Force Structure: Restructuring and Rebuilding the Army Will Cost 
Billions of Dollars for Equipment but the Total Cost Is Uncertain
(10-APR-08, GAO-08-669T).					 
                                                                 
The high pace of overseas operations is taking a heavy toll on	 
Army equipment. Harsh combat and environmental conditions over	 
sustained periods of time have exacerbated equipment repair,	 
replacement, and recapitalization problems. The Army has also	 
taken steps to restructure its forces before implementing its	 
longer term transformation to the Future Combat System. To	 
support ongoing operations and prepare for the future, the Army  
has embarked on four key initiatives: (1) restructuring from a	 
division-based force to a modular brigade-based force, (2)	 
expanding the Army by adding about 74,000 people and creating new
units, (3) repairing, replacing, and recapitalizing new equipment
through its reset program, and (4) replacing equipment borrowed  
from its pre-positioned equipment sets around the world. Since	 
2004, Congress has provided billions of dollars to support the	 
Army's equipping needs. GAO has issued many reports on the Army's
efforts to equip modular units, expand the Army, reset equipment,
and manage and replace prepositioned equipment. This statement,  
which draws largely on these reports, will address (1) the	 
equipment-related cost of these initiatives, and (2) the	 
management challenges facing the Army and the actions needed to  
improve its implementation of these initiatives. GAO is issuing a
separate statement today on the Future Combat System (GAO-08-	 
638T).								 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-669T					        
    ACCNO:   A81636						        
  TITLE:     Force Structure: Restructuring and Rebuilding the Army   
Will Cost Billions of Dollars for Equipment but the Total Cost Is
Uncertain							 
     DATE:   04/10/2008 
  SUBJECT:   Armed forces abroad				 
	     Armed forces reserves				 
	     Army personnel					 
	     Cost analysis					 
	     Cost control					 
	     Defense capabilities				 
	     Equipment maintenance				 
	     Equipment management				 
	     Equipment repairs					 
	     Force planning					 
	     Force structure					 
	     Military cost control				 
	     Military forces					 
	     Military operations				 
	     Military personnel 				 
	     Military personnel retention			 
	     Military procurement				 
	     Military training					 
	     Protective equipment				 
	     Reporting requirements				 
	     Strategic forces					 
	     Strategic planning 				 
	     Cost estimates					 
	     Army Future Combat Systems 			 

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GAO-08-669T

   

     * [1]Summary
     * [2]Background
     * [3]Total Costs to Fully Equip the Army Are Uncertain

          * [4]Information on Army Equipping-Related Costs for Key Initiati
          * [5]Army Has Made Progress in Establishing Modular Units but Mee
          * [6]Equipment Costs to Expand the Force Are Significant
          * [7]Equipment Reset Costs Are Growing
          * [8]Timing and Cost of Reconstituting Prepositioned Stocks Is Un

     * [9]The Army Lacks a Strategic Approach That Promotes Transparen

          * [10]Lack of Clear Linkage between Equipment Requirements and Fun
          * [11]Actions Needed to Improve Management Controls and Improve Tr

     * [12]Concluding Observations
     * [13]Contacts and Acknowledgments
     * [14]Related GAO Products

          * [15]Order by Mail or Phone

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Testimony: 

Before the Subcommittee on Tactical Air and Land Forces, Committee on 
Armed Services, House of Representatives: 

United States Government Accountability Office: 
GAO: 

For Release on Delivery: 
Expected at 2:00 p.m. EST:
Thursday, April 10, 2008: 

Force Structure: 

Restructuring and Rebuilding the Army Will Cost Billions of Dollars for 
Equipment but the Total Cost Is Uncertain: 

Statement of Janet A. St. Laurent:
Managing Director, Defense Capabilities and Management: 

GAO-08-669T: 

GAO Highlights: 

Highlights of GAO-08-669T, a testimony before the Subcommittee on Air 
and Land Forces, Committee on Armed Services, House of Representatives. 

Why GAO Did This Study: 

The high pace of overseas operations is taking a heavy toll on Army 
equipment. Harsh combat and environmental conditions over sustained 
periods of time have exacerbated equipment repair, replacement, and 
recapitalization problems. The Army has also taken steps to restructure 
its forces before implementing its longer term transformation to the 
Future Combat System. To support ongoing operations and prepare for the 
future, the Army has embarked on four key initiatives: (1) 
restructuring from a division-based force to a modular brigade-based 
force, (2) expanding the Army by adding about 74,000 people and 
creating new units, (3) repairing, replacing, and recapitalizing new 
equipment through its reset program, and (4) replacing equipment 
borrowed from its pre-positioned equipment sets around the world. Since 
2004, Congress has provided billions of dollars to support the Armyï¿½s 
equipping needs. 

GAO has issued many reports on the Armyï¿½s efforts to equip modular 
units, expand the Army, reset equipment, and manage and replace 
prepositioned equipment. This statement, which draws largely on these 
reports, will address (1) the equipment-related cost of these 
initiatives, and (2) the management challenges facing the Army and the 
actions needed to improve its implementation of these initiatives. GAO 
is issuing a separate statement today on the Future Combat System (GAO-
08-638T). 

