Bosnia: Costs Are Exceeding DOD's Estimate (Briefing Report, 07/25/96,
GAO/NSIAD-96-204BR).

GAO reviewed the Department of Defense's (DOD) estimated costs of
participating in the multilateral coalition in Bosnia.

GAO found that: (1) DOD costs for Bosnia operations could exceed its $3
billion estimate by $451 million; (2) Army costs, which make up over
two-thirds of the operation's costs, have already exceeded the DOD
estimate by about $309 million; (3) cost overruns will be incorporated
in the Army's operation and maintenance account to reflect increased
costs for temporary duty pay for reserve personnel, communications, the
Logistics Civil Augmentation Program, changes to the Bosnian force, and
equipment for Bosnia's self-defense; (4) the Army is reviewing whether
it should pay for transportation and other new requirements that could
increase costs by up to $142 million; (5) fiscal year 1997 costs are
likely to exceed current estimates and depend on future operation
decisions; (6) budget estimates for the complete redeployment from
Bosnia and neighboring countries could significantly increase because
U.S. forces in Croatia and Hungary are not expected to meet the December
1996 redeployment date; (7) future costs will largely depend on NATO
force requirements and when U.S. forces are redeployed; and (8) any
additional costs incurred after December 1996 will be absorbed within
existing DOD appropriations or funded through further congressional
actions.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-96-204BR
     TITLE:  Bosnia: Costs Are Exceeding DOD's Estimate
      DATE:  07/25/96
   SUBJECT:  Military operations
             NATO military forces
             NATO military agreements
             Armed forces abroad
             Cost overruns
             Defense budgets
             Future budget projections
             Military withdrawal
             Defense appropriations
             International cooperation
IDENTIFIER:  Army Logistics Civil Augmentation Program
             Bosnia
             Yugoslavia
             Herzegovina
             Croatia
             Hungary
             Italy
             Defense Business Operations Fund
             
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Cover
================================================================ COVER


Briefing Report to Congressional Requesters

July 1996

BOSNIA - COSTS ARE EXCEEDING DOD'S
ESTIMATE

GAO/NSIAD-96-204BR

Bosnia

(701084)


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense
  DBOF - Defense Business Operations Fund
  IFOR - Implementation Force
  LOGCAP - Logistics Civil Augmentation Program
  NATO - North Atlantic Treaty Organization
  O&M - operation and maintenance
  SAAM - Special Assignment Airlift Missions

Letter
=============================================================== LETTER


B-272434

July 25, 1996

Congressional Requesters

The Department of Defense (DOD) had deployed about 22,000 troops to
Bosnia and surrounding countries as of July 1996 to assist in
implementing the Dayton Peace Accords.  U.S.  forces are part of a
multilateral coalition under North Atlantic Treaty Organization
(NATO) command called the Implementation Force (IFOR).  DOD is
currently estimating that the incremental cost\1 of its participation
in IFOR will be about $3 billion.  We reported in March 1996 that
DOD's cost for the Bosnia operation was uncertain at that time, but
could very well exceed its earlier estimate of $2.5 billion.\2 Based
on your continued interest in this matter, we are providing updated
information about DOD's costs to help you assess DOD's requests for
funding.  We recently briefed your staff on these issues.  We plan to
continue reviewing DOD's costs and will provide further reports. 


--------------------
\1 As used in this report, "incremental costs" means those costs that
would not have been incurred if it were not for the operation.  This
is the same definition that is contained in 10 U.S.C.  127a, as
amended by the National Defense Authorization Act for Fiscal Year
1996. 

\2 Bosnia:  Costs Are Uncertain but Seem Likely to Exceed DOD's
Estimate (GAO/NSIAD-96-120BR, Mar.  14, 1996). 


   BACKGROUND
------------------------------------------------------------ Letter :1

The Dayton Peace Accords, signed on December 14, 1995, are designed
to end several years of conflict in the former Yugoslavia.  One part
of the accords involves the deployment of a NATO-led coalition force
to Bosnia-Herzegovina, hereafter referred to as Bosnia, to implement
the peace agreement.  The purpose of IFOR is to enforce the cessation
of hostilities and provide a secure environment for the other parts
of the peace plan to take place.  The United States is a major force
provider to IFOR, and Americans occupy the key NATO military
leadership positions that control the operation.  As of July 19,
1996, U.S.  forces deployed in support of IFOR, which included both
active and reserve personnel, were located in 4 countries and
numbered 22,140.  Of this total, 16,175 military personnel were
deployed to Bosnia, 1,354 to Croatia, and a total of 4,611 to Hungary
and Italy. 

