one country but an irregular war against terrorist cells with
global networks, with operations currently centered in Iraq and
Afghanistan. These sustained operations are taking a toll on the condition
and readiness of military equipment that, in some cases, is more than 20
years old. Age, along with the harsh environment in theater and combat
conditions over long periods of time, magnifies an already growing problem
of equipment repair, replacement, and procurement that existed even before
the onset of combat operations in Iraq and Afghanistan. While combat units
report high readiness rates, these reports reflect only that equipment is
fully mission capable, meaning that the equipment has no critical or
safety deficiencies as outlined in technical readiness reporting
instructions. However, equipment that is considered fully mission capable
may have a number of deficiencies that will need to be addressed in the
longer term.

In addition to the billions of dollars already spent to maintain this
well-worn equipment for ongoing operations, the Army and Marine Corps will
likely incur large expenditures in the future to repair or replace (reset)
a significant amount of equipment when hostilities cease. The services are
currently funding their reset programs entirely through the use of
supplemental appropriations, and plan to rely on supplemental
appropriations for reset funding through at least fiscal year 2007. The
fiscal year 2006 supplemental budget request includes $10.4 billion for
equipment maintenance and reset. The Marine Corps has incurred a cost of
more than $12 billion to date to reset equipment. The Army estimates its
total reset bill for fiscal year 2006 alone to be nearly $13.5 billion.
The uncertainties of how long ongoing operations will continue make it
difficult to estimate future equipment reset costs. The overall condition
of major equipment items at the end of these operations, although
difficult to predict, will also be a significant factor affecting reset
costs. Equipment used in operations in Iraq and Afghanistan will
eventually require more intensive repair and overhaul than what is
typically expected in peacetime. Furthermore, the affordability of these
maintenance requirements will be an issue as the cost of these
requirements compete for available funding in the future with other Army
and Marine Corps programs, as well as the overall Department of Defense
budget.

My statement today reflects our preliminary observations drawn from
ongoing work as well as recently published reports. As requested, my
testimony today will focus on the equipment maintenance and reset
challenges facing the Army and Marine Corps. Specifically, it addresses
the (1) environment, pace of operations, and operational requirements in
Southwest Asia, and their effects on the Army's and Marine Corps's
equipping and maintenance strategies; (2) equipment maintenance
consequences and issues created by these equipping and maintenance
strategies; and (3) challenges affecting the timing and cost of Army and
Marine Corps equipment reset.

The observations we will discuss today regarding Army and Marine Corps
equipment maintenance and reset plans is based on reports we issued in
fiscal years 2004 through 2006, as well as preliminary observations based
on related ongoing work. Several GAO teams conducted audit work related to
these issues in Iraq and Kuwait from November 2005 through January 2006.
We conducted our work in accordance with generally accepted government
auditing standards.

                                    Summary

The harsh operating environment, prolonged length and pace of operations,
and operational requirements in Iraq and Afghanistan have placed
tremendous stress on deployed equipment. In response to these
environmental and operational challenges, the Army and Marine Corps have
developed and implemented initiatives to keep large amounts of equipment
in theater and have developed enhanced maintenance capacity in theater
above the unit level to sustain major equipment items.

While these initiatives and enhanced in-theater maintenance capability
have reportedly contributed to high equipment readiness rates for combat
units and improved availability of equipment in theater, they have
presented the Army and Marine Corps with a wide range of consequences and
issues. The consequences include (1) equipment items not receiving
depot-level maintenance for long periods, (2) depots in the United States
not operating at full capacity, and (3) reduced scope of depot repair
packages because of affordability reasons. In addition, Army officials are
concerned that contractors are not meeting performance expectations, and
the condition and availability of theater sustainment stocks are not
sufficient to meet replacement needs. These potential concerns may have
long-term effects such as a decrease in near-term or long-term readiness
of equipment or an increase in overall repair or replacement costs.

In addition, the Army and Marine Corps will likely face a number of
ongoing and longer-term challenges and issues that will affect the timing
and cost of equipment reset. These challenges include force structure and
transformation initiatives; equipment requirements for prepositioned
equipment sets; future equipment replacement needs for active, guard, and
reserve forces; potential equipment transfer and logistical support to the
Iraqi Security Forces; the lack of a comprehensive equipment strategy; and
issues related to the timing of supplemental funding for depot
maintenance. Lastly, the Army and Marine Corps will need to make difficult
choices when it comes to their many competing equipment programs. While
the services are working to refine overall requirements, the total
requirements and costs are unclear and raise a number of questions as to
how the services will afford them. Until the services are able to firm up
these requirements and cost estimates, neither the Secretary of Defense
nor the Congress will be in a sound position to weigh the trade offs and
risks.

                                   Background

The scope of equipment reset efforts that will be required as a result of
ongoing operations related to Operation Iraqi Freedom (OIF) and Operation
Enduring Freedom (OEF) is enormous. The services have committed a
significant amount of equipment to these operations. From 2003 until April
2005, the Army had deployed more than 40 percent of its equipment in
support of OIF and OEF. As of March 2005, the Marine Corps had about 22
percent of its total fleet assets engaged in Iraq. Recently, the Marines
estimated that approximately 40 percent of all Marine Corps ground
equipment, 50 percent to 55 percent of communications equipment, and 20
percent of aircraft assets are in use in support of current operations.

According to the Army, reset comprises a series of repair,
recapitalization, and replacement actions to restore units' equipment to a
desired level of combat capability commensurate with mission requirements
and availability of resources. The purpose of reset is to bring unit
equipment to combat-ready condition, either for the unit's next rotation
in support of current operations or for other, unknown future
contingencies.

The Army's standard level of maintenance is known as 10/20. This standard
requires that all routine maintenance be executed and all deficiencies be
repaired. Equipment at less than the 10/20 standard can be fully mission
capable, which means there are no critical maintenance deficiencies as
outlined in the technical manuals and instructions, and no safety
deficiencies. Unit commanders have the authority to supersede the
technical manuals and declare a system fully mission capable even though
it has a non-mission capable deficiency. The Marine Corps's equivalent
term is "mission capable."

The Army's reset strategy for ground vehicles includes an additional set
of maintenance procedures known as Delayed Desert Damage (3D) which are
designed to address damage that results from these vehicles operating in a
desert environment. These procedures are designed to address damage that
might otherwise not be visible. These 3D checks are initially performed at
the unit level. Equipment that goes to a depot is subjected to more
extensive 3D maintenance procedures. Army aviation equipment is subject to
Special Technical Inspection and Repair (STIR). Similar to 3D, this
maintenance is designed to address damage caused by operation in a desert
environment. STIR also includes other routine maintenance.