What GAO Found: 

Restructuring and rebuilding the Army will require billions of dollars 
for equipment and take years to complete; however, the total cost is 
uncertain. Based on GAOï¿½s analysis of Army cost estimates and cost 
data, it appears that the Armyï¿½s plans to equip modular units, expand 
the force, reset equipment, and replace prepositioned equipment are 
likely to cost at least $190 billion dollars through fiscal year 2013. 
However, these estimates have some limitations and could change. 
Further, the Army has stated it plans to request additional funds to 
address equipment shortfalls in modular units through fiscal year 2017. 
Several factors are contributing to the uncertainties about future 
costs. First, the Armyï¿½s $43.6 funding plan for equipping modular units 
was based on preliminary modular unit designs and did not fully 
consider the needs of National Guard units. Second, the Army expects to 
need $18.5 billion for equipment to expand the force but has not 
clearly documented this estimate. Third, costs to reset equipment may 
total at least $118 billion from fiscal years 2004-2013 but may change 
because they are dependent on how much equipment is lost, damaged, or 
worn beyond repair during continuing operations in Iraq and Afghanistan 
and how long these operations continue. Fourth, the Army believes it 
will need at least $10.6 billion to replace pre-positioned equipment 
that was taken out of storage to support ongoing operations, but this 
amount is an estimate and DODï¿½s overall strategy for prepositioned 
equipment has not yet been issued Given the magnitude of these 
initiatives and potential for costs to change, DOD will need to 
carefully monitor the projected costs of these initiatives so that it 
can consider tradeoffs and allocate funding to balance the Armyï¿½s 
equipping needs for the next decade and longer term transformation 
goals. 

A common theme in GAOï¿½s work has been the need for DOD and the Army to 
take a more strategic approach to decision making that promotes 
transparency and ensures that programs and investments are based on 
sound plans with measurable, realistic goals and time frames, 
prioritized resource needs, and performance measures to gauge progress. 
GAOï¿½s work on modular restructuring has shown a lack of linkage between 
the Armyï¿½s funding requests and equipment requirements. This lack of 
linkage impedes oversight by DOD and Congress because it does not 
provide a means to measure the Armyï¿½s progress in meeting modular force 
equipment requirements or inform budget decisions. Oversight of Army 
initiatives has also been complicated by multiple funding requests that 
makes it difficult for decision makers to understand the Armyï¿½s full 
funding needs. GAO has recommended a number of actions to improve 
management controls and enhance transparency of the Armyï¿½s plans for 
equipping modular units, expanding the force, resetting equipment, and 
replacing prepositioned equipment. However, many of these 
recommendations have not been fully implemented or adopted. For 
example, until the Army provides a comprehensive plan for its modular 
restructuring and expansion initiatives, which identifying progress and 
total costs, decision makers may not have sufficient information to 
assess progress and allocate defense resources among competing 
priorities. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-669T]. For more 
information, contact Janet A. St. Laurent at (202) 512-4402 or 
[email protected]. 

[End of section] 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss issues related to Army 
equipment in light of the high pace and long duration of operations in 
Iraq and Afghanistan as well as the Army's plans to modernize and 
transform its capabilities. The Army has undertaken a number of 
initiatives to restructure and rebuild its force in the midst of 
ongoing overseas operations. Key initiatives include plans to 
restructure the Army from divisions to standardized modular brigades as 
well as expand the force by more than 74,000 soldiers. Both of these 
initiatives will create requirements for significant quantities of new 
equipment. Amid ongoing operations, the Army must also reset (repair or 
replace) existing equipment that has been used in harsh environments 
overseas. Further, the Army has taken much of its pre-positioned stock 
out of storage to support combat operations and these critical reserve 
stocks will need to be replenished.[Footnote 1] Concerned about 
declining military readiness, Congress has provided substantial funding 
in response to Department of Defense (DOD) funding requests. However, 
significant challenges continue to face the Army as it attempts to 
simultaneously support ongoing operations, improve the readiness of 
nondeployed units, and transform its force for the future. 

As you requested, my testimony will focus on the equipping implications 
of restructuring and expanding the Army; efforts to repair, replace, 
and recapitalize equipment through the Army's reset program; and 
reconstitution of prepositioned equipment. Specifically, I will address 
(1) the cost of the Army's plans to implement these initiatives, and 
(2) the management challenges facing the Army and the actions needed to 
improve its implementation of these initiatives. 

My statement is based on numerous reports and testimonies published 
from fiscal years 2005 through 2008. Since 2004, we have examined the 
Army's plans and funding for the four initiatives, and determined the 
extent to which the Army's plans were comprehensive and transparent. We 
conducted our work in accordance with generally accepted government 
auditing standards. Related reports are listed at the end of this 
testimony and include reviews of the Army's equipping and reset 
strategies, prepositioned equipment, modular restructuring, and efforts 
to expand the Army. We are also issuing a separate statement today on 
the Army's Future Combat System, a longer term transformation effort 
that comprises 14 integrated weapon systems and an advanced information 
network and which is estimated to cost about $160 billion.[Footnote 2] 

Summary: 

Restructuring and rebuilding the Army will require billions of dollars 
for equipment and take at least several more years to complete. 
However, the total cost of equipping the modular force, replacing or 
repairing damaged or worn equipment, and replacing prepositioned 
equipment is uncertain. Based on our analysis of Army cost estimates 
and cost data, it appears that the cost of equipping modular units, 
expanding the force, resetting equipment, and replacing prepositioned 
equipment sets will be at least $190 billion dollars from fiscal years 
2004-2013. However, these estimates could change and additional 
equipment is likely to be needed at least through 2017 to equip the 
Army's modular units. Several factors are contributing to the 
uncertainties about future costs. First, the Army's $43.6 billon cost 
estimate for procuring equipment to convert to a modular force from 
fiscal years 2005-2011 was based on preliminary information about 
modular unit designs and did not fully consider the needs of National 
Guard units that are being relied on heavily to support ongoing 
operations. Second, the Army estimates it will need about $18.5 billion 
for equipment to expand the force but has not clearly documented this 
estimate. Third, costs to reset equipment damaged or lost during 
military operations have also grown significantly and are likely to 
total at least $118 billion from fiscal years 2004-2013. However, 
precise future reset costs are unclear, according to the Army, because 
they are dependent on how much equipment is lost, damaged, or worn 
beyond repair by continuing operations and how long military operations 
will continue. Finally, the Army estimates that it will need at least 
$10.6 billion to replace pre-positioned equipment that was taken out of 
storage on ships to support ongoing operations. In light of the 
potential magnitude of these initiatives, unless DOD carefully monitors 
projected costs, it will be difficult to consider tradeoffs and 
allocate funding to balance the Army's near-term equipment needs and 
long-term transformation initiatives. 