As of April 3, 1996, DOD's estimate of the incremental cost of
operations in and around Bosnia was about $3 billion.\3 DOD's
estimated costs span
2 fiscal years--1996 and 1997.  Fiscal year 1996 costs are estimated
at
$2.2 billion, and fiscal year 1997 costs are estimated at $0.7
billion.  This estimate reflects an increase of $476 million--$292
million in fiscal year 1996 and $184 million in fiscal year
1997--since our March 1996 report. 

To cover estimated fiscal year 1996 costs, Congress provided DOD with
$1.7 billion.  This amount consists of (1) authority to reprogram
$876 million of previously appropriated funds and (2) supplemental
appropriations of $858 million.  To complete funding, DOD has
submitted a second request to reprogram previously appropriated
funds, totaling $507 million, for the balance of fiscal year 1996
costs associated with operations in and around Bosnia.  Based on
increased call-up of reserve personnel, DOD also requested authority
in an omnibus reprogramming request to reprogram $21 million for
military personnel costs.  As of July 19, 1996, the cognizant
congressional committees had not yet completed final action on these
last two reprogramming requests.  DOD included $542 million for the
fiscal year 1997 cost of the operation in its fiscal year 1997 budget
submission. 


--------------------
\3 Total does not add due to rounding. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

DOD's costs for operations in and around Bosnia, which span fiscal
years 1996 and 1997, could exceed DOD's $3-billion estimate by as
much as $451 million, and further increases are possible.  Fiscal
year 1996 costs will likely exceed DOD's $2.2-billion estimate.  The
Army's cost estimate, which represents over two-thirds of the cost of
the operation, has already increased by about $309 million over DOD's
April 3 estimate.  This amount includes increased costs for such
items as temporary duty for additional reserve personnel deployed to
Europe, communications, the Logistics Civil Augmentation Program,
changing the composition of the force in Bosnia, and providing
equipment to assist Bosnia in its self-defense as directed by the
President.  These costs will be absorbed within the Army's operation
and maintenance account.  Potential new requirements for items such
as further changes to the force composition in Bosnia and additional
transportation could add as much as $142 million to the costs.  The
Army is reviewing some of the $142 million to determine if it should
pay for certain costs related to transportation and NATO IFOR
headquarters. 

Fiscal year 1997 costs will likely exceed the current estimate and
depend heavily on decisions that are yet to be made regarding force
requirements and redeployment.  DOD's estimate has already increased
beyond the amount included in the President's budget submission. 
Both the amount in the President's budget and the revised DOD
estimate are based on redeployment from Bosnia and neighboring
countries being completed by December 20, 1996.  Current planning by
the U.S.  Army, Europe, however, assumes that although U.S.  forces
will redeploy from Bosnia by December 20, redeployment from Croatia
and Hungary will extend into 1997.  Future decisions on NATO force
requirements and when to begin redeployment will determine when and
how U.S.  forces redeploy from the area of operations and whether
additional sustainment will be required beyond December 20.  Any
costs incurred beyond that date or in addition to the planned
requirements will either be absorbed within existing DOD
appropriations or require additional funding. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

To assess DOD's cost estimate of the Bosnia operation, we reviewed
detailed cost information at the Office of the Under Secretary of
Defense (Comptroller).  We discussed the assumptions used to develop
the estimate with Comptroller and service officials.  To compare
actual experience and costs incurred to date with the estimate, we
held discussions and reviewed data at the U.S.  Transportation
Command; the Air Mobility Command; the U.S.  European Command; U.S. 
Army, Europe; U.S.  Air Forces, Europe; the Air Force's Air Combat
Command; and the Navy's Commander-in-Chief, Atlantic Fleet. 

To assess the operation's funding for fiscal year 1996, we reviewed
DOD requests for reprogramming funds and the President's February 21,
1996, submission to Congress requesting supplemental appropriations
and subsequent congressional action.  To determine the operation's
funding for fiscal year 1997, we reviewed the President's budget
submission for fiscal year 1997 and subsequent DOD information. 

We performed our review from April to July 1996 in accordance with
generally accepted government auditing standards.  We reviewed the
information in this briefing report with DOD officials and made
changes where appropriate.  DOD officials generally agreed with our
findings. 


---------------------------------------------------------- Letter :3.1

We are providing copies of this report to the Chairmen and Ranking
Minority Members of the House and Senate Committees on
Appropriations, the House Committee on National Security, and the
Senate Committee on Armed Services, and to the Ranking Minority
Member, Senate Committee on Foreign Relations.  We will also send
copies to the Secretaries of Defense, the Air Force, the Army, and
the Navy and the Director, Office of Management and Budget.  Copies
will also be made available to others on request. 