Although the terms may be slightly different, the Marine Corps equipment
repair and replacement process and equipment standards parallel the Army
process and standards for equipment maintenance. The Marine Corps
equivalent to the Army's reset process is termed "recovery." Marine Corps
equipment returning from combat theaters is evaluated and transported to
either a maintenance depot or to a Marine Corps unit's home station for
repair. The Marine Corps's equipment recovery process entails restoring
all equipment used in Global War on Terror (GWOT) operations to its
pre-GWOT condition. For equipment in the Marine Corps prepositioning
fleet, this means restoring to a "like new condition," for all other
equipment, this means is restoring to a mission capable status. The Marine
Corps also applies procedures similar to the 3D as appropriate.

The Department of Defense (DOD) reported in April 2005 that they expected
a new set of protocols to emerge based on experience with equipment used
in OIF and OEF.1 These protocols may be similar to 3D and STIR which
emerged as maintenance procedures based on experience from Operation
Desert Storm. DOD, as part of its ongoing effort to assess stress on
equipment, plans to look for unusual wear patterns and methods to address
them as well as examining maintenance trends.

1 Department of Defense, Ground Force Equipment Repair, Replacement, and
Recapitalization Requirements Resulting From Sustained Combat Operations
(Washington, D.C.: Apr. 2005).

Depot maintenance is defined as the highest level of maintenance activity,
where the most complex maintenance work is done, from overhaul of
components to complete rebuilds. Military depots and defense contractors
throughout the United States perform depot-level maintenance.

Environment, Pace of Operations, and Operational Requirements Have Shaped
       Current Army and Marine Corps Equipping and Maintenance Strategies

In response to the harsh operating environments in Iraq and Afghanistan
and the unanticipated and prolonged length and pace of sustained
operations, the Army and Marine Corps have developed and implemented
several initiatives to equip their forces and maintain extensive amounts
of equipment in theater. Specifically, the Army and Marine Corps have
implemented initiatives to keep large amounts of unit equipment in theater
after the units redeploy to their home stations in the United States for
the purpose of rapidly equipping follow-on units, and have developed
additional maintenance capacity in theater above the unit level to sustain
major equipment items such as high mobility multi-purpose wheeled vehicles
(HMMWVs), other tracked and wheeled vehicles, and aviation equipment.

Environment and High Operational Tempo Have Increased Wear and Tear on Equipment
Above What Would Normally Be Expected

Environmental factors such as heat, sand, and dust have taken their tolls
on major equipment items. In addition, as we have previously reported, the
Army and Marine Corps are operating equipment at a pace well in excess of
their normal peacetime levels, which is generating a large operational
maintenance and replacement requirement that must be addressed when the
units return to their home stations.2 Continued operations have increased
the operational tempo for a great deal of Army and Marine Corps equipment.
In April 2005, the Department of Defense (DOD) reported Army equipment
usage rates averaged two to eight times that of peacetime rates. Senior
Marine Corps officials recently testified that the Marine Corps usage
rates for ground equipment in ongoing operations were four to nine times
that of peacetime rates. Despite these high usage rates, the deployed Army
units have generally reported high levels of overall readiness and
relatively high levels of equipment readiness. Deployed Marine Corps
units, however, report more degraded levels of overall and equipment
readiness. Unit commanders in both services are able to subjectively
upgrade their overall readiness ratings, although this has been done to a
lesser extent by the Marine Corps. Absent such upgrades, overall readiness
levels (particularly for the Army) would be significantly lower as a
result of units' low levels of equipment and supplies on hand.

2 GAO, Defense Management: Processes to Estimate and Track Equipment
Reconstitution Costs Can Be Improved, GAO-05-293 (Washington, D.C.: May 5,
2005).

Army and Marine Corps Hold Large Amounts of Unit Equipment in Theater

To meet ongoing operational requirements, the Army and Marine Corps have
developed and implemented initiatives to concentrate equipment in theater.
When the Army initially developed its strategy of retaining equipment from
redeploying units in theater, it did not envision this to be a long-term
mechanism for managing equipment needs, but rather a short-term measure to
conserve transportation assets and, more importantly, ensure that units
were rapidly equipped. The Marine Corps, like the Army, developed a
similar equipment management initiative. Additionally, the Army has
developed a pool of equipment in theater to expedite the replacement of
equipment damaged during these operations, referred to as theater
sustainment stocks (TSS), which includes, for example, tanks, HMMWVs,
Bradley Fighting Vehicles, and support vehicles. As of January 2006, TSS
included an estimated 400 different types of vehicles and other equipment.
The Marine Corps recently testified that they have developed a similar
pool of ground equipment known as Forward In-Stores to replace damaged
major equipment items.

To ensure that deployed units receive required amounts of equipment
critical for their missions, the Army has designated certain major
equipment items, such as add-on-armor vehicles, up-armored HMMWVs,
selected communications and intelligence equipment, and other items deemed
critical for OIF and OEF missions as "theater provided equipment" (TPE).
According to Army officials, based on operational decisions, these
theater-specific items are being left in theater because these are force
protection items. This equipment is taken from active, Guard, and Reserve
forces when they return to the United States and is retained in theater to
hand off to follow-on units. TPE includes equipment such as armored
vehicles, individual soldier body armor, and equipment used to counter
improvised explosive devices. As of November 2005, the Coalition Forces
Land Component Commander estimated that there were approximately 300,000
equipment items in the TPE inventory in Iraq, including more than 26,000
vehicles. The Army's TPE initiative began in late 2003, when the first
Army units were directed to leave equipment in theater, then known as
"stay behind equipment." The Army, in November 2005, replaced the term
"stay behind equipment" with the term TPE to better manage equipment
accountability and also reflect items that were procured directly for the
theater. Unlike other less intensely managed equipment items, TPE is
transferred directly from units leaving the theater to deploying units
taking their place. In most cases, these transfers take place at the
unit's forward station in Iraq. As a result, most of this equipment has
been in heavy use in harsh desert and combat conditions since it was first
left in theater by the units that originally deployed with the equipment.
Because TPE is maintained at the unit level, this strategy has not
provided the Army with an opportunity to periodically rotate TPE back to
the United States for depot level maintenance. As discussed in a later
section, keeping large amounts of equipment in theater for long periods of
time without the opportunity for depot-level repair has created a number
of related consequences.

