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entitled 'Force Structure: Actions Needed to Improve Estimates and 
Oversight of Costs for Transforming Army to a Modular Force' which was 
released on September 29, 2005. 

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Report to Congressional Committees: 

United States Government Accountability Office: 

GAO: 

September 2005: 

Force Structure: 

Actions Needed to Improve Estimates and Oversight of Costs for 
Transforming Army to a Modular Force: 

GAO-05-926: 

GAO Highlights: 

Highlights of GAO-05-926, a report to congressional committees: 

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, as shown below, the Army will be creating most of the modular 
units before it has the funding to support them.

Comparison of Modularity Restructuring and Funding Schedules: 

[See PDF for image] 

Note: The Army plan did not include funding data for fiscal year 2004.
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. 

[End of figure]

What GAO Recommends: 

GAO recommends that the Secretary of Defense provide Congress an annual 
plan outlining the costs of Army modularity and develop an approach to 
track funds obligated for this effort. The Department of Defense (DOD) 
agreed on the need to provide Congress better information on Army 
modularity, but stated it does not plan to establish an approach for 
tracking costs. GAO reiterates the need for the Secretary to provide a 
plan for overseeing expenditures for Army modularity in a matter for 
congressional consideration. 

www.gao.gov/cgi-bin/getrpt?GAO-05-926. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Sharon Pickup at (202) 
512-9619 or pickups@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Modular Transformation Cost Estimate Has Increased, and Uncertainties 
Surrounding Pending Decisions May Increase Costs Further: 

The Army's Funding Plan Poses Funding Risks That May Cause 
Affordability Challenges in the Future: 

Lack of an Approach to Track Funds Obligated for the Modular Force 
Limits the Transparency of Funds Used: 

Conclusions: 

Recommendations for Executive Action: 

Matter for Congressional Consideration: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Comments from the Department of Defense: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Army Schedule for Transforming to the Modular Design: 

Table 2: Modular Force Cost Estimates for the Entire Army by Function: 

Table 3: Modular Force Funding Plan: 

Figure: 

Figure 1: Comparison of Army Modularity Restructuring and Funding 
Schedules: 

Abbreviations: 

BRAC: Base realignment and closure: 
CBO: Congressional Budget Office: 
DOD: Department of Defense: 
FCS: Future Combat Systems: 
FYDP: Future Years Defense Program: 

United States Government Accountability Office: 

Washington, DC 20548: 

September 29, 2005: 

Congressional Committees: 

The Army considers its transformation into a modular force to be the 
most extensive reorganization of its force since World War II, 
requiring large investments in personnel and equipment to restructure a 
force now organized in divisions to a modular brigade-based force. By 
the end of fiscal year 2006, the Army plans to reorganize its 10 active 
duty divisions, expanding from 33 brigades to 43 modular brigade combat 
teams, and by fiscal year 2010, create new types of command and support 
units. At the same time, the Army is fighting the Global War on 
Terrorism and developing other new capabilities such as the Future 
Combat Systems (FCS).[Footnote 1] As the Department of Defense (DOD) 
requests funds to support these Army initiatives, it is incumbent on 
DOD to provide the best available data to justify its resource needs. 

Because of the magnitude of the Army's transformation plans and growing 
congressional concerns about their affordability, we are examining both 
the force structure and cost implications of the Army's transformation 
into a modular force under the Comptroller General's statutory 
authority. We presented our preliminary observations on the Army's plan 
in a March 2005 hearing before the Subcommittee on Tactical Air and 
Land Forces, House Committee on Armed Services.[Footnote 2] This report 
focuses on the cost of the modular force, with an emphasis on 
assumptions related to the active component because these plans were 
the most mature at the time of our review. Because of your oversight 
responsibilities, we are sending this report to you. Specifically, we 
(1) determined the extent of change in the Army's cost estimate for 
transforming to a modular force and the potential areas of uncertainty 
that could affect those costs, (2) examined the Army's plan for funding 
these costs and factors that may affect its ability to afford 
modularity, and (3) determined whether the Army has an adequate 
approach to track modularity obligations. We will be providing a 
separate report on force structure implications of the modular 
transformation at a later date. 

Overall, our assessment of the cost estimate, funding plan, and the 
approach for tracking obligations associated with the modular force 
transformation focused on the assumptions underlying cost projections 
for equipment, personnel, and facilities as they related to the modular 
force proposed by the Army. We examined the processes for developing 
them and assessed the estimates against analyses from officials 
knowledgeable about each of the cost categories. We found this 
information sufficiently reliable for analyzing the assumptions 
underlying costs of the modular force and funding plans. Specifically, 
to assess change and uncertainty in the cost estimate, we compared the 
Army's original rough order of magnitude estimate with updated 
estimates and discussed reasons for the changes with Army budget and 
programming officials. We also discussed areas of uncertainties with 
Army officials responsible for equipment procurement, personnel, and 
facilities, including both headquarters and command officials. To 
assess the affordability of the funding plan, we examined the plan in 
light of our ongoing and previously issued reviews examining Army 
assumptions about other high-cost programs and projected efficiencies 
expected in the Army's budget. To assess the Army's approach for 
tracking modular force costs, we discussed processes used to track 
these funds at the command and headquarters levels, and discussed the 
Army's existing processes for tracking costs in general with 
headquarters officials. We conducted our review from May 2004 through 
June 2005 in accordance with generally accepted government auditing 
standards. Further information on our scope and methodology and data 
reliability assessment appears in appendix I. 