A common theme in our past work on these Army initiatives has been the 
need for DOD and the Army to take a more strategic approach to decision 
making that promotes transparency and ensures that equipment programs 
and investments are based on sound plans with measurable, realistic 
goals and time frames, prioritized resource needs, and performance 
measures to gauge progress. For example, our work on modular 
restructuring has shown a lack of clear linkage between the Army's 
equipment requirements, progress to date, and funding requests. This 
lack of linkage impedes oversight by DOD and congressional decision 
makers because it does not provide a means to measure the Army's 
progress in meeting its modular equipment requirements or to inform 
budget decisions. Also, we have reported that the Army is not 
effectively targeting its reset funds to meet the needs of units 
preparing for deployment to Iraq and Afghanistan. Further, the Army 
does not know if its existing prepositioned equipment requirements 
reflect actual needs because DOD has not developed a department-wide 
prepositioning strategy to guide the Army's prepositioning strategy. 
Oversight of these initiatives has been complicated by multiple funding 
requests. As a result, decision makers may have difficulty seeing the 
full picture of the Army's funding needs. GAO has suggested a number of 
actions to improve management controls, enhance transparency, and 
reduce the risks associated with modularity, force expansion, and 
reset. For example, we recommended that the Army develop a 
comprehensive strategy and funding plan that details the Army's modular 
equipping strategy and that DOD produce a prepositioning plan to guide 
the Army's strategy. However, many of these recommendations have not 
been implemented. For example, until the Army provides a comprehensive 
plan outlining its requirements, progress, and total costs for its 
modular restructuring and expansion initiatives, DOD and Congress will 
not have the full picture of the Army's total equipment funding needs 
and may lack information needed to decide how to best allocate defense 
resources among competing priorities. 

Background: 

The Army faces enormous equipping challenges while conducting 
operations in Iraq and Afghanistan, and restructuring to a modular 
force. The Army has four key initiatives underway that impact efforts 
to equip the force: the establishment of modular units, expansion of 
the force, equipment reset, and reconstitution of prepositioned 
equipment. 

The Army's modular restructuring initiative, which began in 2004, is 
considered the most extensive reorganization of its force since World 
War II. This transformation was initiated, in part, to support current 
operations in Iraq and Afghanistan by increasing the number of combat 
brigades available for deployment overseas. The foundation of modular 
restructuring is the creation of new, standardized, modular units that 
change the Army's legacy division-based force structure to smaller more 
numerous brigade formations embedded with significant support elements. 
A key goal of the modularity initiative is for modular brigades to have 
at least the same combat capability as a brigade under the division- 
based force. The new modular brigades are expected to be as capable as 
the Army's existing brigades partly because they will have different 
equipment including key enablers such as advanced communications and 
surveillance equipment. Moreover, in contrast to the Army's previous 
division-based force, modular National Guard and Army Reserve units 
will have the same design, organizational structure, and equipment as 
their active component counterparts. In addition, the Secretary of 
Defense announced in January 2007 an initiative to expand the Army by 
adding more than 74,200 soldiers and thereby creating six active 
brigade combat teams and additional modular support units. This planned 
expansion is intended to allow the Army to revitalize and balance the 
force, reduce deployment periods, increase time soldiers spend at home 
station in between deployments, increase capability, and strengthen the 
systems that support the forces. 

The Army relies on equipment reset and prepositioned equipment to 
improve equipment availability. Reset is the repair, replacement, and 
modernization of equipment that has been damaged or lost as a result of 
combat operations. The Army prepositioned equipment program is an 
important part of DOD's overall strategic mobility framework. The Army 
prepositions equipment at diverse strategic locations around the world 
in order to field combat-ready forces in days rather than the weeks it 
would take if equipment had to be moved from the United States to the 
location of the conflict. 

Total Costs to Fully Equip the Army Are Uncertain: 

The total cost to restructure and rebuild the Army is uncertain but 
this effort will likely require many billions of dollars and take at 
least several more years to complete. Our analysis of Army cost 
estimates and cost data indicate that it is likely to cost at least 
$190 billion dollars to equip modular units, expand the force, reset 
equipment, and replace prepositioned equipment from fiscal years 2004 
through 2013. However, these estimates have limitations and could 
change. For example, the Army is likely to continue to have shortfalls 
of some key equipment beyond then and believes it will require 
additional funding to equip modular units through fiscal year 2017. 

Information on Army Equipping-Related Costs for Key Initiatives Is 
Available but Some Estimates Are Incomplete or May Change: 

Although the Army has not identified a total aggregate cost for its key 
equipping initiatives, it has previously reported some cost estimates 
and cost data for equipping modular units, expanding the Army, 
resetting equipment, and restoring pre-positioned stocks. However, 
these estimates have some limitations because they are based on 
incomplete information, have not been updated, or may change as a 
result of the evolving nature and unknown duration of ongoing 
operations in Iraq and Afghanistan. As a result, the full costs of 
these equipping efforts are unclear but will be substantial. Based on 
our analysis of various sources of Army cost data, it appears that the 
cost of these initiatives will exceed $190 billion dollars between 
fiscal years 2004-2013 (see table 1). These figures do not include data 
on Army longer term transformation efforts such as the Army's Future 
Combat System. 

Table 1: GAO Analysis of Estimates of Equipping-Related Costs[A] to 
Restructure, Grow and Rebuild the Army (fiscal year 2004 through fiscal 
year 2013) (Dollars in billions): 

Program: Equip restructured modular units; 
Estimates Based on Army Data: $43.6; 
Description and limitations: Estimate developed before unit designs 
were finalized; Army has not revised its 2005 estimate; Army plans to 
request additional funds to address equipment shortages in modular 
units through fiscal year 2017. 

Program: Increase the number of and equip new Army units; 
Estimates Based on Army Data: $18.5; 
Description and limitations: Could not assess how the Army calculated 
this amount because Army budget documents do not identify key 
assumptions or the steps used to develop the estimate; Army plans to 
accelerate the completion of this plan from fiscal year 2013 to 2010. 