The Marine Corps, like the Army, has directed that equipment necessary for
OIF and OEF operations remain in theater. Because many Marine Corps
mission requirements have been exceeding the unit's typical combat
equipment allowances, Marine Corps commanders in theater have developed
expanded equipment packages for deploying units that are designed to
ensure that units have the required equipment for their missions.
Deploying Marine Corps units fall in on and assume custody of equipment
left by other units departing the theater. According to recent Marine
Corps testimony, this initiative allows it to provide the best equipment
possible to forces in theater while also reducing equipment rotation
costs. Marine Corps officials estimated they had deployed about 30 percent
of its ground equipment, and 20 percent of aviation assets in support of
ongoing operations. However, the percentage of ground equipment deployed
in support of operations has been as high as 40 percent according to
recent Marine Corps testimony. While this initiative has met equipment
needs to date, it has caused some major equipment items to remain in
constant operation, often in harsh desert conditions.

Initiatives to Develop More Extensive Maintenance Capacity in Theater

To address the effects of the harsh operating environments and the
maintenance needs of rapidly deteriorating equipment that is being held in
theater for extensive periods, the Army and Marine Corps have developed
initiatives to increase the maintenance capacity in theater to be able to
provide near-depot level repair capabilities. For example, the Army has
developed a refurbishment facility for HMMWVs in Kuwait and a Stryker
maintenance facility in Qatar to limit the repair time and resupply time
of these assets. The HMMWV refurbishment facility in Kuwait began
operations in July 2005 and is operated by a defense contractor. The
primary objective of this refurbishment facility is to mitigate the
effects of high mileage, heavy weights, high temperatures, and lack of
sustained maintenance programs. The HMMWV refurbishment facility workload
includes refurbishment maintenance, as well as modernization and upgrades.
As of December 2005, this facility had refurbished a total of 264 HMMWVs.
Similarly, the Marine Corps created a limited aircraft depot maintenance
capability in theater.

Additionally, both the Army and Marine Corps have taken other steps to
increase maintenance capacity and the availability of spare parts in
theater. For example, at the time of our visit to Kuwait in January 2006,
the Army was developing plans to increase the maintenance capacity at
contractor maintenance facilities in Iraq. In addition, according to
recent Army testimony, the Army Materiel Command (AMC) and the Defense
Logistics Agency have taken steps to allow the rapid delivery of critical,
low-density parts to the theater to maximize their availability and
minimize transportation costs. The Marine Corps has also recently
testified on efforts to leverage Army ground depot maintenance
capabilities in the theater, and developed a rotation plan for major
equipment items.

 Equipment Maintenance Consequences and Issues Created By Army and Marine Corps
                      Equipping and Maintenance Strategies

Although the Army and Marine Corps are reporting high rates of equipment
readiness for combat units and have developed and implemented plans to
increase the maintenance capabilities in theater, these actions have a
wide range of consequences and issues. The services have made a risk-based
decision to keep equipment in theater, to forego depot repairs, and to
rely almost exclusively on in-theater repair capabilities to keep
equipment mission capable. As a result, much of the equipment has not
undergone higher level depot maintenance since the start of operations in
March 2003. While Army officials noted that not all equipment would
undergo full depot-level maintenance, much of this equipment has incurred
usage rates ranging from two to nine times the annual peacetime rate
meaning that, in some cases, some equipment may have added as much as 27
years of use in the past three years. Continued usage at these rates
without higher levels of maintenance could result in the possibility that
more equipment will require more extensive and expensive repairs in the
future or may require replacement rather than repair. Because most
equipment is staying in Iraq, there are other ramifications that have
implications for the depots in the United States such as the fact that
depots are not operating at full capacity and that the scope of depot
repair work is being reduced to meet operational needs. In addition, other
maintenance issues are beginning to surface, which could have a variety of
consequences such as a decrease in near-term and long-term readiness of
equipment or an increase in repair or replacement costs. These additional
issues include questions regarding contractor performance for in-theater
maintenance and the condition and availability of the Army's TSS in
Kuwait.

Most Equipment Not Receiving Depot-Level Repair

Many of the equipment items used in Southwest Asia are not receiving
depot-level repair because they are being retained in theater or at home
units and the Army has scaled back on the scope of work performed at the
depots. As a result, the condition of equipment items in theater will
likely continue to worsen and the equipment items will likely require more
extensive repair or replacement when it eventually returns to home
stations. The Army retains equipment in theater to support ongoing
operations. For example, as of November 2005, the Army had about 300,000
pieces of equipment retained in theater to support troop deployment
rotations. Very little of this equipment is being returned from theater to
depots in the United States for repair. Instead, redeploying units are
expected to maintain their assigned equipment to a fully mission capable
condition to facilitate the transfer of equipment to deploying units.
Since TPE is transferred directly from units leaving the theater to
deploying units taking their place, usually at the units' forward station
in Iraq, the strategy has not allowed the equipment to receive periodic
depot-level maintenance. Further, some units have commented that the TPE
they received, while operable, requires higher levels of maintenance. The
fully mission capable definition is to some extent a broad and malleable
term. Unit commanders have reported concerns with downtimes, availability
of spare parts, repair and replacement of damage or combat losses, and the
need for additional contractor support. The Army is also reconfiguring its
prepositioned equipment set and consequently is retaining some deploying
units' equipment in theater to support this Army Prepositioned Set, Kuwait
(APS-5) reconstruction. For example, according to officials at the U.S.
Army Forces Command, approximately 13,000 pieces of equipment from a
redeploying unit were transferred to prepositioned stocks in Kuwait
instead of returning to the United States with the unit. This included
about 7,000 tactical wheeled vehicles. While this equipment is supposed to
be reset to a 10/20 standard before being transferred to prepositioned
equipment stocks, it is not being returned for depot overhaul. According
to Army officials, this equipment was not returned for depot overhaul
because of short timeframe requirements. This equipment was reset to a
fully mission capable standard.

In some instances, Army units retain equipment to reconstitute their unit
quickly rather than send this equipment to depot for overhaul. According
to officials in the Office of the Secretary of Defense, warfighters are
not readily willing to give up equipment, which contributes to fewer
equipment items being returned to the depots for repair. Officials at the
U.S. Army Forces Command and at army depots echoed this concern, stating
that availability of assets to induct into the depot repair program is
limited by units' need and desire to have equipment available for
training. These officials added that the units fear that they will have to
wait for replacement equipment because their unit priority is not high
enough within the Army to ensure immediate replacement of the equipment
items. To increase the number of equipment items going to depots from
units, the Army created a list of equipment that it will now require units
to automatically send to the Army depots for reset. The list is based on
lessons learned from earlier experiences that damage and wear to certain
types of equipment items used in Southwest Asia require more extensive
depot level repairs. For example, some equipment reset at the units' home
station was failing at higher than expected rates in theater during
follow-on deployments. The list contains about 200 equipment items and has
been updated several times, most recently in October 2005, to include
items such as the Bradley Fighting Vehicle and the Abrams Tank. According
to the implementing memorandum, unit commanders are required to nominate a
minimum of 25 percent of the listed equipment for return to depots for
reset. According to the memorandum, the intent is to provide units the
flexibility to maintain equipment for training while placing the maximum
possible into reset programs, and items retained for training are to be
maintained in fully mission capable condition.