Results in Brief: 

The Army's cost estimates for transforming to a modular force are 
evolving and have increased substantially, and uncertainty exists that 
will likely increase costs. As of March 2005, the Army estimated that 
it will need $48 billion to fund modular forces--which represents a 71 
percent increase from its 2004 estimate of $28 billion.[Footnote 3] 
However, this most recent estimate does not include $27.5 billion in 
personnel and construction costs the Army and GAO have identified, 
bringing the potential known costs to $75.5 billion.[Footnote 4] 
Uncertainties remain in assumptions about force structure design, 
equipment requirements and shortfalls, personnel costs, and basing, 
which could increase costs even more. For example, if the Secretary of 
Defense decides to further increase the number of brigade combat teams-
-a decision to be made in fiscal year 2006--increases in equipment, 
facilities, and personnel costs may occur. In addition, the amount for 
equipment costs included in the Army's estimate is likely understated 
because it does not entirely reflect the cost of purchasing all the 
equipment needed to bring the currently planned units to the modular 
design--and therefore to the level of capability--that the Army 
validated in testing. Also, Army officials are uncertain whether the 
current end strength authorization is enough to support the modular 
conversion, putting personnel costs at risk of increasing if additional 
end strength is needed. Finally, the costs of constructing permanent 
facilities are uncertain because they have not incorporated recent 
proposals for base realignment and closure and restationing of 
personnel from overseas. If costs grow due to these uncertainties, the 
Army may require additional funding beyond $75.5 billion or need to 
accept reduced capabilities among some or all of its units. Until the 
Army provides a better understanding of costs associated with the 
modular force and a clearer picture of the impact of resource decisions 
on the modular force capability, DOD will not be well positioned to 
weigh competing priorities and make informed decisions nor will 
Congress or the Secretary of Defense have the information they need to 
evaluate funding requests. 

The Army's 2005 through 2011 funding plan for its modular force, which 
relies on a combination of supplemental and regular appropriations and 
efficiencies, contains various risks that may pose difficult 
affordability challenges in the future. In sum, the Army anticipates it 
will fund the $75.5 billion cost for modularity with $10 billion in 
supplemental appropriations, $42.5 billion in regular appropriations 
(including $4.5 billion achieved through efficiencies), and a GAO- 
estimated $23 billion in either supplemental or regular appropriations 
to pay for personnel expenses. According to Army officials, the Army 
plans to use this strategy to meet its aggressive schedule for 
completing its modular conversion and to avoid canceling or 
restructuring other programs. It also intends to use its funding plan 
as the basis for developing requests for regular appropriations and 
supplemental appropriations funds. Several risk factors may impede the 
Army's ability to adhere to its plan. First, the Army will be creating 
units before funding is available to restructure them. Its schedule for 
creating and transforming modular units shows that by 2008, 96 percent 
of the 194 active and reserve units will be created by the time the 
Army has a little over half of its anticipated funding. Further, 
uncertainties in the cost estimate for the modular force noted above 
may increase the costs of the conversion. The funding plan also relies 
on the Army to produce $4.5 billion from business process reengineering 
efficiencies in order to fund new construction for the modular force. 
However, the Army's ability to achieve these savings is uncertain 
because DOD historically has had difficulty achieving these 
efficiencies. Finally, although the bulk of funding for the Army's FCS-
-a high-cost, high-priority Army program--occurs outside modular 
transformation time frames, we have reported that the program is at 
significant risk for not delivering required capability within budgeted 
resources, and that because of the size of FCS, cost growth could have 
dire consequences on the affordability of other Army programs. 
Collectively, the risks associated with uncertainties in cost 
estimates; the Army's ability to find efficiencies; and implementing 
two high-cost, high-priority programs could pose challenges for DOD and 
the Army in the future. 

While Army officials stated they can generally identify overall 
equipment purchases, the Army lacks an approach for tracking and 
categorizing most obligations related to modularity and thus cannot 
provide decision makers a transparent, reliable picture of past 
spending or future budget requirements for the modular force. Federal 
internal control standards state that agencies should provide 
reasonable assurance that an agency's objectives are being achieved 
through, among other things, reliable reports on budget 
execution.[Footnote 5] While the Army reported obligations of $133 
million for its operation and maintenance expenses in fiscal year 2004 
for the modular force transformation, Army officials told us that 
additional funds were obligated for personnel and equipment, but they 
could not specify the amounts. Initial Army estimates indicated that 
these costs could have been as high as $496 million. Army officials 
told us that they had not established a framework to track these 
modularity expenditures in part because of the difficulty in 
distinguishing whether such expenses were incurred specifically for the 
modular force transformation or to support the force in general. We 
note, however, that the Army has made such distinctions in its past 
funding requests for the modular force by requesting specific amounts 
of funds for equipment. For example, in documentation supporting the 
fiscal year 2005 supplemental appropriation request, the Army stated 
that it required $4.6 billion for modularity largely to fund equipment, 
vehicles, and facilities, and $3.1 billion to repair tanks and handle 
other battle losses. Moreover, without centrally tracking and reporting 
on equipment and personnel expenditures specifically related to its 
modular transformation, the Army cannot determine if the funding it 
planned and programmed for this purpose is being spent to meet the 
requirements for modularity. In addition, Congress cannot be certain 
that the funds it has authorized for fulfilling the Army's modular 
conversion requirements were spent for that purpose and that future 
funding requests for the modular force are justified in light of those 
expenditures. 

We made recommendations to DOD to improve information available to 
decision makers on the cost of the Army's plans and related 
expenditures. In comments on a draft of this report, DOD strongly 
disagreed with our findings related to the cost estimate for the 
modular force and the uncertainties we cited. DOD stated that its cost 
estimate was solid and that any uncertainties would not substantially 
change the estimate. For the reasons stated above and as discussed in 
the section summarizing these comments, we do not believe the 
department is in a position to state that the estimate is solid. 
Further, while DOD agreed on the need for improved reporting on 
modularity plans, it did not agree to establish an approach for 
tracking modularity costs as we recommend. Given the magnitude and 
significant cost of the effort, and the fact that DOD has requested 
funds from Congress specifically for modularity, we continue to believe 
oversight of expenditures is needed. Therefore, we have included a 
matter for congressional consideration. Specifically, Congress should 
consider requiring the Secretary of Defense to provide a plan for 
overseeing spending of funds provided for modularity. 

