Defense Logistics: Preliminary Observations on the Army's	 
Implementation of Its Equipment Reset Strategies (31-JAN-07,	 
GAO-07-439T).							 
                                                                 
Continuing military operations in Iraq and Afghanistan are taking
a heavy toll on the condition and readiness of the Army's	 
equipment. Harsh combat and environmental conditions in theater  
over sustain periods exacerbates the wear and tear on equipment. 
Since fiscal year 2002, Congress has appropriated about $38	 
billion to the Army for the reset (repair, replacement, and	 
modernization) of equipment that has been damaged or lost as a	 
result of combat operations. As operations continue in Iraq and  
Afghanistan and the Army's equipment reset requirements increase,
the potential for reset costs to significantly increase in future
Department of Defense annual budgets also increases. For example,
the Army estimates that it will need about $12 billion to $13	 
billion per year for equipment reset until operations cease, and 
up to two years thereafter. Today's testimony addresses (1) the  
extent to which the Army can track and report equipment reset	 
expenditures in a way that confirms that funds appropriated for  
reset are expended for that purpose, and (2) whether the Army can
be assured that its equipment reset strategies will sustain	 
future equipment readiness for deployed as well as non-deployed  
units while meeting ongoing requirements. GAO's preliminary	 
observations are based on audit work performed from November 2005
through December 2006.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-439T					        
    ACCNO:   A65445						        
  TITLE:     Defense Logistics: Preliminary Observations on the Army's
Implementation of Its Equipment Reset Strategies		 
     DATE:   01/31/2007 
  SUBJECT:   Combat readiness					 
	     Cost analysis					 
	     Defense appropriations				 
	     Defense budgets					 
	     Defense cost control				 
	     Equipment maintenance				 
	     Equipment repairs					 
	     Equipment upgrades 				 
	     Government owned equipment 			 
	     Military appropriations				 
	     Military operations				 
	     Reporting requirements				 
	     Strategic planning 				 
	     Military capabilities				 
	     Afghanistan					 
	     Iraq						 

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GAO-07-439T

   

     * [1]Summary
     * [2]Background
     * [3]Army Reset Tracking System Cannot Confirm Funds Appropriated
     * [4]Army Cannot Be Assured Its Reset Strategies Will Sustain Equ

          * [5]Army Reset Strategies Do Not Target Low Levels Of Equipment
          * [6]Army Has Begun To Track Equipment Readiness But Readiness In
          * [7]Army Reset Strategies Do Not Give Priority To Unit Equipment

     * [8]Concluding Observations

          * [9]Order by Mail or Phone

Testimony

Before the Subcommittees on Readiness and Air and Land Forces, Committee
on Armed Services,House of Representatives

United States Government Accountability Office

GAO

For Release on Delivery Expected at 10:00 a.m. EST

Wednesday, January 31, 2007

DEFENSE LOGISTICS

Preliminary Observations on the Army's Implementation of Its Equipment
Reset Strategies

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

GAO-07-439T

Mr. Chairmen and Members of the Subcommittees:

Thank you for the opportunity to appear before you today to discuss the
Army's equipment planning strategies for the repair, replacement, and
modernization of equipment, collectively known as equipment reset. Our
service members are working with great courage and diligence to perform
the roles the President has asked of them. Notwithstanding their noble
efforts, equipment shortages and equipment readiness shortfalls among U.S.
Army units are of increasing concern. As operations continue in Iraq and
Afghanistan and the Army's equipment reset requirements grow, the
potential for reset costs to significantly increase in future Department
of Defense (DOD) annual budgets also grows. In addition to the billions of
dollars provided to DOD for military equipment in its yearly baseline
budgets, Congress has provided the Army with more than $38 billion in
supplemental appropriations since fiscal year 2002 for the repair,
replacement, and modernization of equipment. In fiscal year 2007 alone,
the Army has received $17.1 billion for equipment reset, almost double the
$8.6 billion in equipment reset funding the Army received in fiscal year
2006. In addition, DOD is expected to request an additional $26 billion
for reset in a subsequent fiscal year 2007 supplemental appropriation.
Army officials estimate the Army will need about $12 billion to $13
billion per year for reset until operations cease in Iraq and Afghanistan
and up to two years thereafter.