Depots Are Not Operating At Full Capacity Due to Fewer Equipment Returns and
Enhanced In-Theater Maintenance Capability

Because the services are retaining most equipment in theater, depots in
the United States, tasked with complex maintenance work above and beyond
in-theater maintenance reset, are not operating at full capacity. For
example, DOD has estimated that Army depots can produce about 19 million
direct labor hours of production on a single shift basis-8 hours a day, 5
days a week. Based on this measure, the Army depots are currently utilized
at about 110 percent of capacity. However, according to depot officials,
the Army could double or triple depot capacity by adding more work shifts
at the depots. Using this multiple shift approach the Army could produce
up to approximately 57 million direct labor hours of production or 170
percent more than the current workload at Army depots. Army depots are
currently using some second shifts; however, second shifts are primarily
limited to manufacturing process shops such as cleaning, machining,
sand-blasting and painting, which depot officials say could easily be
contracted out to increase throughput. According to depot officials, the
factors that impact their decision to add more shifts and increase
throughput are a stable commitment of funding throughout the year, the
availability of retrograde equipment to repair, and the right mix of spare
parts inventory to support production.

Scope of Depot Repair Work Is Being Reduced to Meet Operational Needs

In addition, the Army has reduced the scope of work performed on some
equipment items to less than a full overhaul. According to U.S. Army Tank
and Automotive Command (TACOM) officials, the Army cannot afford to do a
full overhaul of its ground equipment and has therefore made a risk-based
decision to perform a reduced scope of work for equipment at the depots.
To determine what the repair scope should be, the Army focused on major
readiness components on the vehicles. For example, the engine on the
Abrams tank is the component that fails the most often and is the most
expensive to replace. Consequently this was the number one component
included in the reduced scope of depot repair work. The less robust depot
level repair being performed speeds repair time and reduces expenditures
on depot repair. For example, the reduced scope of work on the Abrams
costs approximately $880,000 versus $1.4 million for a complete overhaul.
This scope does not include complete disassembly of the vehicle and
identifies 33 items to be inspected and repaired only if necessary. During
a full overhaul these items would be reconditioned to like new condition,
and consequently would be less likely to fail after the depot visit
although it is unclear what actual failure rates might be. According to
TACOM officials, the reduced overhaul represents what the Army can afford
to do.

The Marine Corps recently instituted an annual equipment rotation plan to
begin returning equipment from Southwest Asia to the United States for
reset. The first of this returning equipment was received in the first
quarter of fiscal year 2006. Previously, Marine Corps reset strategy was
to overhaul equipment located in the United States, then provide the
equipment to deploying units to fill requirements that could not be
satisfied with the pool of mission capable equipment in theater. According
to depot officials, the Marine Corps found it necessary to begin returning
equipment from the theater because it is running short of available
equipment in the United States for depot overhaul. However, depot
officials told us that the equipment returning from theater is in much
worse condition than they anticipated so they may not be able to reset as
many vehicles as planned with available reset funds.

Army Concerned That Maintenance Contractors Are Not Meeting Performance
Expectations

While we did not review copies of the contracts, our review of other Army
documents and discussions with Army officials identified two examples to
indicate that maintenance contractors are not meeting performance
expectations. Army officials estimated that about 70 percent of equipment
maintenance in theater above the unit level is being done by contractors.
Some of these contractors have experienced a number of problems in the
past few years, such as not being able to quickly acquire skilled
maintenance personnel. Specifically, we identified a number of maintenance
issues regarding the HMMWV refurbishment facility in Kuwait and the reset
of equipment in the prepositioned set of equipment in Kuwait.

As of January 2006, according to Army maintenance officials in Kuwait, the
contractor operating the HMMWV refurbishment facility in Kuwait had not
been able to meet original production goals. In some cases, for example,
the contractor's actual labor requirements for some vehicles exceeded the
original estimates by almost 200 percent. This contributed to the facility
falling over 200 vehicles short of its output goal of refurbishing 300
vehicles per month since the facility became operational in July 2005.3
Also cited as contributing to the facility's poor performance were
difficulties the contractor experienced in obtaining the required number
of third country national workers, mostly due to difficulties meeting host
country visa requirements. Furthermore, according to Army maintenance
officials in Kuwait, during the first 6 months the facility was
operational, the contractor repeatedly failed to gather data on resources
expended on vehicle refurbishments. Without accurate information on the
actual level of resources required to refurbish these vehicles, it will be
more difficult for the contractor to estimate and plan for future
requirements. Since the original contract was issued in April 2005, it has
been modified multiple times, increasing the total funding requirement
from slightly more than $36 million over the contract's first year of
performance, an increase of over 100 percent.

In addition to concerns about the contractor management of the HMMWV
refurbishment facility, theater commanders have also expressed concerns
about contractor performance in support of efforts to reset equipment for
reconfiguring Army prepositioned stocks. The Army has contracted for the
maintenance and management of Army prepositioned equipment in Kuwait. The
Army has recently noted several concerns about contractor performance in
the areas of personnel and maintenance. For example, there is a shortage
of contractor personnel which contributes significantly to a decline in
production. The contractor also attributed the shortages to difficulties
obtaining the required number of third country national workers due to
problems with host country visa requirements. The Army had to resort to
acquiring additional vehicle mechanics and supply personnel from another
contractor and an active duty Army unit and an Army maintenance company.
The Army also reports that the contractor does not conduct thorough
technical inspections. If thorough inspections were conducted it would
significantly reduce the amount of time the equipment spends in
maintenance shops. According to officials at the U.S. Army Field Support
Command, equipment is often rejected because of the contractor's lack of
attention to detail and inadequate maintenance inspection procedures.