Background: 

The Army's modular force transformation, which has been referred to as 
the largest Army reorganization in 50 years, encompasses the Army's 
total force--active Army, Army National Guard, and U.S. Army Reserve-- 
and directly affects not only the Army's combat units, but related 
support and command and control. Restructuring these units is a major 
undertaking because it requires more than just the movement of 
personnel or equipment from one unit to another. The Army's new units 
are designed, equipped, and staffed differently than the units they 
replace, therefore successful implementation of this initiative will 
require many changes, such as new equipment and facilities; a different 
mix of skills and occupational specialties among Army personnel; and 
significant changes to training and doctrine. 

The foundation of the modular force is the creation of brigade combat 
teams--brigade-size units that will have a common organizational design 
and will increase the pool of available units for deployment. The Army 
believes a brigade-based force will make it more agile and deployable 
and better able to meet combatant commander requirements. Not only does 
the Army expect to produce more combat brigades after its 
restructuring, it believes the brigades will be capable of independent 
action by the introduction of key enablers, such as enhanced military 
intelligence capability and communications, and by embedding various 
combat support units in the brigade itself instead of at a higher 
echelon of command. The Army's objective is for each new modularized 
brigade combat team, which will include about 3,000 to 4,000 personnel, 
to have at least the same combat capability as a brigade under the 
current division-based force, which ranged from 3,000 to 5,000 
personnel.[Footnote 6] Since there will be more combat brigades in the 
force, the Army believes its overall combat capability will be 
increased as a result of the restructuring, providing added value to 
combatant commanders. 

Although somewhat smaller in size, the new modular brigades are 
expected to be as capable as the Army's existing brigades because they 
will have different equipment, such as advanced communications and 
surveillance equipment, and a different mix of personnel and support 
assets. The Army's organizational designs for the brigade combat teams 
have been tested by its Training and Doctrine Command's Analysis Center 
at Fort Leavenworth against a variety of scenarios, and the Army has 
found the new designs to be as effective as the existing brigades in 
modeling and simulation. 

By 2011, the Army plans to have reconfigured its total force--to 
include active and reserve components, and headquarters, combat, and 
support units--into the modular design. The plan includes expanding the 
existing 33 brigades in the active component division structure into 43 
modular, standardized brigade combat teams by fiscal year 2006. Table 1 
shows the Army's schedule for transforming to the modular design. 

Table 1: Army Schedule for Transforming to the Modular Design: 

Active maneuver brigade combat teams added; 
2004: 3; 
2005: 3; 
2006: 4; 
2007: 0; 
2008: 0; 
2009: 0; 
2010: 0; 
2011: 0; 
Total: 10. 

Active maneuver brigade combat teams reconfigured; 
2004: 10; 
2005: 5; 
2006: 11; 
2007: 7; 
2008: 0; 
2009: 0; 
2010: 0; 
2011: 0; 
Total: 33. 

Active headquarters units; 
2004: 3; 
2005: 3; 
2006: 4; 
2007: 4; 
2008: 1; 
2009: 2; 
2010: 1; 
2011: 0; 
Total: 18. 

Active support units; 
2004: 6; 
2005: 4; 
2006: 11; 
2007: 12; 
2008: 4; 
2009: 2; 
2010: 0; 
2011: 0; 
Total: 39. 

Total active units; 
2004: 22; 
2005: 15; 
2006: 30; 
2007: 23; 
2008: 5; 
2009: 4; 
2010: 1; 
2011: 0; 
Total: 100. 

Army National Guard units; 
2004: 0; 
2005: 9; 
2006: 34; 
2007: 13; 
2008: 23; 
2009: 0; 
2010: 0; 
2011: 3; 
Total: 82. 

U.S. Army Reserve units; 
2004: 0; 
2005: 0; 
2006: 4; 
2007: 4; 
2008: 4; 
2009: 0; 
2010: 0; 
2011: 0; 
Total: 12. 

Total Army units; 
2004: 22; 
2005: 24; 
2006: 68; 
2007: 40; 
2008: 32; 
2009: 4; 
2010: 1; 
2011: 3; 
Total: 194. 

Source: GAO analysis of Army data. 

[End of table]

Supporting DOD's goals for transformation while undertaking current 
operations is a complex undertaking. In addition to the sheer magnitude 
of force structure changes the Army is implementing, the Army's 
transformation to a modular force is occurring as the Army is rotating 
over 160,000 troops annually into combat theaters to fight the Global 
War on Terrorism. As an indication of the progress already made, the 
Army reports it has built 5 new brigade combat teams, converted 16 
brigade combat teams, and created 16 modular support brigades. In 
addition, the Army reports it has made "rebalancing" decisions 
affecting over 100,000 military positions in order to make the best use 
of its available personnel. This involves creating more units of the 
types needed most and eliminating from the force units of lesser 
priority. 