Continuing military operations in Iraq and Afghanistan are taking a toll
on the condition and readiness of military equipment. Harsh combat and
environmental conditions in theater over sustained periods of time
exacerbates equipment repair, replacement, and modernization problems that
existed before the onset of combat operations in Iraq and Afghanistan.
Upon returning from operations, equipment is reset in preparation for
future operations. Although the Army continues to meet mission
requirements and reports high readiness rates for deployed units, the lack
of equipment availability for units preparing for deployment and other
non-deployed units increases the risk to future overall readiness.

As we testified in March 2006 before the Subcommittees on Readiness and
Tactical Air and Land Forces of the House Committee on Armed Services,1
the Army will face a number of ongoing and long-term challenges that will
affect the timing and cost of equipment reset, such as Army modularity
initiatives, equipment requirements for prepositioned equipment sets;
future equipment replacement needs for active, guard, and reserve forces;
depot capacity issues, the potential transfer of U.S. military equipment
to the Iraqi Security Forces, and the possibility of continuing logistical
support for Iraqi Security Forces. We also observed that while the precise
dollar estimate for the reset of Army equipment will not be known until
operations in Iraq and Afghanistan cease, it will likely cost billions of
dollars to repair and replace equipment. While the Army is working to
refine overall requirements, the total requirements and costs are unclear
and raise a number of questions as to how the Army will afford them. We
concluded that until the Army is 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 between competing requirements
and risks associated with degraded equipment readiness.

1 GAO, Defense Logistics: Preliminary Observations on Equipment Reset
Challenges and Issues for the Army and Marine Corps, [10]GAO-06-604T
(Washington, D.C.: Mar. 30, 2006).

My statement today reflects our preliminary observations drawn from our
ongoing work on equipment reset issues, which we are performing under the
Comptroller General's authority to conduct evaluations on his own
initiative. As requested, my testimony today will focus on the Army's
equipment reset strategies for ground equipment and rotary aircraft in
both the active and reserve components. Specifically, it addresses (1) the
extent to which the Army can track and report equipment reset expenditures
in a way that confirms that funds appropriated for reset are expended for
that purpose, and (2) whether the Army can be assured that its equipment
reset strategies will sustain future equipment readiness for deployed as
well as non-deployed units while meeting ongoing requirements.

The preliminary observations we will discuss today regarding Army
equipment reset strategies are based on audit work performed from November
2005 through December 2006. We conducted our work in accordance with
generally accepted government auditing standards.

Summary

The Army cannot track or report equipment reset expenditures in a way that
confirms that funds appropriated for reset are expended for that purpose.
In order to provide effective oversight of the Army's implementation of
its equipment reset strategies and to plan for future reset initiatives,
the Congress needs to be assured that the funds appropriated for reset are
used as intended. The Army, however, is unable to confirm that the $38
billion that Congress has appropriated to the Army since fiscal year 2002
for equipment reset has been obligated and expended for reset. Because
equipment reset was not identified as a separate program within the
budget, it was grouped together with other equipment-related line items in
the O&M and Procurement accounts. The Conference Report accompanying the
Department of Defense Appropriations Act for 20072 directed the Secretary
of Defense to provide periodic reports to congressional defense committees
which include a detailed accounting of obligations and expenditures of
appropriations provided in Title IX of the act by program and subactivity
group. According to the Conference Report, the conferees have provided
$17.1 billion in additional reset funding for the Army in Title IX. The
Army has established a subactivity group for reset, and, according to Army
officials, beginning in fiscal year 2007, the Army has begun to track
reset obligations and expenditures by subactivity group. However, based on
our analysis, the Army's reset tracking system does not provide sufficient
detail to provide Congress with the visibility it needs to provide
effective oversight. In addition, because the Army has not historically
tracked the execution of its reset appropriations, it does not have
historical execution data. As we have previously reported, historical
execution data would provide a basis for estimating future funding needs.3
The Congressional Budget Office has also recently testified that better
estimates of future reset costs could be provided to Congress if more
information was available on expenditures incurred to date.4 Without
historical execution data, the Army must rely on assumptions and models
based on its own interpretations of the definition of reset, and may be
unable to submit accurate budget requests to obtain future reset funding.