Program: Reset the force; 
Estimates Based on Army Data: $118.5[B]; 
Description and limitations: Army stated it will require reset funding 
for a minimum of 2 to 3 years after hostilities end; Future reset costs 
are unclear, according to the Army, because they depend on how much 
equipment is lost, damaged, or worn beyond repair during current 
operations and how long the operations will continue. 

Program: Reconstitute prepositioned stocks; 
Estimates Based on Army Data: $10.6; 
Description and limitations: Army estimates that total costs will be 
between $10.6 billion and $12.8 billion; Unclear whether the Army has 
included these funds into future budget planning. 

Program: Total; 
Estimates Based on Army Data: 2[C]. 

Source: GAO analysis of Army information. 

[A] These estimates include costs for both procurement and operation 
and maintenance. 

[B] The estimate includes $54 billion in funds for reset from fiscal 
year 2004 through fiscal year 2008, as reported by the Army in its 
February 2008 report to Congress. To calculate fiscal years 2009-2013 
estimates, we assumed $12.9 billion per year through fiscal year 2013, 
which is the average of the 2006-2007 amounts. 

[C] There are on-going assessments of some of these estimates as part 
of the fiscal years 2010-2015 programming process that could lead to 
revised estimates, according to Office of the Secretary of Defense and 
Army officials. 

[End of table] 

The John Warner National Defense Authorization Act for Fiscal Year 2007 
[Footnote 3] required the Army to report annually on its progress 
toward fulfilling requirements for equipment reset, equipping of units 
transforming to modularity, and reconstitution of equipment in 
prepositioned stocks. In its February 2008 report,[Footnote 4] the Army 
stated that there is no longer a distinguishable difference between 
equipment purchased for modular restructuring and other modernized 
fielding. The report does not address future costs in detail, nor does 
it provide significant detail about progress achieved to date with 
funds that have already been appropriated. As a result, it is becoming 
increasingly difficult to track overall progress and costs. The 
following sections further describe the cost and status of the Army's 
key initiatives including modular restructuring, expanding the force, 
resetting equipment, and restoring pre-positioned stocks. These 
initiatives will drive much of the costs of equipping the Army for the 
next several years. 

Army Has Made Progress in Establishing Modular Units but Meeting Active 
and Reserve Component Modular Equipment Requirements May Cost Billions 
More than Originally Estimated: 

The Army has made progress establishing modular units but this 
initiative will likely cost billions more than the Army originally 
estimated because the Army's estimate was based on some assumptions 
that no longer appear valid and was developed before some modular unit 
designs had been finalized. As a result, the Army now believes it will 
require additional funding through fiscal year 2017 to equip its 
modular units. However, it has not revised its 2005 cost estimate to 
reflect this. Moreover, because it will take time to procure equipment 
once funds are appropriated, units may not receive all scheduled 
equipment until 2019. 

In early 2005, the Army estimated that converting the Army to a modular 
design would cost approximately $52.5 billion from fiscal years 2005- 
2011, which was incorporated in a funding plan approved by the Office 
of the Secretary of Defense. The funding plan included costs for 
equipment, sustainment and training, and construction/facilities. As 
shown in table 2, most of these funds--$43.6 billion--were designated 
for equipment purchases. 

Table 2: Funding Plan for Army Modular Restructuring, Fiscal Years 2005-
2011 as Reported to the Office of Management and Budget in January 2007 
(Dollars in millions): 

Appropriation category; Equipment; 
Fiscal Year 2005: $4,354; 
Fiscal Year 2006: $5,436; 
Fiscal Year 2007: $5,907; 
Fiscal Year 2008: $6,855; 
Fiscal Year 2009: $7,165; 
Fiscal Year 2010: $7,226; 
Fiscal Year 2011: $6,666; 
Total 2005-2011: $43,609. 

Appropriation category; Sustainment and Training; 
Fiscal Year 2005: $0; 
Fiscal Year 2006: $1,022; 
Fiscal Year 2007: $196; 
Fiscal Year 2008: $285; 
Fiscal Year 2009: $679; 
Fiscal Year 2010: $744; 
Fiscal Year 2011: $588; 
Total 2005-2011: $3,514. 

Appropriation category; Construction/Facilities; 
Fiscal Year 2005: $250; 
Fiscal Year 2006: $13; 
Fiscal Year 2007: $497; 
Fiscal Year 2008: $461; 
Fiscal Year 2009: $1,440; 
Fiscal Year 2010: $1,358; 
Fiscal Year 2011: $1,359; 
Total 2005-2011: $5,378. 

Appropriation category; Total; 
Fiscal Year 2005: $4,604; 
Fiscal Year 2006: $6,471; 
Fiscal Year 2007: $6,600; 
Fiscal Year 2008: $7,601; 
Fiscal Year 2009: $9,284; 
Fiscal Year 2010: $9,328; 
Fiscal Year 2011: $8,613; 
Total 2005-2011: $52,501. 

Source: GAO analysis of Army data. 

[End of table] 

The Army made the decision to create modular units knowing that it 
would take several years after units were established to equip and 
staff them at authorized levels. At the end of fiscal year 2007, the 
Army had converted about two-thirds of its force to modular units. By 
the end of fiscal year 2008, the Army projects it will have converted 
277 of 327 modular units (about 85 percent). The Army currently 
projects that the unit restructuring will be completed by fiscal year 
2013. However, our ongoing work shows that the Army will continue to 
have significant shortfalls of key equipment that are critical to 
achieving the planned benefits of the modular force after the Army 
receives planned funding for fiscal years 2005-2011. For example, the 
Army projects that it will still need hundreds of thousands of modern 
equipment items including intelligence equipment, advanced radios, and 
trucks. In place of more modern equipment, many Army units will 
continue to have some older equipment that does not necessarily provide 
the same capability as the more modern counterparts. 