Legislation has increased the Army's end strength in part to support 
the modular reorganization. In the Ronald W. Reagan National Defense 
Authorization Act for Fiscal Year 2005, the Army was authorized an end 
strength of 502,400 soldiers--a 20,000 soldier increase of the fiscal 
year 2004 end strength of 482,400.[Footnote 7] The 2005 act also 
authorized the Secretary of Defense to increase the Army's end strength 
as high as 512,400 during fiscal years 2005 through 2009 to support the 
operational mission of the Army in Iraq and Afghanistan and to achieve 
transformational reorganization objectives of the Army.[Footnote 8]

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. While this latest estimate 
addressed some of the shortcomings of the initial estimate, and 
includes lessons learned developed from operations in Iraq, this 
estimate excludes some known costs and includes uncertainties that may 
increase the cost estimate further. The Army did not include personnel 
costs, which we estimate to total $23 billion over the same time frame, 
and also did not include $4.5 billion in construction costs the Army 
plans to achieve through efficiencies. When added to the most recent 
estimate, the total known costs increase from $48 billion to $75.5 
billion.[Footnote 9] Uncertainties in the estimate could cause costs to 
increase higher. 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. 

Cost Estimate for the Modular Force Has Increased: 

The Army's current cost estimate for the modular force transformation 
is $48 billion, a 71 percent increase from its initial rough order of 
magnitude estimate of $28 billion made in the summer of 2004.[Footnote 
10] There were several weaknesses in the initial $28 billion estimate. 
Because the modular force designs had not been finalized, earlier 
estimates reflected costs based mainly on the existing division-based 
design. Further, in constructing the active component portion of the 
estimate the Army (1) assumed the costs of adding 15 light infantry, 
division-based brigades but did not include costs of restructuring the 
existing combat brigades in the force structure; (2) did not include 
restructuring of command and support units; and (3) made no allowances 
for permanent construction to house and support these units, funding 
instead temporary facilities reflecting the Army's assumption that end 
strength increases would be temporary as well. 

In March 2005, the Army increased its estimate for transforming to a 
modular force to $48 billion from fiscal year 2005 through 
2011.[Footnote 11] According to Army officials, this most recent 
estimate addressed shortcomings of the initial estimate in that it 
included funding to (1) both create new units and restructure existing 
ones, (2) build permanent facilities to house and sustain the new force 
structure, and (3) used the modular design where available as the basis 
for estimating costs. Moreover, officials told us that the modular 
design had been updated to reflect lessons learned about equipping and 
employing the force from ongoing operations in Iraq. 

This estimate, however, did not include personnel costs and some 
construction costs. The Army reported that increases in end strength 
above the appropriated end strength of 482,400 soldiers were assumed to 
cost $3 billion per year, but were not tallied as part of the estimate. 
According to Army officials, these personnel costs were excluded 
because officials from the Office of Management and Budget and in the 
Office of the Secretary of Defense provided guidance that modular 
transformation was largely equipment related, and thus the Army should 
not include such costs. Further, Army officials cited the difficulty in 
segregating end strength cost increases due to modularity versus those 
due to ongoing operations. For example, units preparing for deployment 
to Operation Iraqi Freedom are being reorganized into a modular 
organization prior to deployment. While we acknowledge that it may be 
difficult to clearly state whether end strength increases associated 
with a deploying unit were due to modular transformation or operational 
requirements, we believe including these costs in their entirety is 
appropriate because (1) the Army has stated it requires an increase in 
end strength to accommodate the modular force, (2) it assumes that its 
tempo of operations will continue at the same pace through 2011, and 
(3) excluding personnel costs would significantly understate the cost 
of the modular force. The Army's $3 billion estimate multiplied over 
the 7-year period from 2005 through 2011 and including estimates for 
inflation totals $23 billion, based on GAO's calculations. In addition 
to these personnel costs, the Army did not include an additional $4.5 
billion in efficiencies it planned to apply to construction costs 
related to the modular force. This assumption is discussed in more 
detail in the next section. Adding these known costs for construction 
and personnel to the Army's official estimate brings the total 
potential known costs to $75.5 billion. 

According to Army data and our projection of personnel costs, equipment 
accounts for 54 percent of the costs, personnel for 30 percent, 
military construction and facilities for 8 percent, and sustainment and 
training for 8 percent as well. These figures along with the annual 
totals are presented in table 2. 

Table 2: Modular Force Cost Estimates for the Entire Army by Function: 

Dollars in billions: 

Equipping; 
2005: $4.7; 
2006: $5.8; 
2007: $5.4; 
2008: $5.9; 
2009: $6.5; 
2010: $6.7; 
2011: $6.0; 
Total: $41.0; 
Percent of total: 54%. 

Personnel; 
2005: $3.0; 
2006: $3.1; 
2007: $3.2; 
2008: $3.3; 
2009: $3.4; 
2010: $3.5; 
2011: $3.6; 
Total: $23.0; 
Percent of total: 30%. 

Military construction/facilities; 
2005: $0.3; 
2006: $0.0; 
2007: $0.5; 
2008: $0.5; 
2009: $1.5; 
2010: $1.5; 
2011: $1.5; 
Total: $5.8; 
Percent of total: 8%. 

Sustainment and training; 
2005: $0.0; 
2006: $0.7; 
2007: $0.7; 
2008: $1.2; 
2009: $1.1; 
2010: $1.0; 
2011: $1.0; 
Total: $5.7; 
Percent of total: 8%. 

Total; 
2005: $8.0; 
2006: $9.6; 
2007: $9.8; 
2008: $10.9; 
2009: $12.5; 
2010: $12.7; 
2011: $12.1; 
Total: $75.5; 
Percent of total: 100%. 

Sources: GAO analysis of Army cost estimates for equipping military 
construction and facilities, and sustainment and training costs; GAO 
projection of Army personnel cost data. 

[End of table]

Uncertainty Surrounding Assumptions Could Result in Further Cost 
Increase: 

While the Army's latest cost estimate addressed several of the 
shortfalls in its initial rough order of magnitude estimate, 
uncertainties in its latest estimate are likely to cause costs to 
increase. We identified the following factors that could affect 
equipment, personnel, and facilities costs. 