3 Based on production data from July 2005 through December 2006.

Condition of Theater Sustainment Stocks Is Not Sufficient to Rapidly Meet
Replacement Needs

The condition of TSS is not sufficient to replace battle damaged equipment
without additional maintenance, which may delay the equipment's
availability and strain in-theater maintenance providers. The purpose of
TSS is to ensure that equipment is on hand to quickly fill unit
requirements that may arise due to battle damage or other losses. The Army
created this stockpile of equipment in Kuwait as a quick source to provide
replacement equipment, as needed. As of January 2006, an AMC official
responsible for TSS estimated that there were approximately 174,000 pieces
of equipment in Kuwait and Qatar, representing 400 different types of
equipment. TSS includes, for example, tanks, HMMWVs, Bradley Fighting
Vehicles, and support vehicles. Expected loss rates are taken into
consideration in setting TSS equipment levels. When a requirement arises
in Iraq, equipment items are taken from TSS, maintenance is performed in
theater to ensure the equipment is in suitable condition, and it is sent
to units. Much of TSS requires additional maintenance before it can be
reissued to operational units in Iraq and, in some cases, to restore it to
fully mission capable. For example, as of January 2006, for a
cross-section of several types of ground vehicles in TSS, less than 7
percent were fully mission capable. As such, TSS that requires additional
maintenance before it can be reissued as replacement equipment increases
requirements on the in-theater maintenance capability, which may affect
other efforts to refurbish equipment in theater for prepositioned stocks.
The Army Field Support Battalion at Camp Arifjan, Kuwait, is responsible
for the management and reconstitution of prepositioned stocks, the
management and repair of TSS in support of ongoing requirements, as well
as a number of other logistics missions. The same contract workforce the
Army Field Support Battalion employs for maintenance on prepositioned
stocks is responsible for maintenance of TSS. The capacity of the Army
Field Support Battalion to conduct reset of equipment being used to
reconstitute prepositioned stocks in Kuwait is directly affected by
ongoing requirements to manage TSS and is affected by other missions in
support of deployed units in Iraq.

A Number of Challenges Will Affect the Timing and Cost of Army and Marine Corps
                                Equipment Reset

The Army and Marine Corps will face a number of ongoing and longer-term
challenges that will affect the timing and cost of equipment reset. As
previously mentioned, current military operations are taking a toll on
equipment, which will affect the cost of repairing equipment as well as
the amount and cost of equipment that will need to be replaced. In
addition, other issues such as the Army and Marine Corps efforts to
modularize and transform their forces, respectively, the reconstitution
and reset of prepositioned equipment, and the ongoing and longer-term
efforts to replace equipment from the active, National Guard, and Reserve
units, as well as the potential transfer of U.S. military equipment and
potential for continuing logistical support to Iraqi Security Forces will
also affect the timing and cost of reset. Furthermore, both the Army and
Marine Corps will have to better align their funding and program
strategies to sustain, modernize, or replace existing legacy equipment
systems. Similarly, both services will need to face difficult choices for
the many competing equipment programs. Finally, working with the Congress,
both services will have to determine the best approaches for dealing with
the issues created by the timing of depot maintenance supplemental
appropriations.

Army Modularity and Marine Corps Transformation

The Army's and Marine Corps's equipment reset programs will also have to
compete with ongoing and planned force structure changes designed to
provide more flexibility in deploying forces for ongoing and future
operations. The Army began its modular force transformation in 2004 to
restructure itself from a division-based force to a modular brigade-based
force. The modular forces are designed to be stand-alone, self-sufficient
units that are more rapidly deployable and better able to conduct joint
and expeditionary operations than their larger division-based
predecessors. Modular restructuring will require the Army to spend
billions of dollars for new equipment over the next several years while
continuing to reset and maintain equipment needed for ongoing operations.
The Army estimates that the equipment costs alone will be about $41
billion. In addition to creating modular units, the Army plans to continue
to develop and fund the Future Combat System, which the Army recognizes is
one of the greatest technology and integration challenges it has ever
undertaken.

The Marine Corps has also initiated force structure changes to provide
flexibility in deploying troops, which will also likely affect the Marine
Corps's equipment reset strategies. Its force structure initiative is
designed to reduce the effects of operational tempo on the force and
reshape the Marine Corps to best support current and future operations. In
2004, the Marine Corps conducted a comprehensive force structure review to
determine how to restructure itself to augment high demand, low density
capabilities, reduce deployed tempo stress on the force, and shape the
Marine Corps to best support the current and future warfighting
environments.

Requirements to Reconstitute and Reset Army and Marine Corps Prepositioned
Equipment

Both the Army and Marine Corps drew heavily upon prepositioned stocks for
operations in Iraq and Afghanistan. 4 As we reported in September 2005,
DOD faces some near term operational risks should another large scale
conflict emerge, because it has drawn heavily on prepositioned stocks to
support ongoing operations in Iraq. 5 And although remaining stocks
provide some residual capability, many of the programs face significant
inventory shortfalls and, in some cases, maintenance problems.

The focus of the Army's current prepositioned equipment reset program is
building two brigade-sized equipment sets in Kuwait, as well as
battalion-sized sets in Qatar and Afghanistan. Prepositioned stocks in
Kuwait are not designated to serve as a pool of equipment available to
support current missions. Equipment to form these sets is coming from a
combination of equipment left in theater, as well as equipment being
transferred from U.S. depots and from units around the world. While a
sizeable portion of the needed equipment is now in place, much of this
equipment needs substantial repair. Maintenance facilities are limited as
are covered storage facilities. Lack of covered storage facilities
presents yet another challenge. Prepositioned stock, like TSS, is stored
in the open desert environment, which in some cases may lead to further
degradation. Harsh environmental conditions such as sand and high humidity
levels accelerate equipment corrosion, which may not be apparent until
extensive depot maintenance is performed. We have previously reported that
outdoor storage aggravates corrosion and the use of temporary shelters
with climate-controlled facilities is cost effective, has a high return on
investment, reduces maintenance and inspections and, as a result,
increases equipment availability. The Marine Corps has also drawn on a
significant portion of its prepositioned stocks from five ships to support
current operations. It is unclear when this equipment will be returned to
prepositioned stocks because much of this equipment will be left in Iraq
to support the continuing deployment of Marine Corps forces there.

4 Prepositioned stocks are protected, go-to-war assets which reduce the
demand on scarce mobility assets required to project forces from the
United States and to sustain early arriving forces until the sea lines of
communication are established.

5 GAO, Defense Logistics: Better Management and Oversight of
Prepositioning Programs Needed to Reduce Risk and Improve Future Programs,
GAO-05-427 (Washington, D.C.: Sept. 6, 2005).