The Army cannot be assured its reset strategies will sustain equipment
availability for deployed as well as non-deployed units while meeting
ongoing operational requirements. The Army's primary objective for
equipment reset is to equip units preparing for deployment. However, the
Army's reset strategy does not specifically target low levels of equipment
on hand among unit's preparing for deployment. Although deployed Army
units generally report high readiness rates, the Army continues to be
faced with increasing levels of operational risk due to low levels of
equipment on hand among units preparing for deployment. According to the
Army's fiscal year 2007 framework for reset and the Army's Force
Generation (ARFORGEN) implementation strategy, the goal of reset is to
prepare units for deployment and to improve next-to-deploy unit's
equipment on hand levels. However, since the Army's current reset planning
process is based on resetting equipment that it expects will be returning
to the United States in a given fiscal year, and not based on an aggregate
equipment requirement to improve the equipment on hand levels of deploying
units, the Army cannot be assured that its reset programs will provide
sufficient equipment to train and equip deploying units for ongoing and
future GWOT requirements. According to November 2006 Army readiness
reports, deployed units and units preparing for deployment reported low
levels of equipment on hand, as well as specific equipment item shortfalls
that affect their abilities to carry out their missions. As of fiscal year
2007, Army officials stated they have begun to track the equipment
readiness of returning units and units approaching deployment in an effort
to assess the effectiveness of their reset efforts. To do this, Army
leaders plan to examine the equipment serviceability of units that
recently returned from deployment that are resetting and the equipment on
hand for units preparing to deploy5. However, these readiness indicators
such as equipment on hand and equipment serviceability are of limited
value in assessing the effectiveness of reset. Specifically, equipment on
hand measures required levels of equipment against the primary mission for
which the unit was designed, which may be much different than the unit's
directed GWOT mission, and equipment serviceability ratings may be high,
even if equipment on hand levels are very low. For example, the Army plans
to recapitalize more than 7,500 High Mobility, Multi-Purpose Wheeled
Vehicles (HMMWV) in fiscal year 2007 at a cost of $455 million. While the
Army's HMMWV recapitalization activities may raise overall HMMWV equipment
on hand levels of non-deployed units in the United States, Army officials
have stated that this recapitalization program will not directly provide
HMMWVs to train or equip units deploying for OIF missions. Specifically,
the unarmored HMMWVs produced by the recapitalization program are not
being deployed to the OIF theater due to inadequate force protection and
have limited training value to deploying units primarily because the
unarmored HMMWVs have different handling characteristics and
configurations than the armored HMMWVs used in Iraq. Furthermore, the
Army's reset strategies do not ensure that the repairing, replacing, and
modernizing of equipment needed to support units that are preparing for
deployment are being given priority over other longer-term equipment
needs, such as equipment modernization in support of the Army's modularity
initiative. For example, the Army's FY 2007 reset strategy includes plans
to accelerate modernization of Abrams Tanks and Bradley Fighting Vehicles
to accelerate achieving long-term strategic goals under the Army's
modularity initiative.

2 H.R. Conf. Rep. No. 109-676, at 359 (2006), which accompanied the
Department of Defense Appropriations Act, 2007, Pub. L. No. 109-289
(2006).

3 GAO, Global War on Terrorism: Fiscal Year 2006 Obligation Rates Are
Within Funding Levels and Significant Multiyear Procurement Funds Will
Likely Remain Available for Use in Fiscal Year 2007, [11]GAO-07-76
(Washington, D.C.: Nov. 13, 2006); and GAO, Defense Management: Processes
to Estimate and Track Equipment Reconstitution Costs Can Be Improved,
[12]GAO-05-293 (Washington, D.C.: May 5, 2005).

4 Congressional Budget Office, Issues in Budgeting for Operations in Iraq
and the War on Terrorism (Washington, D.C.: Jan. 18, 2007).

5 Equipment on hand is a readiness measurement based on the quantity and
type of required equipment that is available to a unit for the execution
of the unit's primary mission. Equipment serviceability is based on the
condition of equipment the unit has on hand.

Background

As a result of operations related to OIF, the Army continues to face an
enormous challenge to reset its equipment. This is due to the increased
usage of equipment, pace of operations, and the amount of equipment to be
reset. At the onset of operations in March 2003, the Army deployed with
equipment that in some cases was already more than 20 years old. As of
January 2007, the Army has about 25 percent of total on-hand wheeled and
tracked vehicles and about 19 percent of rotary wing aircraft deployed to
the OIF/Operation Enduring Freedom (OEF) theater as shown in table 1.