Future Decisions on Design of Combat, Support, and Command Units Could 
Affect Costs: 

The Army's Campaign Plan calls for a decision by fiscal year 2006 on 
whether to create five additional modular brigade combat teams--a 
decision that could affect the size and composition of the modular 
force as well as its cost. Adding five brigades would provide 
additional capability to execute the defense strategy but would require 
additional restructuring of people and equipment. If the Secretary of 
Defense decides to add five brigade combat teams to the current plan, 
the cost for modularity will increase significantly. For example, each 
modular brigade combat team under the current design would require 
3,300 to 3,700 soldiers, for a potential total of up to 18,500 
soldiers. It is not clear whether the Army would have to add this 
entire amount to its end strength, however. The Army has begun 
initiatives to rebalance the force by converting military positions to 
civilian positions, thus allowing soldiers currently in the 
institutional force to be moved to the operational force, and by 
rebalancing the active and reserve components in the force. To the 
extent the Army is successful in reallocating positions under these 
initiatives, it may be able to offset some of these requirements of the 
additional brigades. In addition to personnel requirements, adding 
these brigades to the force structure would add costs for equipment, 
facilities, and training. 

At the time the cost estimates were set, the Army had not finished the 
designs for all support units and command and control echelons. 
Refinement of these designs could increase costs if, as the Army fields 
these designs, it finds that additional personnel and equipment are 
needed to ensure sufficient capabilities. Some Army officials we spoke 
with have already expressed concern that command echelon designs do not 
have sufficient staff to manage all required tasks. For example, at one 
division we visited, officials thought that the command design was 
short staffed given their expanded set of responsibilities. As a 
result, command staff would have to prioritize the management of daily 
tasks and activities such as trend analysis, statistical tracking, and 
oversight, while leveraging of historical data to produce lessons 
learned and program improvement would have to be performed by 
contractors or other civilian staff. In both cases, if the Army finds 
that staffing levels in current command designs are not sufficient, it 
will have to choose between decreased capabilities or increased 
personnel expenses stemming from higher end strength requirements or 
hiring civilians or contractors to perform some of these functions. 

Equipping Brigade Combat Teams Poses Cost Uncertainties: 

Equipping brigade combat teams poses cost uncertainties because the 
Army did not use the equipment quantities in the tested design as the 
basis for determining equipment costs. Instead, the amount estimated 
for equipment reflects costs based upon a lesser modified amount of 
equipment that does not necessarily meet the capabilities of the tested 
design. The Army determined it could expect to provide this modified 
equipment level to units undergoing conversion based on the limitations 
of its current inventory of equipment, planned procurement pipelines, 
and expected funding. 

Further, in estimating its equipment costs for the modular force, the 
Army assumed that some equipment from ongoing operations would remain 
in operational condition for redistribution to new and restructured 
modular units. To the extent equipment is not returned from operations 
at assumed levels, it is not clear whether costs of replenishing this 
equipment would be considered modularity costs or costs of ongoing 
operations. Currently, equipment is wearing out and being consumed at 
higher-than-expected rates due to significant usage in current 
operational commitments overseas. For example, a Congressional Budget 
Office (CBO) assessment indicates that trucks in Iraq and Afghanistan 
are being driven roughly 10 times more miles per year than the average 
over the past several years. An internal Army assessment also found 
that tactical vehicles in Iraq are being utilized 6 to 10 times the 
normal operating tempo, dramatically reducing expected service life and 
creating significant repair expenses. In addition, the Army's 
prepositioned stocks will have to be reconstituted due to their heavy 
use in Operation Iraqi Freedom. We recently reported that according to 
Army officials, the Army is nearing completion on a new strategy for 
its prepositioning programs.[Footnote 12] They told us that 
prepositioning will continue to be important in the future and that the 
prepositioned sets would be converted to the modular configuration by 
2012 or sooner. However, until the strategy is finalized, costs for 
converting this equipment remain unclear. 

Facilities Cost Estimates Remain Uncertain: 

Potential increases in the number of brigades and pending decisions 
related to base realignment and closure (BRAC) and restationing of 
forces from overseas present considerable uncertainty in facilities 
cost estimates. As previously noted, the current estimate does not 
include the cost of funding to cover five additional brigades that may 
be added if approved by the Secretary of Defense in fiscal year 2006. A 
decision to add these brigades would add significantly to the modular 
force facilities' funding requirements. Without knowing where these 
brigades would be stationed, it is difficult to evaluate funding 
requirements for facilities because each base will likely have a 
different inventory of facilities in place to house and support such 
units. However, according to Army facility planning estimates, each new 
brigade combat team would require approximately $300 million dollars in 
permanent facilities if there are no existing facilities, such as 
barracks and vehicle maintenance facilities, at the proposed site. This 
planning estimate does not include facilities requirements for higher 
headquarters and support units, which can be substantial. For example, 
at Fort Campbell, the facility requirements for support and 
headquarters units accounted for $156 million, or 28 percent, of the 
$553 million dollar permanent construction requirements for the 
installation. None of these costs have been incorporated into the 
current estimate. 

