The Army  believes a brigade-based force will make it more agile and deployable and  better able to meet combatant commander requirements. Modular Transformation Cost Estimate Has Increased, and Uncertainties Surrounding Pending Decisions May Increase Costs Further

Since the summer of 2004, the Army’s cost estimate for transforming its  force through fiscal year 2011 increased from $28 billion to $48 billion in  its spring 2005 estimate. Pending decisions about the  number and design of modular units, and uncertainties surrounding  equipment, personnel, and facilities costs, may require the Army to request  additional funding beyond $75.5 billion or accept reduced capabilities  among some or all of its units. Without a clearer picture of the Army’s  resource requirements, DOD will have difficulty weighing competing  funding priorities, and the Secretary of Defense and Congress will not  have information they need to evaluate funding requests. This estimate, however, did not include personnel costs and some  construction costs. Adding these known costs for construction and  personnel to the Army’s official estimate brings the total potential known  costs to $75.5 billion. We identified the following  factors that could affect equipment, personnel, and facilities costs. However, until the strategy is finalized, costs for converting this equipment  remain unclear. End Strength Requirements Are Uncertain and Could Increase Personnel Related Costs

Although the Army has estimated that it will require about $3 billion per  year for the 30,000 soldiers it has attributed to meeting the requirements of  transforming to a modular force while conducting operations related to  the Global War on Terrorism, uncertainty about the need for additional  end strength could produce cost growth in personnel-related expenses. The Army’s Funding Plan Poses Funding Risks That May Cause Affordability Challenges in the Future

The Army’s funding plan for its modular force anticipates a combination of  supplemental and annual appropriations, but risks borne of the fast pace  of transformation, cost growth for the modular transformation, not  achieving efficiencies as planned, and likely cost growth from FCS could  pose affordability challenges in the future. The Army intends to use this funding plan in developing funding requests  for funds provided through both regular and supplemental appropriations. First, when compared to  the Army’s unit creation schedule, the plan indicates that the Army will be  creating units before it has the funding available to resource them, as  shown in figure 1. Lack of an Approach to Track Funds Obligated for the Modular Force Limits the Transparency of Funds Used

While the Army can generally track funds associated with individual  programs, it has not established an approach for tracking funds obligated  for its modular force transformation. It should include    a clear definition of what costs the Army does and does not consider to be  related to the modular transformation;    estimates for equipment, facilities and personnel;  identification of uncertainties in the plan due to pending force structure  design decisions or other decisions that may affect costs, and updates to  the plan as these decisions are made;   a report on obligations related to the modular force made the previous    divergences from the plan as stated in the prior year’s report, and  contributing factors. As we noted in the report, in  preparing its budget estimate and request for funding, the Army has  already grouped projects together under the modularity umbrella and has  identified specific funding needs for modularity.
Why GAO Did This Study

In 2004, the Army began transforming its force into modular brigade-based units, thus expanding the number of units available for deployment and creating new command and support units. The Army is transforming while engaged in the Global War on Terrorism and developing other high-cost capabilities. This prompted congressional concern about the affordability of Army plans. Thus, under the Comptroller General's statutory authority, GAO examined the Army's restructuring. This report addresses (1) the extent of change in costs and areas of uncertainty that could affect those costs, (2) the Army's plan for funding modularity and factors that may affect affordability, and (3) whether the Army has an adequate approach to track modularity obligations.

What GAO Found

The Army's cost estimates for its modular force are evolving and have increased substantially, and uncertainty exists that will likely increase costs further. In March 2005, the Army estimated it will need $48 billion to fund modularity through 2011, a 71 percent increase from its 2004 estimate of $28 billion. However, this latest estimate does not include $27.5 billion in personnel and construction costs the Army and GAO identified, bringing potential known costs to $75.5 billion. Uncertainties remain in this estimate related to force design, equipment, facilities, and personnel, which could increase costs or require the Army to reduce capabilities. Until the Army provides a more reliable estimate of its modularity costs, DOD and Congress will not be well positioned to weigh competing requests for funding. The Army's funding plan, which it uses as the basis for developing funding requests, relies on annual and supplemental appropriations and may present future affordability challenges. Uncertainty in cost estimates noted above, reliance on business engineering efficiencies that historically have been difficult for DOD to achieve, and likely cost growth from another high-cost program--Future Combat Systems--collectively pose the risk of making this plan unaffordable. Also, the Army will be creating most of the modular units before it has the funding to support them While the Army can generally identify overall equipment purchases, it lacks an approach for tracking most modularity obligations and thus cannot provide a reliable picture of past spending or future funding needs. Army officials said they had not established a framework to track personnel and equipment obligations in part due to the difficulty of defining whether such expenses were incurred specifically for modularity or to support the force in general. However, we note the Army has made such distinctions in its past funding requests, including identifying specific amounts needed for equipment, and will require such data to develop and justify future requests.