Table 1. Comparison of Army Ground Equipment and Rotary Aircraft Deployed
to OIF/OEF Theater and the Total Equipment On Hand as of January 2007

                             Total In OIF/OEF               Percent Equipment 
                                      Theater Total On Hand          Deployed 
Wheeled Vehicles                                                           
HEMTT                                 3282         12836                26 
HET                                    912          2394                38 
HMMWV                                23818         95970                24 
Tracked Vehicles                                                           
Bradley                                679          3021                22 
Abram                                  366          3406                11 
M88                                    192          1832                10 
Total Wheeled & Tracked              29249        119459                24 
Vehicles                                                                   
Rotary Wing A/C                                                            
AH-64A/D                               120           689                17 
CH-47D                                  63           392                16 
OH-58D                                  60           354                17 
UH-60A/L                               293          1362                21 
Total Rotary Wing                      536          2797                19 
Aircraft                                                                   

Source: Army G-8

As we stated in our March 2006 testimony, the Army is operating this
equipment at a pace well in excess of peacetime operations. The harsh
operating environments in Iraq and environmental factors such as heat,
sand, and dust have taken a toll on sensitive components. Troop levels and
the duration of operations are also factors that affect equipment reset
requirements.

The Army defines reset as the repair, recapitalization, and replacement of
equipment. Repairs can be made at the field level or national (depot)
level. Army field level maintenance is intended to bring equipment back to
the 10/20 series Technical Manual standard, is done by soldiers augmented
by contractors, as required, and is usually performed at installations
where the equipment is stationed.6 National level maintenance is work
performed on equipment that exceeds field level reset capabilities.
National Level maintenance may be done at Army depots, by contractors, by
installation maintenance activities, or a combination of the three, and is
coordinated by the Army Material Command. The Army Chief of Staff
testified in June 2006 that, as of that point in time, the Army had reset
over 1,920 aircraft, 14,160 tracked vehicles, and 110,800 wheeled
vehicles, as well as thousands of other items. He further stated that the
Army expected to have placed about 290,000 major items in reset by the end
of fiscal year 2006.7

6 Army reset does not include contractor logistics support for equipment
readiness, field level maintenance required to keep equipment operational,
or the replacement of ammunition.

7 Gen. Peter J. Schoomaker, Chief of Staff of the Army, Army's Reset
Strategy and Plan for Funding Reset Requirements, Statement before
Committee on Armed Services, U.S. House of Representatives (June 27,
2006).

Recapitalization includes rebuilding of equipment which could include:
extending service life, reducing operating and support costs, enhancing
capability, and improving system reliability. The Army recapitalizes
equipment either at Army Materiel Command depots or arsenals, the original
equipment manufacturer, or a partnership of the two. Replacement includes
buying new equipment to replace confirmed battle losses, washouts,
obsolete equipment, and critical equipment deployed and left in theater
but needed by reserve components for homeland defense/homeland security
missions.

Army reset funding includes ground and aviation equipment, combat losses,
and prepositioned equipment. The Army funds field level and some depot
level maintenance from the operation & maintenance (O&M) appropriations,
while procurement appropriations fund most recapitalization and all
procurement of new equipment as part of reset. The Army's fiscal year 2007
reset execution plan includes about 46 percent O&M funding and 54 percent
procurement funding. Table 2 provides a breakdown of Army equipment reset
execution plans for fiscal year 2007.

Table 2: Army Fiscal Year 2007 Reset Execution Plans

                                                   Army            
                                Amount of reset funding(dollars in Percent of 
Reset Category                                        billions)      total 
Repair (O&M):                                              $7.8         46 
Field level Maintenance                                     3.7            
Depot level Maintenance                                     4.1            
Recapitalization                                            4.3         25 
Replacement (Procurement)                                   5.0         29 
Total fiscal year 2007                                    $17.1        100 
funding1                                                                   

Source: Army G-8

Under the Army's framework for training and equipping units for
deployments, known as the Army Force Generation Model (ARFORGEN), reset
begins when units return from their deployments and concludes prior to a
unit's being made available for subsequent missions. Reset is intended to
be a demand-based process, focused on operational requirements of the
combatant commander, to rapidly return Army materiel to units preparing
for subsequent operations in order to meet current and future combatant
commander demands. Next-to-deploy units are identified and intended to
receive first priority for distribution of equipment emerging from reset
programs per the Army's Resource Priority List8. The Army's fiscal year
2007 reset policy states that the primary driver in equipment reset
operations is the rapid return of Army materiel to units preparing for
subsequent operations as specified by the Army Resource Priority List
(ARPL), a process that should lead to improved equipment readiness over
time.