The impact of decisions related to the BRAC process and DOD's overseas 
forces restationing strategy present further uncertainties in the 
Army's facility cost estimate. Although recent cost data on BRAC have 
been reported, the Army's current modularity facilities cost estimate 
predates the availability of the data and the Army has not updated its 
estimates accordingly. Both BRAC and the overseas restationing strategy 
have the potential to limit the Army's ability to construct new 
permanent facilities to support its modularity requirements. The BRAC 
commission's decision to close, realign, or reduce the size of military 
installations may constrain the construction funding available for the 
Army's modular forces, thereby serving to delay the Army's ability to 
construct sufficient permanent facilities for its modular force 
structure. The overseas restationing strategy aims to determine the 
optimum level of overseas stationing of U.S. military personnel and 
equipment in order to meet defense strategies. According to the Army, 
decisions related to the plan could return approximately 47,000 Army 
soldiers to the United States. This would greatly add to the 
requirements for facilities as entire units are relocated back to bases 
in the United States and soldiers from disestablished overseas units 
are transferred to fill the new modular units. The Army will face 
severe facilities shortages due to the increased populations within its 
continental U.S. installations resulting simultaneously from the BRAC 
decisions, overseas restationing strategy, and modular force 
restructuring. This increased demand for facilities may force the Army 
to make trade-offs in its permanent facility construction plans and may 
delay the construction of permanent facilities for its new modular and 
restructured units. 

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. This uncertainty about the total end 
strength required for the modular force has been reflected in our 
discussions with Army officials, in recent deliberations by Congress, 
and in analyses by other research organizations. 

* Officials from the Deputy Chiefs of Staff for Personnel told us in 
April and June 2005 briefings that the current authorized end strength 
of 512,400 active duty soldiers may not be enough to meet modular force 
personnel requirements, especially during the transformation process. 
In these briefings, officials told us the Army would likely need 
522,400 soldiers and possibly more to staff the modular force 
structure. 

* As a part of deliberations on the National Defense Authorization Act 
for Fiscal Year 2006, both houses of Congress have proposed increases 
in end strength in part to support the Army's restructuring. The 
pending House Defense Authorization Bill increases the Army's end 
strength to 512,400, with the option, as necessary, for the Secretary 
of Defense to increase the end strength as high as 532,400 for fiscal 
years 2007 through 2009.[Footnote 13] The Senate version of the bill 
authorizes increasing the size of the force to 522,400 in fiscal year 
2006.[Footnote 14]

* Finally, an analysis by the CBO reported that the Army may need as 
much as 542,400.[Footnote 15] This end strength assumes that the Army 
will add the 5 brigades to make a 48-brigade force and that it will be 
unsuccessful in reassigning 30,000 soldiers from the institutional to 
the operational force as planned. 

Increasing end strength has significant cost implications. Using the 
Army's suggested estimate of $70,000 per additional soldier, increasing 
the end strength by 10,000 soldiers for a total of 522,400 from 2006 to 
2011 would add $4.7 billion to the $23 billion cost estimate. However, 
this estimate is conservative, based primarily on personnel salaries 
but few other personnel-related expenses. The Army's current estimate 
of about $3 billion per year for 30,000 soldiers--a more comprehensive 
estimate that includes expenses for institutional and unit training, 
relocation, base support, and other items--translates to about $100,000 
per soldier. Using this more inclusive per-soldier estimate, we 
estimate that it would cost an additional $6.7 billion if the Army were 
required to increase its end strength to 522,400. 

In written comments on a draft of this report, DOD stated that the end 
strength increase was temporary and related solely to current 
operations. As discussed in the section of this report on agency 
comments and our evaluation, we disagree with DOD's comments on end 
strength. We note that the Army's own documents justified the end 
strength increase for the dual purpose of transforming and conducting 
operations. For example, the Army's approved 2005 Modernization Plan 
states that a 30,000 temporary increase in the Army's end strength 
enabled the beginning of the modular conversion of active component 
combat units. This view is consistent with Army briefings provided 
throughout our review that link the end strength increase with the 
Army's modularity initiative. 

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 plan indicates 
that the transformation will be paid for with $10 billion in 
supplemental appropriations in fiscal years 2005 and 2006, and a total 
of $42.5 billion in its regular appropriations from 2005 through 2011. 
In addition, the Army anticipates receiving personnel funding to pay 
for increased end strength through either supplemental appropriations 
or an increase to the Army's base budget. As noted earlier, we project 
these costs to total $23 billion, including inflation. Table 3 displays 
the annual totals for these funds. 

Table 3: Modular Force Funding Plan: 

Supplemental appropriations; 
2005: $5.0; 
2006: $5.0; 
Total: $10.0. 

Regular appropriations; 
2006: $1.5; 
2007: $6.6; 
2008: $7.6; 
2009: $9.1; 
2010: $9.2; 
2011: $8.5; 
Total: $42.5. 

Supplemental or regular appropriations for increased end strength; 
2005: $3.0; 
2006: $3.1; 
2007: $3.2; 
2008: $3.3; 
2009: $3.4; 
2010: $3.5; 
2011: $3.6; 
Total: $23.0. 

Total; 
2005: $8.0; 
2006: $9.6; 
2007: $9.8; 
2008: $10.9; 
2009: $12.5; 
2010: $12.7; 
2011: $12.1; 
Total: $75.5. 

Sources: GAO analysis of Army funding plan; GAO projection of Army 
personnel cost data. 

Note: Figures may not add due to rounding. 

[End of table]

The Army intends to use this funding plan in developing funding 
requests for funds provided through both regular and supplemental 
appropriations. 

We note that the total costs reflected in the Army's funding plan are 
not specifically identified in the Future Years Defense Program (FYDP)-
-DOD's centralized report for providing DOD and Congress data on 
current and planned resource allocations. According to Army officials, 
the fiscal year 2006 FYDP, which projects funding requests from fiscal 
years 2006 through 2011, included only $42.5 billion of the $67.5 
billion the Army plans to request over those years. Of that, only $25 
billion was specifically designated in the FYDP for this 
purpose.[Footnote 16] The FYDP also included $17.5 billion that the 
Army planned to use for modularity over that period according to Army 
officials, but these amounts were not specifically identified in the 
FYDP. Because the FYDP does not include anticipated requests for 
supplemental appropriations, the 2006 FYDP did not reflect either the 
$5 billion the Army plans to request in fiscal year 2006 or the $20 
billion we project the Army will request from fiscal years 2006 through 
2011 to support increases in end strength. 