If you or your staff have any questions about this report, please
contact me at (202) 512-3504.  The major contributors to this report
are listed in appendix I. 

Richard Davis
Director, National Security
 Analysis

List of Congressional Requesters

The Honorable Jesse Helms
Chairman, Committee on Foreign Relations
United States Senate

The Honorable Ted Stevens
Chairman
The Honorable Daniel K.  Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable C.W.  Bill Young
Chairman
The Honorable John P.  Murtha
Ranking Minority Member
Subcommittee on National Security
Committee on Appropriations
House of Representatives

The Honorable Robert K.  Dornan
Chairman, Subcommittee on Military Personnel
Committee on National Security
House of Representatives


Briefing Section I BACKGROUND
============================================================== Letter 


   UNITED STATES HAS MAJOR ROLE IN
   BOSNIA PEACE IMPLEMENTATION
------------------------------------------------------------ Letter :4



   (See figure in printed
   edition.)


The Dayton Peace Accords, signed on December 14, 1995, are designed
to end several years of conflict in the former Yugoslavia.  It
contains a three-part strategy. 

One part is the deployment of a North Atlantic Treaty Organization
(NATO)-led coalition force to Bosnia-Herzegovina, hereafter referred
to as Bosnia, to implement the peace agreement.  The purpose of this
Implementation Force (IFOR) is to enforce the cessation of
hostilities and provide a secure environment for the other parts of
the peace plan to take place.  The accords call for IFOR to provide a
secure environment for 1 year to provide "breathing space" or a
"cooling-off period" after 4 years of war. 

Both NATO and non-NATO forces are participating in this action under
U.N.  authorization.  The United States is a major force provider to
IFOR, and Americans occupy the key NATO military leadership positions
that are responsible for the operation.  As of July 19, 1996, U.S. 
forces deployed in either direct or indirect support of IFOR were
located in 4 countries and numbered 22,140.  Of this total, 16,175
military personnel were deployed to Bosnia, 1,354 to Croatia, and a
total of 4,611 to Hungary and Italy. 

The key military tasks in Bosnia are to mark and monitor a
4-kilometer-wide zone of separation between the three factions,
patrol the zone of separation, and oversee the withdrawal of forces
and weapons away from the zone and back to cantonment areas. 

A second part of the peace strategy is to establish a functioning
government and economy, which includes a major economic redevelopment
program, to be lead by the Europeans.  This effort will include
supervising elections, resettling refugees, and overseeing economic
reconstruction. 

The third part is a military stabilization effort in which forces
will be drawn down and an arms control program will be established. 
The purpose of this effort is to ensure that the parties to the peace
agreement can ensure their own safety when IFOR leaves.  Establishing
the military force balance is not a task of NATO or U.S.  forces. 
The United States said that it is prepared to take actions in concert
with other nations to ensure that this balance is achieved. 


Briefing Section II FISCAL YEAR
1996 COSTS
============================================================== Letter 


   FISCAL YEAR 1996 COST ESTIMATE
   AS OF APRIL 3, 1996
------------------------------------------------------------ Letter :5



   (See figure in printed
   edition.)

   Source:  DOD Comptroller.

   (See figure in printed
   edition.)


As of April 3, 1996, the Department of Defense's (DOD) estimate of
the incremental cost of operations in and around Bosnia was $3
billion.\1 DOD costs span 2 fiscal years--1996 and 1997.  Fiscal year
1996 costs are estimated at $2.2 billion, and fiscal year 1997 costs
are estimated at
$0.7 billion.  Since our March 1996 report, estimated costs have
increased $476 million--$292 million in fiscal year 1996 and $184
million in fiscal year 1997. 

Fiscal year 1996 costs include training for troops designated to
deploy in and around Bosnia; deployment of forces; sustainment of
those forces, including contractor support; operating tempo; and
military pay costs such as imminent danger pay and reserve
activation.  Fiscal year 1997 costs are discussed in briefing section
III. 

The Army, which is deploying and logistically supporting ground
troops\2 in and around Bosnia, is estimated to incur the majority of
costs--
$1.6 billion, or 70 percent of the fiscal year 1996 estimated costs. 
The Air Force has the next largest share of costs--about $350
million, or 16 percent.  Together, the Navy and the Marine Corps have
the smallest share-- about 5 percent, or $107 million.  The other
estimated costs are spread over a number of defensewide agencies,
such as the U.S.  Special Operations Command and the Defense Mapping
Agency. 