To develop its fiscal year 2007 reset execution plan, the Army examined
the types and quantities of equipment held by deployed units overseas and
estimated what equipment they expected to return from overseas theaters to
unit home stations or Army depots for reset. Depending on the required
work, and whether upgrades and modernizations are planned, item-by-item
determinations were made on what level of maintenance the equipment would
receive as part of its reset. Due to the complexity and quantity of the
maintenance required, some equipment items are automatically sent to one
of the Army's depots. For example, returning Abrams tanks and Bradley
Fighting vehicles are automatically inducted into depot level reset
programs due to the quantity and complexity of their reset maintenance.
For each equipment item expected to return from overseas theaters for
reset in a given fiscal year, the Army estimates a per unit cost of the
planned reset activity, and multiplies that cost by the number of items
expected to returned and be available for reset. The total Army reset
funding requirement for a given fiscal year is determined by aggregating
all of these costs to include all equipment expected to return from
overseas theaters.

Army Reset Tracking System Cannot Confirm Funds Appropriated for Reset are
Expended for that Purpose

The Army cannot track or report equipment reset expenditures in a way that
confirms that funds appropriated for reset are expended for that purpose.
In order to provide effective oversight of the Army's implementation of
its equipment reset strategies and to plan for future reset initiatives,
the Congress needs to be assured that the funds appropriated for reset are
used as intended. The Army, however, is unable to confirm that the $38
billion that Congress has appropriated to the Army since fiscal year 2002
for equipment reset has been obligated and expended for reset. Because
equipment reset was not a separate program within the budget, it was
grouped together with other equipment-related line items in the O&M and
Procurement accounts. The Conference Report accompanying the Department of
Defense Appropriations Act for 20079 directed the Secretary of Defense to
provide periodic reports to congressional defense committees which include
a detailed accounting of obligations and expenditures of appropriations
provided in Title IX of the act by program and subactivity group.
According to the Conference Report, the conferees have provided $17.1
billion in additional reset funding for the Army in Title IX. The Army has
established a subactivity group for reset, and, according to Army
officials, beginning in fiscal year 2007, the Army has begun to track
reset obligations and expenditures by subactivity group. However, based on
our analysis, the Army's reset tracking system does not provide sufficient
detail to provide Congress with the visibility it needs to provide
effective oversight. For example, the Army's tracking system compares what
they have executed by month to their obligation plan at a macro level.
Unlike the annual baseline budget requests which include details within
each subactivity group, the Army's O&M monthly reset report does not
provide details of the types of equipment repaired. Likewise, the
Procurement report does not itemize the types of equipment replaced or
recapitalized. As a result, the Army is not in a position to tell Congress
how they have expended the funds they have received to repair, replace,
and recapitalize substantial amounts of damaged equipment. Because funds
for reset are generally recorded in the same appropriation accounts as
other funds that are included in the baseline budget, it is difficult to
determine what is spent on reset and what is spent on routine equipment
maintenance. In addition, because the Army has not historically tracked
the execution of its reset appropriations, it does not have historical
execution data. As we have previously reported, historical execution data
would provide a basis for estimating future funding needs.10 The
Congressional Budget Office has also recently testified that better
estimates of future reset costs could be provided to Congress if more
information was available on expenditures incurred to date.11 Without
historical execution data, the Army must rely on assumptions and models
based on its own interpretations of the definition of reset, and may be
unable to submit accurate budget requests to obtain reset funding in the
future.

8 The Army Resource Priority List specifies the order in which Army units
have precedence for distribution of resource. Generally, units closer to
deployment dates have the highest priority.

9 H.R. Conf. Rep. No. 109-676, at 359 (2006), which accompanied the
Department of Defense Appropriations Act, 2007, Pub. L. No. 109-289
(2006).