Notwithstanding the potential for increases in the cost of modular 
force transformation noted above, this funding plan poses several risks 
that may raise difficult affordability questions in the future. 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. 

Figure 1: Comparison of Army Modularity Restructuring and Funding 
Schedules: 

[See PDF for image]

Note: The Army plan did not include funding data for fiscal year 2004. 

[End of figure]

While the Army anticipates that 96 percent of its 194 active and 
reserve units will be created by 2008, it will have received only 51 
percent of its anticipated funding required to restructure these units 
by that time. Army officials told us that while it was necessary to 
create these modular units to support ongoing operations, and that 
units deploying were being supplied with equipment required to execute 
ongoing operations, the Army could not afford to equip the modular 
units according to its planned equipping levels for the modular force 
at the time the units were created. Therefore, to avoid canceling or 
restructuring other programs, funding was flattened out over time to 
meet the constraints of the funds available. In written comments on a 
draft of this report, DOD acknowledged that some units will face 
equipment shortages in the early years of transformation but the Army 
will manage these shortfalls through preplanned processes and stringent 
management controls. 

Also, the funding plan assumes that the Army will achieve a total of 
$4.5 billion in business process reengineering efficiencies, and that 
the savings associated with these efficiencies will be available to 
fund the modular force as part of the Army's regular appropriations. In 
December 2004 budget guidance from the Deputy Secretary of Defense, the 
Army was instructed to assume that $1.5 billion in business process 
reform efficiencies would be available for the modular force in each of 
fiscal years 2009, 2010, and 2011. In written comments on a draft of 
this report, DOD stated that it had identified programmatic offsets for 
these efficiencies and intended to include them as part of its fiscal 
year 2007 President's budget request. However, Army officials told us 
that details of their plan were not yet finalized and available for 
review. As a result, we are unable to comment on the specific plan the 
Army has for achieving these efficiencies. However, we noted in our 
most recently issued High-Risk Series that for years we have reported 
on inefficiencies and the lack of transparency and appropriate 
accountability across DOD's major business areas.[Footnote 17] Further, 
despite commitment and attention from senior DOD leaders, we found 
little tangible evidence of actual improvement in DOD's business 
operations to date. Given this track record and the lack of data 
available for us to review, we are not confident that the Army can 
achieve these efficiencies as planned. 

Finally, as we testified in March 2005, the Army's $108 billion FCS 
program is at significant risk for not delivering required capability 
within budgeted resources.[Footnote 18] Although the bulk of the 
funding for this high-priority program is planned for after 2011 when 
the Army plans to have completed its modular transformation, $23 
billion is projected to be spent from fiscal years 2005 through 2011 on 
research and development costs. Given the scope of the program, our 
assessment that FCS is likely to encounter problems late in development 
when they are very costly to correct, and historical cost growth in 
weapons systems, we reported that cost growth associated with FCS could 
have dire consequences on the affordability of the Army's programs, 
especially in light of a constrained discretionary budget. 

In comments to our report DOD stated that the FCS program is on track 
and stated that the Army uses a different standard for assessing 
technology maturity than GAO. Further, DOD stated that there is 
sufficient flexibility in its investment accounts that if financial 
risks arise, these risks can be addressed through extended planning 
period adjustments in future programming cycles. The fact remains that 
the program's level of knowledge--a key indicator of budgetary risk--is 
far below that suggested by best practices or DOD policy: nearly 2 
years after program launch and with $4.6 billion invested, requirements 
were not firm and only 1 of over 50 technologies was mature as of our 
March 2005 testimony. Even using the Army's standard for assessing 
technology maturity, less than 40 percent of the FCS technologies would 
be mature. Further, we note that while extended planning periods may 
make the program more affordable in a given year, we have reported that 
such extensions are costly.[Footnote 19]

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. As a result, the Army, 
DOD, and Congress will have limited visibility over whether funds are 
being expended as intended to achieve transformation goals, and will 
not have key data available to determine whether course corrections in 
the program are needed. Standards for internal control in the federal 
government state that internal controls should provide reasonable 
assurance that the objectives of the agency are being 
achieved.[Footnote 20] One of the categories of internal controls is 
reliability of financial reporting, including reports on budget 
execution. 

The Army's inability to track obligations related to its modular 
transformation is most clearly illustrated by the lack of data from 
fiscal year 2004. In that year, the Army created or transformed a total 
of 22 units. However, the Army has been unable to determine how much 
money it obligated to do so. For example, officials from the Army 
Budget Office told us that they track obligations of the overall Army 
related to equipment and personnel, but cannot discern how much of the 
funds obligated were related to the modular force transformation versus 
other programs, such as repairing or replacing equipment from 
operations in Iraq and Afghanistan. In early cost projections, the Army 
had estimated that it would need $400 million to procure equipment and 
$96 million in personnel expenditures to support the modular 
transformation in fiscal year 2004. Although Army officials told us 
that the majority of equipment requirements were satisfied with 
equipment transfers from other units that were not scheduled to deploy 
to operations in the near future, they were not able to tell us how 
much of the $400 million was offset by these transfers. Similarly, the 
Army was not able to distinguish how much of the amount of expenditures 
on personnel was attributable to the modular force transformation 
versus personnel cost increases associated with activating reservists 
for ongoing operations, and stop-loss policies designed to retain 
servicemembers for the operations beyond their service obligations. The 
Army did report that it obligated $133 million related to operations 
and maintenance for the modular force in fiscal year 2004 through a 
database it employs to track obligations related to supplemental 
appropriations for the Global War on Terrorism. However, in our report 
on cost data related to the Global War on Terrorism to be issued later 
this month, GAO found numerous problems in DOD's processes for 
recording and reporting costs for the Global War on Terrorism, raising 
significant concerns about the overall reliability of DOD's reported 
cost data. 