Most of the estimated costs--84 percent--are in operation and
maintenance (O&M) accounts.  These accounts pay for such items as
transportation, per diem, supplies, fuel, communications, contractual
services, equipment maintenance, and other mission-related expenses. 
Of the costs remaining, 13 percent is in military personnel accounts. 
These accounts fund certain special pays that military personnel
deployed to Bosnia are eligible to receive, such as imminent danger
pay, family separation allowance, certain places pay (formerly called
foreign duty pay), and basic allowance for subsistence for enlisted
personnel as well as the military pay for activated reservists.  The
other 3 percent is in the Air Force procurement account and the Army
military construction account. 


--------------------
\1 Total does not add due to rounding. 

\2 The Army is logistically supporting ground troops for all services
in Bosnia, Croatia, and Hungary. 


   TOTAL DOD COST ESTIMATE MATCHED
   PLANNED FUNDING AS OF APRIL 3,
   1996
------------------------------------------------------------ Letter :6



   (See figure in printed
   edition.)


To cover estimated fiscal year 1996 costs, Congress provided DOD with
$1.7 billion.  This amount consists of (1) authority to reprogram
$876 million of previously appropriated funds and (2) supplemental
appropriations of $858 million.  To complete funding, DOD submitted a
second request to reprogram previously appropriated funds totaling
$507 million for the balance of fiscal year 1996 costs associated
with operations in and around Bosnia.  As of July 19, 1996, the
cognizant congressional committees had not yet completed final action
on this request. 

The sum of the reprogramming requests, when completed, and the
supplemental funding was designed to fully fund U.S.  participation
in Bosnia operations.  The Army's estimated costs have since
increased significantly.  The reasons for the increase are discussed
on the following pages.  The Air Force and the Navy are reviewing
their costs.  The Navy expects its overall costs to remain at the
funded level.  Air Force officials expect that, based on calls from
their major commands, their costs may increase, but at this point
have not estimated the increases.  We found that the cost of the Air
Force's use of Special Assignment Airlift Missions (SAAM) may exceed
planned spending levels by $9 million based on the Air Mobility
Command's estimate of Air Force SAAM billings through May 1996. 
These SAAM bills are for transportation that is provided to a
service, which is then responsible for paying the cost of the
transportation provided.  Funding for increases to the cost
requirements will have to be revisited before the end of the fiscal
year. 


   ARMY O&M COST ESTIMATE NOW
   EXCEEDS PLANNED FUNDING
------------------------------------------------------------ Letter :7



   (See figure in printed
   edition.)

Army O&M costs have been increasing since the April estimate of
$1,286 million was prepared.  As of July 17, 1996, the Army had
identified an additional $309 million in O&M requirements, bringing
the O&M cost estimate to $1,595 million.  This increased estimate
includes costs for such items as temporary duty for additional
reserve personnel deployed to Europe, communications, the Logistics
Civil Augmentation Program (LOGCAP), and miscellaneous requirements
such as additional European Command support and scheduled supply
flights.  It also includes costs for deploying and sustaining two
additional military police units as part of the change in the
composition of forces in Bosnia involving replacing heavier tank
units with lighter units.  In addition, the Army included costs to
pack, transport, and provide spare parts for items that the President
directed under section 540 of the Foreign Operations, Export
Financing, and Related Programs Appropriations Act of 1996 be turned
over to Bosnia to assist that country in its self-defense.  These
items include weapons, communications gear, tanks, and helicopters. 
All of the $309 million will be absorbed within the Army's O&M
account. 

In addition, we identified further potential costs that total $142
million, which could bring the Army's O&M costs to $1,737 million for
the fiscal year.  These additional costs include increases the Army
expects as new requirements are identified during the remainder of
the fiscal year.  Of the $142 million, $33 million has been
identified as the estimated cost for a potential requirement to
deploy and sustain two additional engineer units as part of the
continuing effort to change the force composition in Bosnia.  Another
$77 million of the $142 million represents additional SAAM
transportation costs we estimated that the Army could incur through
the end of the fiscal year.  This $77 million includes $37 million in
disputed billings that the Army is reviewing to determine if it
should pay them, $16 million in billings the Army has not yet
received, and $24 million in estimated costs for the remainder of
this fiscal year.  The remaining $32 million of the $142 million is
for the U.S.  share of NATO IFOR headquarters' costs and is also
being reviewed to determine if the Army should pay these costs. 