The Army has stated that it plans to request funds through 2017 to help 
fill modular unit equipment shortfalls. However, it has not revised its 
initial $43.6 billion estimate, even though it was based upon several 
assumptions that no longer appear valid.[Footnote 5] Specifically, we 
have reported that the Army believes it will need additional funding to 
equip modular units because its 2005-2011 funding plan: 

* was developed before some modular unit designs had been finalized, 

* assumed that Army National Guard and reserve units would retain some 
older models of equipment, and: 

* assumed that significant quantities of equipment would be returned 
from Iraq in good enough condition to help equip modular units. 

Additional explanation of each of these factors follows. 

At the time the Army's cost estimate was developed, the Army's modular 
designs were incomplete, so budget analysts were uncertain about the 
exact number of personnel and how many and what type of equipment items 
would be needed for modular units. For example, on the basis of lessons 
learned, the Army has reconfigured some of the modular unit designs and 
has added additional capabilities for force protection and route 
clearance to counter specific threats faced by deployed units. Further, 
because the number and composition of National Guard units had not been 
developed, budget analysts made certain assumptions about how much 
funding would be required by National Guard units to convert to the new 
modular designs. When the Army began to implement its modular 
restructuring initiative, it planned for the National Guard to 
establish 34 Brigade Combat Teams plus an additional number of support 
brigades. The 2006 Quadrennial Defense Review, however, recommended 
that the Army establish only 28 Brigade Combat Teams and convert the 
remaining units to support brigades. 

In addition, the Army's original plan for equipping modular units also 
did not fully consider the equipping implications associated with the 
Army National Guard's changing role in supporting military operations. 
Since 2001, the Army National Guard's role has changed from a strategic 
reserve force to an operational force that is used to support a wide 
range of military operations at home and abroad. Prior to 2001, Army 
National Guard units were generally equipped with older equipment and 
at lower levels than comparable active duty units because it was 
assumed that they would have considerable warning and training time 
before deploying overseas.[Footnote 6] However, senior Army officials 
have determined that the National Guard's modular units should be 
structured like those in the active component and receive similar 
equipment since the Guard has become an operational force that deploys 
along with active units. As a result, senior Army officials have stated 
the Army plans to request additional funds for Army National Guard 
equipment. In addition, the Army National Guard also has significant 
domestic missions, and equipment needs for those missions are 
uncertain. In January 2007[Footnote 7] we issued a report on actions 
needed to address National Guard domestic equipment requirements and 
readiness. We found that DOD has not worked with the Department of 
Homeland Security to define National Guard requirements for responding 
to the 15 catastrophic scenarios developed by the Homeland Security 
Council. As a result, the equipment requirements and the funding needed 
to provide equipment for such missions are unknown. 

Last, when developing its cost estimate for equipping modular units, 
the Army assumed that significant quantities of equipment would come 
back from Iraq and be available after some reset and repair work to be 
distributed to new modular units. Given the heavy use of equipment in 
Iraq and Afghanistan, this assumption may no longer be valid. The 
increased demands for equipment used in Iraq operations have had a 
dramatic effect on equipment availability. This demand reduces expected 
service life, creates significant repair expenses, and creates 
uncertainty as to whether it is economically feasible to repair and 
reset these vehicles. Further, more vehicles currently being operated 
in theater may be replaced altogether by newer vehicles offering better 
protection. 

Equipment Costs to Expand the Force Are Significant: 

DOD's plan to expand the size of the Army by over 74,000 personnel will 
also add to the Army's equipment needs. This planned expansion includes 
building six additional active modular infantry brigade combat teams 
and some additional modular support units. In January 2007, the Army 
estimated that this expansion would cost approximately $70.2 billion 
including personnel, equipment, facilities, and other costs. The 
equipment portion of this estimate was $17.9 billion. However, in 
January 2008, we reported that the Army's overall estimate was not 
transparent or comprehensive.[Footnote 8] We also found that certain 
aspects of the estimate, such as health care costs, may be understated 
and that some factors that could potentially affect the Army's funding 
plan are still evolving. With regard to equipment costs, we could not 
determine how the Army calculated its procurement estimate because Army 
budget documents do not identify key assumptions or the steps used to 
develop the estimate. According to best practices, high-quality cost 
estimates use repeatable methods that will result in estimates that are 
comprehensive and can also be easily and clearly traced, replicated, 
and updated. Given the magnitude of the Army's funding plan and 
potential changes to the plan, we recommended that the Secretary of 
Defense direct the Secretary of the Army to provide Congress with a 
revised funding plan for expanding the force and adhere to a high 
quality cost estimating methodology. In February 2008, the Army revised 
its overall cost estimate for expanding the force to $72.5 billion. 
According to Army documents, the Army now assumes that $18.5 billion 
will be needed to procure equipment for combat brigades and support 
units being created under the Army's expansion efforts. 

Finally, in October 2007, the Army also announced a plan to accelerate 
the expansion implementation timelines for the active Army and Army 
National Guard from fiscal year 2013 to fiscal year 2010 which will 
likely further exacerbate equipment shortfalls. The Army has not yet 
developed a revised funding plan for implementing this acceleration but 
plans to do so as part of its effort to prepare its fiscal years 2010- 
2015 budget plan later this year. As a result, it is not clear how the 
decision to accelerate the expansion effort will affect equipment 
costs. 