Our September 2005 report also raised serious concerns about the future of
the department's prepositioning programs, and we believe these concerns
are still valid. No department-wide strategy exists to guide the programs,
despite their importance to operational plans as evidenced in OIF. Without
an overarching strategy, the services have been making decisions that
affect the future of the programs without an understanding of how the
prepositioning programs will fit into an evolving defense strategy. The
Army's decision to accelerate the creation of substantial combat
capabilities in Southwest Asia is understandable because it could speed
buildup in the future, especially if large numbers of troops are
withdrawn. However, the Army's decisions in other parts of its
prepositioning programs are questionable. For example, the Army recently
decided to cut its afloat combat capability in half (from two brigade sets
to one) by the end of fiscal year 2006 as a result of a budget cut from
the Office of Secretary of Defense. However, internal planning documents
that we reviewed indicated that the Office of Secretary of Defense
directed terminating a planned third set afloat, cutting an existing
capability that would likely be critical to responding to another crisis
should it occur. In the meantime, the Army is making plans to reduce its
contractor workforce in Charleston, South Carolina, where it performs the
maintenance on its afloat stocks. At the same time, in Europe, the Army
has a $55 million military construction project well underway at a site in
Italy, but the Army's draft prepositioning strategy identifies no
significant prepositioning mission in Europe. In our discussions with Army
managers, they told us they are planning to use the Italian workforce to
perform maintenance on equipment that ultimately will be placed afloat in
2013 or later.

Army and Marine Corps Will Need to Replace Active, Guard, and Reserve Equipment
Left in Theater

The Army and Marine Corps must also plan for replacement of active,
National Guard, and Reserve equipment left in theater to support ongoing
operations. In late 2003, the Army began to direct redeploying Guard and
Reserve units to leave their equipment in theater for use by deploying
forces. As we have previously testified, DOD policy requires the Army to
replace equipment transferred to it from the reserve component including
temporary withdrawals or loans in excess of 90 days, 6 yet the Army had
neither created a mechanism in the early phases of the war to track Guard
equipment left in theater nor prepared replacement plans for this
equipment, because the practice of leaving equipment behind was intended
to be a short-term measure.7 As of March 2006, only three replacement
plans have been endorsed by the Secretary of Defense, all to replace Guard
equipment, while 33 plans are in various stages of approval.

Lack of equipment for the active, Guard, and Reserve forces at home
stations affects the ability of the forces to conduct unit training, and
adversely affects the ability of the Guard and Reserve forces to be
compatible with active component units. As operations have continued, the
amount of Guard equipment retained in theater has increased, which has
further exacerbated the shortages in nondeployed Guard units. For example,
when the North Carolina 30th Brigade Combat Team returned from its
deployment to Iraq in 2005, it left behind 229 HMMWVs, about 73 percent of
its pre-deployment inventory of those vehicles, for other units to use.
Similarly, according to Guard officials, three Illinois Army National
Guard units were required to leave almost all of their HMMWVs, about 130,
in Iraq when they returned from deployment. As a result, the units could
not conduct training to maintain the proficiency they acquired while
overseas or train new recruits. In all, the Guard reports that 14 military
police companies left over 600 HMMWVs and other armored trucks, which are
expected to remain in theater for the duration of operations, which
according to Army officials, would be required regardless of Guard,
Reserve, or active unit. Lack of equipment for training also adversely
affects Marine Corps units. For example, in the interest of supporting
units in theater by leaving certain pieces of equipment in theater and
drawing on equipment from elsewhere to meet theater needs, the Marine
Corps has experienced home station equipment shortfalls, among both active
and reserve components. According to a senior Marine Corps official, these
shortfalls may have detrimental effects on the ability of the Marine Corps
to train and to respond to any contingencies. In addition, the Army has
acknowledged that the benefits of prepositioned stocks are diminished when
units are not trained on equipment that matches that present in the
stocks.

6 Department of Defense Directive 1225.6, Equipping the Reserve Forces,
April 7, 2005.

7 GAO, Reserve Forces: Army National Guard's Role, Organization, and
Equipment Need to be Reexamined, GAO-06-170T (Washington D.C.: Oct. 20,
2005).

The Army and Marine Corps strategy for retaining and maintaining
significant numbers of low density, high demand equipment items in theater
will affect plans to replace equipment left in theater by the Guard and
Reserve. We have previously reported that to meet the demand for certain
types of equipment for continuing operations, the Army has required Army
National Guard units returning from overseas deployments to leave behind
many items for use by follow-on forces.8 According to the National Guard
and Reserve Equipment Report for Fiscal Year 2007, the Army National Guard
has been directed to transfer more than 75,000 pieces of equipment valued
at $1.76 billion, to the Army to support OIF and OEF. 9 However, the Army
does not have a complete accounting of these items or a plan to replace
the equipment, as DOD policy requires. The Army expects that these items
will eventually be returned to the Guard, although the Guard does not know
whether or when the items will be returned. We have also previously
reported that like the Army National Guard, Army Reserve units have been
required to leave certain equipment items, such as vehicles that have
armor added, in theater for continuing use by other forces. 10 This
further reduces the equipment available for training and limits the Army
Reserve's ability to prepare units for mobilizations in the near term. The
Army is working with both the Army National Guard and the Army Reserve to
develop memoranda of agreement on how equipment left in Iraq will be
replaced. Until these plans are completed and replacement equipment
provided, the Army Reserve and Army National Guard will face continuing
equipment shortages while challenged to train and prepare for future
missions.

According to Marine Corps testimony, the policy of retaining equipment in
theater to meet the needs of deployed forces has led to some home station
equipment shortfalls, among both active and reserve units, which if
allowed to continue could have a direct impact on the ability of Marine
Forces to train for known and contingent deployments. Furthermore,
according to the National Guard and Reserve Equipment Report for fiscal
year 2007, more than 1,800 major Marine Corps equipment items, valued at
$94.3 million have been destroyed, and an additional 2,300 require depot
maintenance.

8 GAO, Reserve Forces: Plans Needed to Improve Army National Guard
Equipment Readiness and Better Integrate Guard into Army Force
Transformation Initiatives, GAO-06-111 (Washington, D.C.: Oct. 4, 2005).

9 Department of Defense, National Guard and Reserve Equipment Report for
Fiscal Year 2007 (Washington, D.C.: Feb. 2006).

10 GAO, Reserve Forces: An Integrated Plan Is Needed to Address Army
Reserve Personnel and Equipment Shortages, GAO-05-660 (Washington, D.C.:
July 12, 2005).