The Army also identified an additional $21 million in military
personnel costs to support an increase in the President's selected
reserve call-up from 3,888 to 7,800 personnel.  DOD requested this
amount in an omnibus reprogramming request submitted on May 24, 1996,
to pay for reservists' pay and benefits while on active duty in
support of operations in and around Bosnia--costs that were unknown
at the time prior reprogrammings were submitted to Congress.  This
request is for funding throughout DOD and is in addition to the
previously described funding actions.  As of July 19, 1996, this
request was awaiting approval from the cognizant congressional
committees. 


   COMMUNICATIONS
------------------------------------------------------------ Letter :8



   (See figure in printed
   edition.)


The Army estimated IFOR communications would cost about $27 million. 
U.S.  Army, Europe, recently submitted additional communications
requirements of about $40 million, which will increase the total cost
to $67 million.  The $40 million in additional requirements is
included in the Army's revised estimate of July 17, 1996.  The
primary reason for this increase is unanticipated costs that the Army
must pay, as the service responsible for paying the communications
bills relating to U.S.  participation in IFOR.  This $40 million
includes such items as $17 million for the Defense Information
Systems Agency for communications lines and $14 million for
reimbursable costs incurred by the Army's 5th Signal Command deployed
to Bosnia.  Although the Army currently plans to fund the $40
million, it is reviewing the $17-million bill to determine if it is a
valid Army requirement or should be paid by the Defense Information
Systems Agency. 


   LOGCAP
------------------------------------------------------------ Letter :9



   (See figure in printed
   edition.)

LOGCAP uses a civilian contractor to perform selected engineering and
logistics services during contingency operations to augment U.S. 
forces.  In Bosnia, Croatia, and Hungary, the contractor is providing
many of the basic services to support military personnel, including
troop housing and facilities, food service, laundry operation, and
other logistics services. 

We previously reported that estimated LOGCAP costs have increased
significantly since the beginning of the operation.  Rapidly changing
logistics needs at the beginning of the mission created an increase
in requirements.  The geography of the U.S.  sector in Bosnia and
force protection concerns required an increase in the number of base
camps.  This in turn required an increase in the number of feeding
stations, laundry facilities, and other services needed to sustain
the troops living in the base camps.  Muddy ground conditions and the
increased number of camps required more extensive site preparation
and construction, which cost more than originally anticipated.  Under
a separate review, we are currently evaluating the management of
LOGCAP and the reasons why the costs in Bosnia have exceeded original
estimates. 

As of July 1, 1996, the Army had identified $440.4 million in LOGCAP
costs for fiscal year 1996.  Of this amount, the Army will receive
funding for $407.5 million, which is included in the three funding
actions.  The funding shortfall of $33 million is included in the
Army's July 17 revised estimate.  This shortfall does not include any
costs that could be incurred for new requirements, such as contractor
involvement in changing the composition of the force or other
requirements that may occur before the end of the fiscal year. 
However, the Army is looking at ways in which the costs could be
reduced, such as decreasing the level of services required from the
contractor. 

A separate, diplomatic effort is underway to reduce the fiscal year
1996 LOGCAP cost.  This effort involves the negotiation of a
supplementary agreement to the Status of Forces Agreement with
Hungary.  The Status of Forces Agreement established terms and
conditions that govern activities of U.S.  forces stationed in or
transiting the Republic of Hungary in connection with the IFOR
mission.  According to DOD officials, under prevailing agreements,
neither the U.S.  government nor its contractors were given relief
from taxes to be paid on goods and services purchased.  This means
that the LOGCAP contractor is required to pay a value-added tax on
all goods and services purchased in Hungary.  Under terms of the
contract, these taxes are LOGCAP costs that must be paid by the Army. 

The United States and Hungary are close to completing negotiation of
the supplementary agreement, which will then be submitted to the
Hungarian Parliament for ratification.  Once ratified, the
supplementary agreement would give the United States the ability to
request a refund of taxes paid over the term of the LOGCAP contract. 
This refund would go directly to the Army.  The LOGCAP contractor
estimated that, as of May 1, 1996, the taxes paid to Hungary were
about $3.6 million.  If the money is refunded to the Army, it will be
returned to the Army's fiscal year 1996 O&M account. 


   SPECIAL ASSIGNMENT AIRLIFT
   MISSIONS
----------------------------------------------------------- Letter :10



   (See figure in printed
   edition.)