Equipment Reset Costs Are Growing: 

To improve near-term readiness of nondeployed units, the Army has 
received substantial funds in recent years to rebuild the force by 
resetting damaged, and worn equipment and reconstituting its 
prepositioned equipment sets. However, the Army has not identified the 
overall requirements for these efforts, and the total cost of these 
initiatives is uncertain. In addition to procuring new equipment, the 
Army is working to rebuild the force by resetting its existing 
equipment to support the ongoing conflicts as well as to equip 
nondeployed units. Originally, the Army estimated that equipment reset 
would cost $12 billion to $13 billion per year. Reset costs have grown 
significantly[Footnote 9] from about $3.3 billion in fiscal year 2004 
to more than $17 billion in fiscal year 2007. Our analysis of Army data 
shows that the Army is likely to require at least $118.5 billion 
dollars from fiscal years 2004-2013 (see table 1). The Army has 
reported [Footnote 10] that future reset costs will depend on the 
amount of forces committed, the activity level of those forces, and the 
amount of destroyed, damaged or excessively worn equipment. As a 
result, these costs are uncertain. The Army has stated that it will 
require reset funding for the duration of operations and estimates that 
it will request reset funding for an additional 2-3 years after 
operations cease. 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 DOD supplemental budget 
requests also increases. 

We have also reported that Congress may not have the visibility it 
needs to exercise effective oversight and to determine if the amount of 
funding appropriated for equipment reset has been most appropriately 
used for the purposes intended because the Army was not required to 
report the obligation and expenditure of funds appropriated for reset 
in the procurement accounts at a level of detail similar to the level 
of detail reported in the operation and maintenance accounts.[Footnote 
11] Given the substantial amount of equipment deployed overseas, the 
uncertain length of operations in Iraq and Afghanistan, and the lack of 
transparency and accountability, it is unclear how much funding the 
Army will need to reset its equipment. While Army officials recently 
told us that they have begun to report procurement obligations and 
expenditures at a level of detail similar to the level of detail 
reported for operation and maintenance accounts, officials in the 
Office of the Secretary of Defense believe that all of the Army's 
equipping initiatives, including reset, are part of a larger Army 
equipping effort and they do not believe that the department needs to 
track these initiatives separately. We continue to believe that 
tracking the cost of reset is key to identifying the total cost of the 
Army equipment plan. 

Timing and Cost of Reconstituting Prepositioned Stocks Is Unclear: 

In December 2006, the Army decided to remove equipment from its 
prepositioned sets stored on ships in order to accelerate the creation 
of two additional brigade combat teams to provide support for ongoing 
operations. This equipment supplemented equipment prepositioned in 
Southwest Asia, equipment which has been depleted and reconstituted 
several times over the course of these operations. It is still unclear 
when these critical reserve stocks will be reconstituted or how much 
this will cost; however, the Army has estimated it will require at 
least $10.6 billion to complete this reconstitution effort through 2013 
(see table 1).[Footnote 12] Army officials stated that prepositioned 
equipment sets worldwide would be reconstituted in synchronization with 
the Army's overall equipping priorities, when properly funded, and in 
accordance with the Army's prepositioning strategy, known as the Army 
Prepositioned Strategy 2015. We recommended in our September 2005 and 
February 2007[Footnote 13] reports that DOD develop a coordinated, 
department-wide plan and joint doctrine for the department's 
prepositioning programs. Synchronizing a DOD-wide strategy with the 
Army's prepositioning strategy would ensure that future investments 
made for the Army's prepositioning program would properly align with 
the anticipated DOD-wide strategy. Without a DOD-wide strategy, DOD 
risks inconsistencies between the Army's and the other services' 
prepositioning strategies, which may result in duplication of efforts 
and resources. 

In addition, we could not determine the extent to which the 
reconstitution of the Army's prepositioned stocks is reflected in DOD 
funding requests nor identify the cost estimates for restoring these 
prepositioned equipment sets. For example, Army officials could not 
provide a breakdown of the $3.3 billion cost estimate in the fiscal 
year 2007 supplemental budget request to reconstitute the prepositioned 
stocks removed from ships. Army officials stated that the estimated 
cost to fully implement the prepositioning strategy would total 
somewhere between $10.6 billion and $12.8 billion between fiscal years 
2008 and 2013. However, DOD's funding requests for reconstitution are 
difficult to evaluate because they may also include funding for other 
equipment-related funding requests, such as Army modularity, equipment 
modernization, equipment reset, or requests to fill equipment 
shortages. Army officials stated that separating prepositioning 
requirements from other requirements in their funding requests is 
complicated, and they do not plan to separately track funds set aside 
for the reconstitution of their prepositioned equipment sets. 

The Army Lacks a Strategic Approach That Promotes Transparency and 
Ensures That Equipment Investments Are Based on Sound Plans: 

A common theme in our work has been the need for DOD and the Army to 
take a more strategic approach to decision making that promotes 
transparency and ensures that programs and investments are based on 
sound plans with measurable, realistic goals and time frames, 
prioritized resource needs, and performance measures to gauge progress. 
Our prior work has found that a lack of clear linkages between overall 
Army equipment requirements and funding needs is an impediment to 
effective oversight of the Army's equipping plans. Further, 
transparency of the funds requested for Army equipment is hindered 
because Army funding needs are scattered across multiple funding 
requests. Finally, we have suggested a number of actions to enhance 
transparency and reduce the risks associated with Army equipping 
initiatives. However, many of these recommendations have not been 
adopted and, as a result, the Army faces uncertainties going forward. 

Lack of Clear Linkage between Equipment Requirements and Funding 
Impedes Program Oversight: 

The Army has not clearly linked its overall equipment requirements with 
funding requests. Our work has shown that major transformation 
initiatives have a greater chance of success when their funding plans 
are transparent, analytically based, executable, and link to the 
initiative's implementation plans. A lack of linkage between overall 
Army equipment requirements and funding plans impedes oversight by DOD 
and congressional decision-makers because it does not provide a means 
to measure the Army's progress toward meeting long-term Army equipment 
goals or to inform decisions that must be made today. 

Our work on modular restructuring has shown that the Army has 
substantially revised its timeline for fully equipping units from an 
original date of 2011 to 2019 but has not provided evidence of its 
overall equipment requirements or specific plans, milestones, or 
resources required to fully equip the modular force. Meanwhile, the 
Army is working to expand its force beyond its original modular 
restructuring goals, which will lead to billions of additional dollars 
in requirements to equip new modular units. 