Potential Requirements for Transferring Equipment and Providing Logistical
Support to the Iraqi Security Forces Are Unclear

Future requirements to transfer equipment and provide logistical support
to the Iraqi Security Forces and the extent of required U.S. support are
unclear. In its report to Congress in April 2005, DOD stated that the
primary constraint on future maintenance processes is the lack of
equipment that is available for reset and recovery activities. DOD noted
that a large amount of equipment is being held in the theater as a
rotational pool for deploying units, and will remain in theater for the
long term. DOD noted that when hostilities cease, some of the equipment
being held in theater may be turned over to Iraqi Security Forces, if
authorized by law. In addition, some equipment will be scrapped and the
rest would be assessed for maintenance. Military service officials have
recently testified that some types of equipment may be left for Iraqi
Security Forces, and cited concerns with supporting that equipment in the
future. Until the determination of what equipment will be given to the
Iraqi Security Forces is made, it will be difficult to determine what will
be available for reset. As the United States military draws down its
combat forces, any continued logistical support using equipment such as
wheeled vehicles and helicopters will have to come from the Army or Marine
Corps and will have to be factored into plans for reset and
reconstitution.

Lack of Comprehensive Sustainment, Modernization, and Replacement Strategies for
Certain Army and Marine Corps Equipment Items

We have previously reported that, for certain equipment items, the Army
and Marine Corps have not developed complete sustainment, modernization,
and replacement strategies or identified funding needs for all priority
equipment items such as the Army Bradley Fighting Vehicle and Marine Corps
CH-46E Sea Knight Helicopter.11 Given that funding for the next several
years to sustain, modernize, and replace aging equipment will compete for
funding with other DOD priorities, such as current operations, force
structure changes, and replacement system acquisitions, the lack of
comprehensive equipment strategies may limit the Army's and Marine Corps's
abilities to secure required funds. Furthermore, until the services
develop these plans, Congress will be unable to ensure that DOD's budget
decisions address deficiencies related to key military equipment.

11 GAO, Military Readiness: DOD Needs to Reassess Program Strategy,
Funding Priorities, and Risks for Selected Equipment, GAO-04-112
(Washington, D.C.: Dec. 19, 2003).

We first reported in 2003 that the condition of 25 selected military
equipment items varied from very good to very poor and that, although the
services had program strategies for sustaining, modernizing, or replacing
most of the items reviewed, there were gaps in some of those strategies.
Since this report, DOD's continued operations in Iraq and Afghanistan have
resulted in additional wear and tear on military equipment. Given
continued congressional interest in the wear and tear being placed on
military equipment and the funding needed to reconstitute the equipment,
we issued a follow up report in October 2005 in which we assessed the
condition, program strategies, and funding plans for 30 military equipment
items, including 18 items from our December 2003 report. With respect to
these 30 selected equipment items, we identified that the military
services had not fully identified near- and long-term program strategies
and funding plans to ensure that all of these items can meet requirements.
For many of the equipment items included in our assessment, average fleet
wide readiness rates had declined, generally due to the high pace of
recent operations or the advanced age or complexity of the systems.
Although selected equipment items have been able to meet wartime
requirements, the high pace of recent operations appears to be taking a
toll on selected items and fleet wide mission capable rates have been
below service targets, particularly in the Army and Marine Corps. For
example, the Army's Bradley Fighting Vehicle, Abrams Tank, and AH-64A/D
Apache Helicopter, and the Marine Corps's Light Armored Vehicle and Sea
Knight Helicopter were assessed as warranting additional attention by DOD
or the military services due to the high pace of operations increasing
utilization beyond planned usage. Furthermore, according to officials, the
full extent of the equipment items' degradation will not be known until a
complete inspection of the deployed equipment is performed.

Marine Corps legacy aviation equipment in use faces special readiness
challenges due to the increased usage rates coupled with the absence of
new production of that equipment. Existing equipment must be maintained
and managed to provide the warfighter with needed equipment until next
generation equipment is constructed. We have recently reported severe
problems or issues that warrant immediate attention by DOD or the military
services with the near term program strategies and funding plans for the
Marine Corps CH-46E Sea Knight Helicopter program due to anticipated parts
shortages and maintenance issues, as well as potential problems with the
readiness of Marine Corps M1A1 tanks, Light Armored Vehicles, and CH-53E
helicopters stemming from the high pace of operations and increased
utilization beyond planned usage. In recent Congressional testimony,
Marine Corps officials discussed problems with a lack of active production
lines for the CH-46 and CH-53 helicopters. Given that no replacement
aircraft is available, as these platforms are lost in combat they cannot
be replaced. The Marine Corps has requested funds in the fiscal year 2006
supplemental to bring CH-53E helicopters out of desert storage and
refurbish them to replace those destroyed during current operations.

Army and Marine Corps Face Difficult Choices For Competing Equipment Programs

The Army and Marine Corps will need to make difficult choices for
competing equipment programs, such as Army modularity and equipment reset,
when considering future equipment budget requests. While the services are
working to refine overall requirements, the total requirements and costs
are unclear and raise a number of questions as to how the services will
afford them. The growing requirement for future equipment repair,
replacement, and reset will only serve to exacerbate the problem. For
example, based on our preliminary observations, the Army's cost estimate,
to create modular units has increased from $28 billion in 2004 to its
current estimate of $52.5 billion. Of that $52.5 billion, $41 billion or
78 percent has been allocated to equipment. However, our preliminary
observations also indicate that it is not clear how the Army distinguishes
between costs associated with modularity and costs for resetting equipment
used during operations. According to recent Army information, the Army's
requirement for equipment reset is more than $13 billion for fiscal year
2006. This includes funds to repair equipment in theater or at the depots,
replace battle losses, and recapitalize equipment. In fiscal year 2006
alone, the Army estimated it would need to reset about 6,000 combat
vehicles, 30,000 wheeled vehicles, 615 aircraft, and 85,000 ground support
items. In addition, according to recent Marine Corps testimony, accurately
forecasting the total cost to reset the force is dependent upon
calculations of what percentage of current inventory in theater will be
repairable or will need to be replaced, how much equipment may be left
behind for Iraqi forces, and other determinations dependent on
circumstances and conditions that cannot be easily predicted. The Army has
also indicated that additional supplemental funding will be required for
equipment reset for at least two years after hostilities cease. The Army
and Marine Corps must consider these affordability challenges in the
context of future fiscal constraints.