The Army anticipates increased costs for SAAM transportation
supporting operations in and around Bosnia.  As of April 1996, the
U.S.  Army, Europe, estimated that this transportation would cost $44
million and had budgeted funding at that level.  We have identified
additional SAAM transportation that could increase the Army's cost
and funding shortfall by as much as $77 million.  This amount
includes $37 million in billings that the Army is disputing and $16
million in Air Mobility Command billings that the Army has not yet
received.  In addition, it includes $24 million in remaining fiscal
year 1996 costs we have estimated based on SAAM transportation
provided in the April/May 1996 time period, which averaged about $6
million per month. 

The Army is disputing $37 million of the increased billings because
it believes them to represent SAAM transportation provided to other
services or duplicate billings.  It is not planning to pay the Air
Mobility Command until its analysis is complete and the billing
concerns are resolved.  To the extent that these billings, as well as
any future billings, are found to duplicate previous billings or
represent SAAM transportation provided to other services, the Army's
potential funding shortfall will be reduced.  However, to the extent
the Army was billed for other services' transportation, these
services' costs will increase. 


   NATO IFOR HEADQUARTERS' COST
----------------------------------------------------------- Letter :11



   (See figure in printed
   edition.)


For operations in and around Bosnia, NATO has its headquarters in
Sarajevo as well as regional headquarters in Zagreb, Kiseljak, and
Split, Croatia.  Although most IFOR operating costs are borne by the
individual troop-contributing countries, NATO decided that IFOR
headquarters' costs, including the regional headquarters, will be
commonly funded by the NATO member nations.  These costs are covered
by NATO's military budget.  The United States initially estimated its
share of headquarters' costs at $37.5 million, which would be paid by
the Army.  The Bosnia cost estimate originally included this amount,
but DOD subsequently deleted it from the Army's planned spending,
because it had determined that the Army had sufficient funding to
cover these costs. 

As of June 1996, NATO is estimating IFOR headquarters' costs of $122
million based on actual experience.  The headquarters' budget is a
conventional O&M budget and includes such items as travel costs,
vehicle rental, and fuel and petroleum. 

NATO is planning to fund its IFOR headquarters' costs within its
overall military budget to the extent possible by (1) using lapsed
funds from prior years and (2) reducing the funding for planned
exercises.  Although these funds were included in NATO's military
budget, they had not been requested from member states until
recently.  NATO has now requested that member states provide part of
the funding--$51 million--for IFOR headquarters' costs.  The U.S. 
share, which is paid by the Army, is $12 million.  A further funding
request from member states is expected in September.  According to
Army officials, the U.S.  share of the expected September request
will be an estimated $18 million to $20 million, for a total of up to
$32 million for the fiscal year.  This amount is part of the $142
million we have identified as other potential cost increases. 
According to Army officials, the Army will not be able to fund these
additional requirements within available funds.  However, according
to the Office of the Under Secretary of Defense (Comptroller), it may
be able to meet IFOR funding requirements within existing funding or,
if necessary, defer part of the payment until fiscal
year 1997.  To the extent that requests for IFOR headquarters'
funding (1) exceeds funds available for the Army to meet regular NATO
requirements and (2) cannot be deferred until fiscal year 1997, these
requests will add to the Army's funding needs. 


   FUNDING OPTIONS
----------------------------------------------------------- Letter :12



   (See figure in printed
   edition.)

As mentioned previously, although DOD's April cost estimate matched
planned funding, costs have been increasing.  Early in a fiscal year,
the services use funds from future quarters to cover the costs of
unbudgeted contingency operations.  As the fiscal year progresses,
funding flexibility is reduced.  This is especially true in the third
and fourth quarters of the fiscal year, when much of the appropriated
funding has been spent.  Funding unbudgeted operations by this point
in the fiscal year can affect planned budget execution for such
activities as spare parts acquisition, proficiency training, and unit
exercises. 

If the services are unable to shift remaining funds to cover these
increased cost requirements, there are several options that they
could use to meet their funding needs.  These include (1)
transferring funds from one service to another, (2) requesting
further funding, (3) delaying reimbursement of the Defense Business
Operations Fund (DBOF), and (4) requesting that DOD invoke the Feed
and Forage Act authority. 

As we reported in our March 1996 report, if initial contingency
operation funding proves to be inadequate, but some services have
costs below their funded level, while others have costs above it,
excesses should be redistributed by transfer before Congress provides
additional funds.  This situation does not seem to be the case at
this time, but funding needs could change before the end of the
fiscal year. 

DOD always has the option of requesting reprogrammings of existing
appropriations or additional funding through supplemental
appropriations from Congress.  For example, on September 30, 1994,
the fiscal year 1995 defense appropriations act provided supplemental
appropriations for certain operations that occurred in fiscal year
1994. 