The Army also does not know if its existing prepositioned equipment 
requirements reflect actual needs because DOD has not formulated a DOD- 
wide prepositioning strategy to guide the Army's prepositioning 
strategy. Army officials stated that its worldwide prepositioned 
equipment sets would be reconstituted in synchronization with the 
Army's overall equipping priorities and in accordance with its Army 
Prepositioned Strategy 2015. However, the Army had not established 
those priorities as of December 2007. Additionally, the Army 
Prepositioned Strategy 2015 is not correlated with a DOD-wide 
prepositioning strategy, because, according to DOD officials, a DOD- 
wide prepositioning strategy does not exist. DOD officials explained 
that the services are responsible for equipping strategies and that the 
Joint Staff conducts assessments of the services' prepositioning 
programs to determine their relationship within the DOD-wide strategic 
context. We continue to believe, however, that a DOD-wide strategy is 
needed in addition to an Army strategy. 

Finally, the Army's reset implementation strategy is based on resetting 
equipment that it expects will be returning in a given fiscal year, and 
not on targeting shortages of equipment for units preparing for 
deployment to Iraq and Afghanistan. According to the Army's Army Force 
Generation model implementation strategy and reset implementation 
guidance, the primary goal of reset is to prepare units for deployment 
and to improve next-to-deploy units' equipment-on-hand levels. Until 
the Army's reset implementation strategy targets shortages of equipment 
needed to equip units preparing for deployment, the Army will be unable 
to minimize operational risk by ensuring that the needs of deploying 
units can be met. 

Oversight of the Army's key equipment initiatives has been complicated 
by multiple funding requests. DOD requested operation and maintenance 
funds for Army prepositioned equipment in both the fiscal year 2008 
annual budget request (about $156 million) and the fiscal year 2008 
request related to the Global War on Terror (about $300 million). Army 
officials stated that there could be some overlap between funds 
requested for reconstitution of prepositioned equipment in the annual 
budget request and the reset of prepositioned equipment in the 
supplemental request. Without integrating the full costs for Army 
equipment needs in a single budget, decision makers may have difficulty 
seeing the complete picture of the Army's funding needs and the 
potential for trade-offs among competing defense priorities. 

Actions Needed to Improve Management Controls and Improve Transparency 
of Army Equipping Efforts: 

We have recommended a number of actions intended to improve management 
controls and enhance transparency of funding requests associated with 
modular restructuring, force expansion, equipment reset, and 
prepositioning of equipment stock. However, many of these 
recommendations have not been adopted because the Army has not 
developed concrete plans to address the recommendations and in some 
cases, disagreed with our recommendations. As a result, senior DOD 
leaders and Congress may not have sufficient information to assess 
progress and fully evaluate the Army's funding requests. 

Our prior reports on the Army's modular restructuring initiative 
recommended that the Army improve the transparency of its equipment 
requirements and funding plans as well as its plan to assess the 
modular unit designs.[Footnote 14] In recent years, we recommended the 
Army develop a comprehensive strategy and funding plan that details the 
Army's equipping strategy, compares equipment plans with modular unit 
designs, identifies total funding needs, and includes a mechanism for 
measuring progress in staffing and equipping its modular units. We have 
also recommended that the Army develop a comprehensive assessment plan 
that includes steps to evaluate modular units in full-spectrum combat. 
In January 2008, we recommended that DOD provide Congress with 
additional information on the Army's expansion initiative, including an 
updated funding plan and that the Army maintain a transparent audit 
trail including documentation of the steps used to develop its 
expansion funding plan. 

We have also made recommendations intended to address short and long- 
term operational risks associated with Army equipment reset and 
prepositioning strategies. Regarding the Army's equipment reset plans, 
we recommended in September 2007 that the Army ensure that its 
priorities address equipment shortages in the near term to minimize 
operational risk and ensure that the needs of units preparing for 
deployment can be met. Finally, with regard to prepositioned equipment, 
we recommended the establishment of a DOD-wide prepositioning strategy 
to ensure that future Army prepositioning investments are aligned with 
DOD's prepositioning goals. We continue to believe that our 
recommendations have merit, though many of these recommendations have 
not been adopted and, as a result, the Army faces uncertainties going 
forward. 

Concluding Observations: 

Restoring equipment readiness across the Army will require billions of 
dollars in maintenance and procurement funding but the full cost--and 
how long it will take--are still unclear. The uncertainty about the 
magnitude and duration of our military commitments further complicates 
and deepens the equipping challenges facing the Army. Moreover, growing 
fiscal problems facing the nation may lead to growing pressure on 
defense budgets.[Footnote 15] Such uncertainty about the future 
underscores the need for sound management approaches like setting 
goals, establishing clear measures to track progress, and identifying 
full costs. Until these steps are taken, decision makers will lack key 
information needed to gauge interim progress and make informed choices 
aimed at balancing the need to restore near-term readiness while 
positioning the Army for the future. 

Mr. Chairman and Members of the Committee, this concludes my statement. 
I would be pleased to respond to any question you or other Members of 
the Committee or Subcommittee may have. 

Contacts and Acknowledgments: 

For questions regarding this testimony, please call Janet A. St. 
Laurent at (202) 512-4402 or [email protected]. Key contributors to 
this testimony were John Pendleton, Director; Wendy Jaffe, Assistant 
Director; Kelly Baumgartner; Grace Coleman; Barbara Gannon; David 
Hubbell; Kevin O'Neill; Steve Rabinowitz; Terry Richardson; Donna 
Rogers; Kathryn Smith; Karen Thornton; and Suzanne Wren. Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this testimony. 

[End of section] 

Related GAO Products: 

The Nation's Long-Term Fiscal Outlook: January 2008 Update. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-08-591R]. Washington, D.C.: March 
21, 2008. 

Military Readiness: Impact of Current Operations and Actions Needed to 
Rebuild Readiness of U.S. Ground Forces. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-08-497T]. Washington, D.C.: 
February 14, 2008. 