Depots Experience Difficulties With Executing Supplemental Appropriations
Received Late in the Fiscal Year

The Army depots received their fiscal year 2005 supplemental in the
June/July 2005 timeframe, at which time they began executing their reset
workload. Subsequently, some of these funds were later pulled back by the
AMC. According to AMC officials, the funds were pulled back from the
depots for three reasons: (1) the depots could not complete the reset
workload until several months after the end of fiscal year 2005, (2) the
funds were needed to meet other Army-wide requirements, and (3) the Army
wanted to avoid potential Congressional cuts to its fiscal year 2006
budget for depot carry over workload. In total, AMC pulled back $193
million, or about 10 percent of reset funds for fiscal year 2005 for Army
depot maintenance. According to AMC officials, the command did not use
these funds for contract depot maintenance, but rather gave them back to
Army headquarters to meet other unfunded fiscal year 2005 operation and
maintenance requirements. According to Army and Marine Corps depot
officials, receipt of funds too late in the fiscal year does not allow
timely execution of major item workload within the current fiscal year.
Given the time it takes to preposition parts and materials (at best 60
days), plus the repair cycle time to complete repairs (approximately
another 60 to 90 days for major items) there is basically little end item
production to be achieved at the depot within the fiscal year the funding
is received. Receiving the supplemental late in the year of execution
reduced the amount of planned depot maintenance work for 2005. Depot
officials anticipate that the condition may repeat itself in fiscal year
2006. For example, one Army depot reported that its planned fiscal year
2006 workload of 27 million direct labor hours will likely be reduced to
21 million hours, a reduction of 6 million, or 22 percent, of planned
direct labor hours.

Depot officials commented that the timing of the supplemental
appropriations compounds problems depots have in efficiently managing
their maintenance workload. The depots face the challenge of managing
changes in funded requirements during the year of execution, obtaining the
equipment they have programmed for overhaul, and ensuring that the right
spare parts are purchased in advance of equipment overhauls. For example,
in preparing its fiscal year 2006 supplemental budget request, AMC
included the repair of HMMWVs at its depots. The depots planned
accordingly to support this requirement. However, since the supplemental
was submitted to Congress, the Army has requested that Congress shift $480
million in HMMWV reset funds to new procurement. This change has reduced
the planned depot workload by almost 6,000 HMMWVs creating disruptions in
depots' workforce structure plans. Until the reduction, Red River depot
anticipated hiring additional employees to perform the HMMWV and Bradley
workloads, and Letterkenny Army Depot recently reduced its contract
workforce by 150 employees due to declining work on the HMMWV and the
Patriot missile system.

                            Concluding Observations

Prior to the Global War on Terror, the Department of Defense, the Army,
and the Marine Corps faced significant challenges in sustaining and
modernizing legacy equipment as well as funding the procurements of
replacement weapons systems. With the advent and continuation of military
operations over the past several years in Afghanistan and Iraq, the
challenges of sustainment and modernization of legacy weapons systems, and
procurement of new and replacement weapons systems has been significantly
exacerbated. The harsh operating environment and high operational tempo,
coupled with the operational requirement to keep equipment in theater
without significant depot repair, could lead to higher than anticipated
reset costs and more replacements than repair of equipment.

Although the precise dollar estimate for the reset of Army and Marine
Corps equipment will not be known until operations in Iraq and Afghanistan
cease, it will likely cost billions of dollars to repair and replace the
equipment used. As the funding requirements increase over time, the Army
and Marine Corps will be forced to make difficult choices and trade-offs
for the many competing equipment programs. While the services are working
to refine overall requirements, the total requirements and costs are
unclear and raise a number of questions as to how the services will afford
them. Until the services are able to firm up these requirements and cost
estimates, neither the Secretary of Defense nor the Congress will be in a
sound position to weigh the trade offs and risks.

Mr. Chairman, this concludes my statement. I would be happy to answer any
questions.

(350837)

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Highlights of GAO-06-604T , testimony before the Subcommittee on Readiness
and Subcommittee on Tactical Air and Land Forces, Committee on Armed
Services, House of Representatives

March 30, 2006

DEFENSE LOGISTICS

Preliminary Observations on Equipment Reset Challenges and Issues for the
Army and Marine Corps

The United States is engaged in an unconventional war, not a war against
military forces of one country, but an irregular war against terrorist
cells with global networks. Operations Iraqi Freedom and Enduring Freedom
are sustained military operations, which are taking a toll on the
condition and readiness of military equipment that, in some cases, is more
than 20 years old. The Army and Marine Corps will likely incur large
expenditures in the future to reset (repair or replace) a significant
amount of equipment when hostilities cease. The Army has requested about
$13 billion in its fiscal year 2006 supplemental budget request for
equipment reset.

Today's testimony addresses (1) the environment, pace of operations, and
operational requirements in Southwest Asia, and their affects on the
Army's and Marine Corps's equipping and maintenance strategies; (2)
equipment maintenance consequences created by these equipping and
maintenance strategies; and (3) challenges affecting the timing and cost
of Army and Marine Corps equipment reset.

GAO's observations are based on equipment-related GAO reports issued in
fiscal years 2004 through 2006, as well as ongoing related work.

In response to the harsh operating environments in Iraq and Afghanistan,
and the unanticipated and prolonged length and pace of sustained
operations, the Army and Marine Corps have developed and implemented
several initiatives to equip its forces and maintain the extensive amounts
of equipment in theater. Environmental factors such as heat, sand, and
dust have taken their toll on sensitive components. In addition, operating
equipment at a pace well in excess of peacetime operations is generating a
large operational maintenance and replacement requirement that must be
addressed when units return to their home stations. To meet ongoing
operational requirements, the Army and Marine Corps have developed pools
of equipment in theater to expedite the replacement of equipment damaged
during operations and directed that equipment necessary for OIF and OEF
operations remain in theater. In response, the Army and Marine Corps have
developed several initiatives to increase the maintenance capacity in
theater to be able to provide near-depot level repair capabilities.

Although the Army and Marine Corps are reporting high rates of equipment
readiness and have developed and implemented plans to increase the
maintenance capabilities in theater, these actions have a wide range of
consequences. Many of the equipment items used in Southwest Asia are not
receiving depot-level repair because equipment items are being retained in
theater or at home units and the Army has scaled back on the scope of work
performed at the depots. As a result, the condition of equipment items in
theater will likely continue to worsen and the equipment items will likely
require more extensive repair or replacement when they eventually return
to home stations.

The Army and Marine Corps will face a number of ongoing and long-term
challenges that will affect the timing and cost of equipment reset, such
as Army and Marine Corps transformation initiatives, reset of
prepositioned equipment, efforts to replace equipment left overseas from
the active, National Guard, and Reserve units, as well as the potential
transfer of U.S. military equipment and the potential for continuing
logistical support to Iraqi Security Forces. Also, both the Marine Corps
and Army will have to better align their funding requests with the related
program strategies to sustain, modernize, or replace existing legacy
equipment systems. Finally, both services will have to make difficult
choices and trade-offs when it comes to their many competing equipment
programs. While the services are working to refine overall requirements,
the total requirements and costs are unclear and raise a number of
questions as to how the services will afford them. Until the services are
able to firm up these requirements and cost estimates, neither the
Secretary of Defense nor the Congress will be in a sound position to weigh
the trade offs and risks.
*** End of document. ***