The National Defense Authorization Act for Fiscal Year 1994
(10 U.S.C.  127a) first established the use of DBOF as a temporary
funding source for contingency operations.  This gives the services
the authority to delay reimbursement of DBOF-related charges for
services, such as transportation.  Although this can relieve some
funding problems in the current fiscal year, the Secretary of Defense
must submit a repayment plan outlining how DBOF will be repaid. 
According to DOD officials, whether DBOF can be used as a funding
source depends on the sufficiency of DBOF cash reserves. 

Under the Feed and Forage Act (41 U.S.C.  11), DOD is authorized to
incur obligations on behalf of the United States "for clothing,
subsistence, forage, fuel, quarters, transportation, or medical and
hospital supplies" that exceed available appropriations, but that may
not exceed "the necessities of the current year." This authority is
unfunded and requires a subsequent appropriation to liquidate any
obligations that are incurred.  DOD considers the use of the Feed and
Forage Act to cover increased cost requirements as a last resort when
all other options have been exhausted. 


Briefing Section III FISCAL YEAR
1997 COSTS
============================================================== Letter 


   CURRENT FISCAL YEAR 1997 COST
   ESTIMATE
----------------------------------------------------------- Letter :13



   (See figure in printed
   edition.)


As noted earlier, DOD's estimate of fiscal year 1997 incremental
costs for operations in and around Bosnia is $725 million.  These
costs include continuation of operations underway in fiscal year
1996, redeployment of U.S.  forces and reserve inactivation at the
conclusion of the operation, and reconstitution of equipment used in
the operation. 

As in fiscal year 1996, the Army is estimated to incur the majority
of the costs--almost $550 million, or 76 percent of all fiscal year
1997 costs.  The Air Force has the next largest share of
costs--almost $99 million or
14 percent.  Together, the Navy and the Marine Corps have the
smallest share, 4 percent, or about $28 million.  The other estimated
costs are spread over a number of defensewide agencies, such as the
U.S.  Special Operations Command and the Defense Mapping Agency. 

Most of the estimated costs--85 percent--is in O&M accounts.  Of the
costs remaining, 12 percent is in military personnel accounts.  All
cost estimates are based on the assumption that all U.S.  military
personnel will be out of Bosnia and neighboring countries by December
20, 1996, to reflect the time frame established at the beginning of
the operation. 


   COSTS WILL CONTINUE BEYOND
   DECEMBER 1996
----------------------------------------------------------- Letter :14



   (See figure in printed
   edition.)


In an earlier report on funding contingencies,\3 we suggested that
DOD include the costs of operations that are expected to extend into
a second fiscal year in its annual budget submission.  DOD recognized
that operations in Bosnia and neighboring countries would continue
into fiscal year 1997 and included $542 million for the operation in
the President's budget submission to Congress in February. 
Currently, DOD's fiscal year 1997 estimate of the incremental cost of
the operation has increased by $184 million to a total of $725
million.\4 These costs reflect a revised estimate for October through
December 1996 costs and continue to assume that all U.S.  military
personnel will have redeployed from the area of operations, which
includes Bosnia, Croatia, and Hungary, by December 20, 1996.  DOD has
informally advised the House and Senate Committees on Appropriations
of this increase. 

U.S.  European Command and U.S.  Army, Europe, officials told us
that, although planning for the redeployment of troops after the
operation was based on the premise that all troops would be out of
Bosnia by December 20, 1996, redeployment from Croatia and Hungary
would extend into 1997.  Any troops remaining in the theater of
operations beyond December 1996 will incur costs beyond those
included in the President's budget and DOD's current estimate.  In
addition, key decisions that will be made in the coming months will
further affect fiscal year 1997 costs. 


--------------------
\3 DOD Budget:  Analysis of Options for Funding Contingency
Operations (GAO/NSIAD-94-152BR,
Apr.  26, 1994). 

\4 Total does not add due to rounding. 


   KEY COSTS WILL BE AFFECTED BY
   FUTURE DECISIONS
----------------------------------------------------------- Letter :15



   (See figure in printed
   edition.)


There are several key decisions that will affect the fiscal year 1997
cost of U.S.  operations in support of IFOR.  These involve the size
of the covering force that will remain until the end of the mission,
the date when redeployment of U.S.  forces begins, and the
possibility of a follow-on force to replace IFOR, and, if there is,
whether it will include U.S.  forces. 