10 [13]GAO-07-76 ; [14]GAO-05-293 .

11 Congressional Budget Office, Issues in Budgeting for Operations in Iraq
and the War on Terrorism (Washington, D.C.: Jan. 18, 2007).

Army Cannot Be Assured Its Reset Strategies Will Sustain Equipment Availability
While Meeting Ongoing Operational Requirements

The Army cannot be assured its reset strategies will sustain equipment
availability for deployed as well as non-deployed units while meeting
ongoing operational requirements. The Army's primary objective for
equipment reset is to equip its deployed forces and units preparing for
deployment. However, the Army's reset strategy does not specifically
target low levels of equipment on hand among units preparing for
deployment. Furthermore, the Army's reset strategies do not ensure that
the repairing, replacing, and modernizing of equipment needed to support
units that are preparing for deployment are giving priority over other
longer-term equipment needs, such as equipment modernization in support of
the Army's modularity initiative.

Army Reset Strategies Do Not Target Low Levels Of Equipment On Hand To Mitigate
Operational Risk

The Army's reset strategies do not specifically target low levels of
equipment on hand among units preparing for deployment in order to
mitigate operational risk. The Army continues to be faced with increasing
levels of operational risk due to low levels of equipment on hand among
units preparing for deployment. According to the Army's fiscal year 2007
framework for reset and the Army's ARFORGEN implementation strategy, the
primary goal of reset is to prepare units for deployment and to improve
next-to-deploy units' equipment on hand levels. Units preparing for
deployment are intended to attain a prescribed level of equipment on hand
within forty-five days prior to their mission readiness exercise, which is
intended to validate the unit's preparedness for its next deployment.
However, since the Army's reset planning process is based on resetting the
equipment that will be returning to the United States in a given fiscal
year, and not based on an aggregate equipment requirement to improve the
equipment on hand levels of deploying units, the Army cannot be assured
that its reset programs will provide sufficient equipment to train and
equip deploying units for ongoing and future GWOT requirements, which may
lead to increasing levels of operational risk.

Army Has Begun To Track Equipment Readiness But Readiness Indicators Are of
Limited Value

As of fiscal year 2007, Army officials stated they have begun to track the
equipment readiness of returning units and units approaching deployment
dates in an effort to assess the effectiveness of their reset efforts. To
do this, Army leaders plan to examine the equipment serviceability of
units that recently returned from deployed that are resetting and the
equipment on hand for units preparing to deploy. However, these readiness
indicators such as equipment on hand and equipment serviceability are of
limited value in assessing the effectiveness of reset. For example,
equipment on hand measures required levels of equipment against the unit's
primary mission which may be much different than the unit's directed GWOT
mission. In addition, a unit's equipment serviceability ratings may be
reported as acceptable, even if equipment on hand levels are very low12.
For example, the Army plans to induct 7,500 High Mobility, Multi-Purpose
Wheeled Vehicles (HMMWV) into depot level recapitalization programs in
2007 at a cost of $455 million. The Army intends to use these HMMWVs to
fill gaps in the Army's force structure to allow units to train and
perform homeland security missions. However, according to Army officials,
the HMMWVs that emerge from this recapitalization program will not be
suitable for use in the OIF theater because they will not be armored and,
thus, will not provide protection from sniper fire and mine blasts. The
unarmored M1097R1 HMMWVs will not offer the same level of force protection
as the M1114 Uparmored HMMWV, and do not have the M1114's rooftop weapons
station. According to Army officials, only fully armored HMMWVs are being
deployed to the OIF theater. While the Army's HMMWV recapitalization
activities may raise overall HMMWV equipment on hand levels of
non-deployed units in the United States, they will not directly provide
HMMWVs to equip units deploying for OIF missions, or allow them to train
on vehicles similar to those they would use while deployed. According to
November 2006 Army readiness data, deployed units, and units preparing for
deployment report low levels of equipment on hand, as well as specific
equipment item shortfalls that affect their ability to carry out their
missions. Army unit commanders preparing for deployments may subjectively
upgrade their unit's overall readiness levels13, which may result in
masking the magnitude of equipment shortfalls. Since 2003, deploying units
have continued to subjectively upgrade their overall readiness as they
approach their deployment dates, despite decreasing overall readiness
levels among those same units. This trend is one indicator of the
increasing need for Army leaders to carefully balance short-term
investments as part of reset to ensure overall readiness levels remain
acceptable to sustain current global requirements. Until this is done, the
Army cannot be assured that their plans will achieve the stated purpose of
their reset strategy for 2007, or in future years, to restore the
capability of the Army to meet current and future operational demands.