Defense Logistics: Army Has Not Fully Planned or Budgeted for the 
Reconstitution of Its Afloat Prepositioned Stocks. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-08-257R]. Washington, D.C.: 
February 8, 2008. 

Force Structure: Need for Greater Transparency for the Army's Grow the 
Force Initiative Funding Plan. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-08-354R]. Washington, D.C.: January 18, 2008. 

Force Structure: Better Management Controls Are Needed to Oversee the 
Army's Modular Force and Expansion Initiatives and Improve 
Accountability for Results. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-08-145]. Washington, D.C.: December 14, 2007. 

Defense Logistics: Army and Marine Corps Cannot Be Assured That 
Equipment Reset Strategies Will Sustain Equipment Availability While 
Meeting Ongoing Operational Requirements. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-07-814]. Washington, D.C.: 
September 19, 2007. 

Military Training: Actions Needed to More Fully Develop the Army's 
Strategy for Training Modular Brigades and Address Implementation 
Challenges. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-936]. 
Washington, D.C.: August 6, 2007. 

Defense Logistics: Improved Oversight and Increased Coordination Needed 
to Ensure Viability of the Army's Prepositioning Strategy. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-07-144]. Washington, D.C.: 
February 15, 2007. 

Defense Logistics: Preliminary Observations on the Army's 
Implementation of Its Equipment Reset Strategies. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-07-439T]. Washington, D.C.: 
January 31, 2007. 

Reserve Forces: Actions Needed to Identify National Guard Domestic 
Equipment Requirements and Readiness. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-07-60]. Washington, D.C.: January 
26, 2007. 

Force Structure: Army Needs to Provide DOD and Congress More Visibility 
Regarding Modular Force Capabilities and Implementation Plans. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-745]. Washington, 
D.C.: September 6, 2006. 

Force Structure: Capabilities and Cost of Army Modular Force Remain 
Uncertain. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-548T]. 
Washington, D.C.: April 4, 2006. 

Defense Logistics: Preliminary Observations on Equipment Reset 
Challenges and Issues for the Army and Marine Corps. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-06-604T]. Washington, D.C.: March 
30, 2006. 

Reserve Forces: Plans Needed to Improve Army National Guard Equipment 
Readiness and Better Integrate Guard into Army Force Transformation 
Initiatives. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-111]. 
Washington, D.C.: October, 4 2005. 

Force Structure: Actions Needed to Improve Estimates and Oversight of 
Costs for Transforming Army to a Modular Force. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-05-926]. Washington, D.C.: 
September 29, 2005. 

Defense Logistics: Better Management and Oversight of Prepositioning 
Programs Needed to Reduce Risk and Improve Future Programs. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-05-427]. Washington, D.C.: 
September 6, 2005. 

Defense Management: Processes to Estimate and Track Equipment 
Reconstitution Costs Can Be Improved. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-05-293]. Washington, D.C.: May 5, 
2005. 

Force Structure: Preliminary Observations on Army Plans to Implement 
and Fund Modular Forces. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-05-443T]. Washington, D.C.: March 16, 2005. 

[End of section] 

Footnotes: 

[1] GAO, Military Readiness: Impact of Current Operations and Actions 
Needed to Rebuild Readiness of U.S. Ground Forces, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-08-497T] (Washington, D.C.: Feb. 
14, 2008). 

[2] GAO, Defense Acquisitions: 2009 Review of Future Combat System Is 
Critical to Program Direction, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-08-638T] (Washington, D.C.: April 10, 2008). 

[3] Pub. L. No. 109-364 ï¿½323 (2006). 

[4] United States Army, The Annual Report on Army Progress (Feb. 27, 
2008). 

[5] GAO, Force Structure: Better Management Controls Are Needed to 
Oversee the Army's Modular Force and Expansion Initiatives and Improve 
Accountability for Results, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-08-145] (Washington, D.C.: Dec. 14, 2007). 

[6] GAO, Reserve Forces: Plans Needed to Improve Army National Guard 
Equipment Readiness and Better Integrate Guard into Army Force 
Transformation Initiatives, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-06-111] (Washington, D.C.: Oct. 4, 2005). 

[7] GAO, Reserve Forces: Actions Needed to Identify National Guard 
Domestic Equipment Requirements and Readiness, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-07-60] (Washington, D.C.: Jan. 
26, 2007). 

[8] GAO, Force Structure: Need for Greater Transparency for the Army's 
Grow the Force Initiative Funding Plan, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-08-354R] (Washington, D.C.: Jan. 
18, 2008). 

[9] GAO, Defense Logistics: Army and Marine Corps Cannot Be Assured 
That Equipment Reset Strategies Will Sustain Equipment Availability 
While Meeting Ongoing Operational Requirements, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-07-814] (Washington, D.C.: Sept. 
19, 2007). 

[10] United States Army, The Annual Report on Army Progress (Feb. 27, 
2008). 

[11] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-814]. 

[12] GAO, Defense Logistics: Army Has Not Fully Planned or Budgeted for 
the Reconstitution of Its Afloat Prepositioned Stocks [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-08-257R] (Washington, D.C.: Feb. 
8, 2008). 

[13] GAO, Defense Logistics: Better Management and Oversight of 
Prepositioning Programs Needed to Reduce Risk and Improve Future 
Programs, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-427] 
(Washington, D.C.: Sept. 6, 2005) and Defense Logistics: Improved 
Oversight and Increased Coordination Needed to Ensure Viability of the 
Army's Prepositioning Strategy, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-07-144] (Washington, D.C.: Feb. 15, 2007). 

[14] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-145] and GAO, 
Force Structure: Army Needs to Provide DOD and Congress More Visibility 
Regarding Modular Force Capabilities and Implementation Plans, 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-745] (Washington, 
D.C.: Sept. 6, 2006). 

[15] GAO, The Nation's Long-Term Fiscal Outlook: January 2008 Update, 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-591R] (Washington, 
D.C.: Mar. 21, 2008). 

[End of section] 

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