The IFOR NATO Commander has expressed the desire to maintain a
capable, effective force in Bosnia until the anticipated end of the
mission on December 20, 1996.  However, the makeup of such a force
has not been defined.  In a letter addressed to a Member of Congress
dated June 7, 1996, the Secretary of Defense stated that ".  .  . 
the key point is [to] retain sufficient forces to accomplish assigned
tasks and protect the lives of personnel .  .  .  completing IFOR's
withdrawal will obviously take some time after the one year
anniversary [December 20] .  .  .  ." If these troops remain in
Bosnia or neighboring countries after December 20, 1996, costs for
their support would exceed DOD's estimated costs. 

In the same letter, the Secretary of Defense stated that IFOR will
remain at full strength through September 1996, after the Bosnian
elections are scheduled to be held.  Based on Army planning
estimates, it will take about 100 days to conduct an orderly and
cost-efficient redeployment from Bosnia primarily using rail and
barge transportation and troop labor instead of contractors.  Other
redeployment plans taking less time would have to make greater use of
more expensive modes of transportation and contractors.  Therefore,
to complete redeployment by December 20, 1996, without having to use
more expensive modes of transportation, movement would have to begin
around the time of the Bosnian elections. 

The President and the Secretary of Defense stated that IFOR's mission
will last for 1 year and that all NATO forces will redeploy at that
time.  There has, however, been speculation that some type of
follow-on force will supplant IFOR.  A decision to have a follow-on
force will increase U.S.  costs to the extent the United States
chooses to participate in such a force. 


   TIME FRAMES TO COMPLETE
   REDEPLOYMENT BY DECEMBER 1996
----------------------------------------------------------- Letter :16



   (See figure in printed
   edition.)


Future events and decisions will affect the time frames allowed for
redeployment of U.S.  forces.  The time frames allowed will in turn
affect the choice of transportation modes to be used for the
redeployment.  The time frames and transportation modes will affect
the cost.  DOD officials in Europe told us that no decision has been
made regarding when redeployment of U.S.  forces from Bosnia will
begin.  DOD is planning for the redeployment, but no actions will be
taken to redeploy until that decision is made and coordinated with
NATO and various allied countries. 

As noted earlier, the Army estimates that an orderly, cost-efficient
redeployment from Bosnia will take about 100 days.  Planning for this
redeployment is based on using ground transportation--rail and
barge--for the most part and troop labor as opposed to contractors. 
To complete a redeployment in 100 days, it would have to begin around
September 12--2 days before the Bosnian elections are estimated to be
held.  If a decision is deferred until well after the Bosnian
elections, either the redeployment under the above plan would extend
beyond December 20 or the plan would have to be revised to rely more
heavily on airlift than previously planned, as well as on ground
transportation.  A heavier reliance on airlift would increase the
cost of redeployment.  The deployment into Bosnia, which involved
considerable airlift, took about 62 days.  Relying more heavily on
airlift for redeployment, and using the deployment time as a guide,
we estimated a redeployment starting in late October could be
completed by December 20. 

DOD estimates that redeployment will cost $73 million.  We previously
reported that through January 1996, deployment transportation had
cost $157 million.  Deployment was completed in early February.  As
noted above, the cost of the redeployment will be affected by the
modes of transportation used, with a reliance on airlift driving up
transportation costs.  Alternatively, a heavy reliance on ground
transportation with redeployment beginning after September 1996 and
extending beyond December 20 will increase sustainment costs.  Office
of the Under Secretary of Defense (Comptroller) officials estimated
that sustainment costs for the operation at the current troop
strength average about $150 million per month.  Therefore, paying
more in transportation costs for a more rapid redeployment would
result in lower sustainment costs.  Until decisions on redeployment
are made, costs will remain uncertain. 


   FUNDING IMPLICATIONS
----------------------------------------------------------- Letter :17



   (See figure in printed
   edition.)


As mentioned previously, DOD's current cost estimate and funding
level is based on the assumption that all U.S.  military personnel
will be out of Bosnia and neighboring countries by December 20, 1996. 
We identified several circumstances under which the departure date
could be delayed, and key costs remain uncertain.  Costs incurred
beyond December 20, 1996, as well as any further increases in costs
between October and December 1996, are unfunded in the President's
budget, and will either have to be absorbed within existing DOD
appropriations or funded through further congressional action. 


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix I

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Steven H.  Sternlieb, Assistant Director
Ann Borseth, Evaluator-in-Charge
Lisa M.  Quinn, Evaluator

NORFOLK FIELD OFFICE

Suzanne Wren, Evaluator

KANSAS CITY FIELD OFFICE

John G.  Wiethop, Evaluator


*** End of document. ***