12 Units report their readiness using overall C-level ratings, which are
based on assessments of their equipment on hand, equipment serviceability,
training, and personnel levels. These assessments are made against the
unit's Table of Organization and Equipment, which prescribes the wartime
mission, capabilities, organizational structure, and equipment
requirements for which the unit was designed, which may be different than
its directed mission supporting operations in Iraq or Afghanistan.

13 Army units assigned directed missions can subjectively report their
readiness for upcoming deployment using "percent effective" ratings. These
reflect the unit commander's subjective assessment of the unit's ability
to perform its mission.

Army Reset Strategies Do Not Give Priority To Unit Equipment Needs Over
Longer-Term Equipment Needs

The Army's reset strategies do not ensure that the repairing, replacing,
and modernizing of equipment needed to support units that are preparing
for deployment are given priority over other longer-term equipment needs,
such as equipment modernization in support of the Army's modularity
initiative. Army reset strategies are primarily intended to be based on
plans for repairing, recapitalizing, or replacing equipment returning from
overseas theaters in a given fiscal year. However, in addition to meeting
these short term requirements, the Army's reset strategy has included
funding requests for certain items to accelerate achieving longer-term
strategic goals under the Army's modularity initiative. For example, in
addition to the planned fiscal year 2007 national level reset of almost
500 tanks and more than 300 Bradleys expected to return from the OIF
theater, the Army also intends to spend approximately $2.4 billion in
fiscal year 2007 reset funds to take more than 400 Abrams tanks and more
than 500 Bradley Fighting Vehicles from long-term storage or from units
that have already received modernized Bradleys for depot level upgrades.
These recapitalizations will allow the Army to accelerate their progress
in achieving a modular force structure14 by providing modernized Abrams
and Bradley vehicles to several major combat units 1 or 2 years ahead of
schedule. The Army believes achieving these modularity milestones for
Abrams tanks and Bradley Fighting Vehicles will achieve greater
commonality in platforms that will enable force generation efforts and
reduce overall logistical and financial requirements by reducing the
number of variants that must be supported.

Concluding Observations

Since fiscal year 2002, Congress has appropriated approximately $38
billion for Army equipment reset. In addition, the Army estimates that
future funding requirements for equipment reset will be about $12 to $13
billion per year for the foreseeable future. To ensure that these funds
are appropriately used for the purposes intended and to provide the
Congress with the necessary information it needs to provide effective
oversight, the Army will need to be able to track and report the
obligation and expenditure of these funds at a more detailed level than
they have in the past. We do not believe that the reporting format the
Army developed for tracking and reporting this data for fiscal year 2007
is sufficiently detailed to provide Congress with the visibility it needs
to provide effective oversight.

14 The Army Modular Heavy Brigade Combat Team (HBCT) force structure calls
for 31 HBCTs equipped with combinations to two different types of Abrams
Tanks and Bradley Fighting Vehicles. Seventeen HBCTs would be equipped
with the digitized Abrams M1A2 System Enhancement Program (SEP) tanks and
digitized M2A3 Bradley Fighting Vehicles. The remaining fourteen HBCTs
would be equipped with the Abrams M1A1 Abrams Integrated Management (AIM)
and Bradley Operation Desert Storm (ODS) upgraded vehicles.

Also, the Army's reset strategies need to ensure that priority is given to
repairing, replacing, and modernizing the equipment that is needed to
equip units preparing for deployment. The current low levels of equipment
on hand for units that are preparing for deployment could potentially
decrease overall force readiness if equipment availability shortages are
not filled prior to these units' deployments.

Lastly, as the Army moves forward with equipment reset, it will need to
establish more transparent linkages among the objectives of its reset
strategies, the funds requested for reset, the obligation and expenditure
of appropriated reset funds, and equipment requirements and related reset
priorities.

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

(350737)

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Highlights of [22]GAO-07-439T , testimony before the Subcommittee on
Readiness and the Subcommittee on Air and Land Forces, Committee on Armed
Services, House of Representatives

January 31, 2007

DEFENSE LOGISTICS

Preliminary Observations on the Army's Implementation of Its Equipment
Reset Strategies

Continuing military operations in Iraq and Afghanistan are taking a heavy
toll on the condition and readiness of the Army's equipment. Harsh combat
and environmental conditions in theater over sustain periods exacerbates
the wear and tear on equipment. Since fiscal year 2002, Congress has
appropriated about $38 billion to the Army for the reset (repair,
replacement, and modernization) of equipment that has been damaged or lost
as a result of combat operations. As operations continue in Iraq and
Afghanistan and the Army's equipment reset requirements increase, the
potential for reset costs to significantly increase in future Department
of Defense annual budgets also increases. For example, the Army estimates
that it will need about $12 billion to $13 billion per year for equipment
reset until operations cease, and up to two years thereafter.

Today's testimony addresses (1) the extent to which the Army can track and
report equipment reset expenditures in a way that confirms that funds
appropriated for reset are expended for that purpose, and (2) whether the
Army can be assured that its equipment reset strategies will sustain
future equipment readiness for deployed as well as non-deployed units
while meeting ongoing requirements.

GAO's preliminary observations are based on audit work performed from
November 2005 through December 2006.

The Army cannot track or report equipment reset expenditures in a way that
confirms that funds appropriated for reset are expended for that purpose.
In order to provide effective oversight of the Army's implementation of
its equipment reset strategies and to plan for future reset initiatives,
the Congress needs to be assured that the funds appropriated for reset are
used as intended. The Army, however, is unable to confirm that the $38
billion that Congress has appropriated to the Army since fiscal year 2002
for equipment reset has been obligated and expended for reset. Because
equipment reset had not been identified as a separate program within the
budget, it was grouped together with other equipment-related line items in
the O&M and Procurement appropriations. With the enactment of the Fiscal
Year 2007 Appropriations Act, Congress directed DOD to provide a detailed
accounting of obligations and expenditures by program and subactivity
group. The Army has established a subactivity group for reset, and,
according to Army officials, beginning in fiscal year 2007, the Army has
begun to track reset obligations and expenditures by subactivity group.
However, based on our analysis, the Army's reset tracking system does not
provide sufficient detail to provide Congress with the visibility it needs
to provide effective oversight.

The Army cannot be assured its reset strategies will sustain equipment
availability for deployed as well as non-deployed units while meeting
ongoing operational requirements. The Army's primary objective for
equipment reset is to equip units preparing for deployment. However, the
Army's reset strategy does not specifically target low levels of equipment
on hand among units preparing for deployment. Although deployed Army units
generally report high readiness rates, the Army continues to be faced with
increasing levels of operational risk due to low levels of equipment on
hand among units preparing for deployment. According to the Army's fiscal
year 2007 framework for reset and the Army's Force Generation model
implementation strategy, the goal of reset is to prepare units for
deployment and to improve next-to-deploy unit's equipment on hand levels.
However, since the Army's current reset planning process is based on
resetting equipment that it expects will be returning to the United States
in a given fiscal year, and not based on an aggregate equipment
requirement to improve the equipment on hand levels of deploying units,
the Army cannot be assured that its reset programs will provide sufficient
equipment to train and equip deploying units for ongoing and future
requirements for the Global War on Terrorism. The Army has recently begun
to track the equipment readiness of returning units and units approaching
deployment in an effort to assess the effectiveness of their reset
efforts. However, these readiness indicators are of limited value in
assessing the effectiveness of reset because they do not measure the
equipment on hand levels against the equipment that the units actually
require to accomplish their directed missions in Iraq and Afghanistan.

References

Visible links
  10. http://www.gao.gov/cgi-bin/getrpt?GAO-06-604T
  11. http://www.gao.gov/cgi-bin/getrpt?GAO-07-76
  12. http://www.gao.gov/cgi-bin/getrpt?GAO-05-293
  13. http://www.gao.gov/cgi-bin/getrpt?GAO-07-76
  14. http://www.gao.gov/cgi-bin/getrpt?GAO-05-293
  22. http://www.gao.gov/cgi-bin/getrpt?GAO-07-439T
*** End of document. ***