Army officials acknowledged the need to closely monitor resources 
required and applied to the modular force transformation, and noted 
that this monitoring occurs as part of weekly, high-level meetings with 
the Army Chief of Staff. These meetings focus on tracking equipment 
needs of transforming units and making sure that these needs are met. 
Equipment shortages can be filled with new equipment, transfers from 
other units, or by the unit falling in on equipment left in Iraq. There 
are also controls to track how many and what pieces of equipment have 
been purchased and distributed, according to these officials. However, 
because ongoing missions continually change the status and availability 
of equipment, it is difficult for Army officials to define whether new 
equipment meets the requirements of modular transformation or ongoing 
operational needs. Indeed, sometimes the equipment may serve to meet 
both purposes. Also the Army's financial system has limitations and 
lacks the functionality required to split out modular components within 
each line of equipment. Army leadership, therefore, has made the 
decision that it is more important to account for the total equipment 
purchased; dollars spent; and operational issues, such as ensuring that 
equipment gets to the units that need it, rather than labeling a 
particular piece of equipment as dedicated to modular transformation or 
not. 

While we recognize the challenges of monitoring resource expenditures 
in the context of ongoing operations, we also note that in its 
estimates and requests for appropriations, the Army has been able to 
distinguish between funding requirements for its modular transformation 
and other priorities. For example, in documentation supporting the 
fiscal year 2005 supplemental appropriation request, the Army stated 
that it required $4.6 billion for modularity largely to fund equipment, 
vehicles, and facilities, and $3.1 billion to reset and recapitalize 
tanks and other battle losses. While the Army appears to have 
established parameters for estimating modularity costs, it cannot apply 
them for tracking purposes. 

Conclusions: 

Despite a significant increase in its estimate to fund the modular 
transformation from its original estimate, the Army's ultimate costs of 
the modular force will likely be higher than currently estimated due to 
uncertainties and pending decisions, which may drive costs even higher. 
Until the Army develops a detailed plan estimating the total costs of 
the modular force as designed and tested and starts submitting this 
plan to Congress each year, Congress cannot be assured that it is 
receiving an accurate reflection of all costs associated with this 
restructuring and the risks associated with any funding shortfalls, 
given the uncertainties of the current estimate. Moreover, it will be 
difficult for the Secretary of Defense to make informed decisions 
weighing the relative merits of programs departmentwide in terms of 
making trade-off decisions when faced with likely affordability 
challenges in the future. 

Further complicating its ability to project resource needs, the Army is 
not tracking and reporting obligations related to this effort by fiscal 
year. As a result, decision makers, including DOD and Army leadership 
and Congress, will not be able to assess whether funds appropriated for 
modularity have been utilized for the purposes intended nor will they 
have historical information useful in considering future funding needs. 

Recommendations for Executive Action: 

To improve information available to decision makers on the cost of the 
Army's plan for modularity, we are making to recommendations to the 
Secretary of Defense. 

We recommend that the Secretary of Defense direct the Secretary of the 
Army to provide Congress a detailed plan estimating the costs of 
modularity sufficient to provide Congress reasonable assurance that 
estimated costs reflect total costs of modularity as designed and 
tested. Such a plan should be prepared annually and submitted as part 
of justification material supporting DOD's budget request, until the 
modular force is fully implemented. 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 fiscal year; and: 

* divergences from the plan as stated in the prior year's report, and 
contributing factors. 

To facilitate his oversight of the program and collecting the data for 
Congress mentioned above, we also recommend that the Secretary of 
Defense direct the Secretary of the Army in coordination with the 
Undersecretary of Defense (Comptroller) to develop a plan for 
overseeing the costs related to the Army's transformation to a modular 
force. This plan should include an approach for tracking modular 
transformation costs that clearly identifies obligations for the 
modular force. 

Matter for Congressional Consideration: 

The Congress should consider requiring the Secretary of Defense to 
provide a plan for overseeing spending of funds provided for 
modularity. 

Agency Comments and Our Evaluation: 

In written comments on a draft of this report provided by the Army on 
behalf of DOD, the department strongly disagreed with our findings 
related to the cost estimate for the modular force and the 
uncertainties cited. DOD stated that the Army's $48 billion cost 
estimate is solid and does not include uncertainties. For example, 
although DOD expects the modular force design to change, it does not 
believe these changes will substantially change the Army's cost 
estimate. Also, DOD objected to our inclusion of personnel costs in our 
estimate because it believes the end strength increase is temporary and 
entirely related to the Global War on Terrorism. DOD noted that an end 
strength increase would not have been necessary in a peacetime 
environment. DOD also stated that our report includes costs related to 
resetting the force, BRAC, overseas restationing of service members, 
and FCS. The department noted that these costs were not included in its 
estimate for the modular force, nor should they be. Despite these 
concerns, DOD partially concurred with our recommendations. 

We do not agree that DOD is in a position to state that the Army's cost 
estimate is solid and continue to believe that our findings fairly 
reflect the potential costs and uncertainties associated with the 
Army's modular transformation. As we state in our report, at the time 
the estimates were set, the Army had not finished the designs for 
support units and command and control echelons. In addition, we note 
that the Army has not included the equipment quantities in the tested 
design as the basis for determining equipment costs. If subsequent 
testing or lessons learned demonstrate any weaknesses in the current 
design, the Army may decide to modify equipment levels or force 
structure, which could impaaffect costs. We recognize that some of 
these uncertainties, such as those related to facilities costs and 
force design, are a reflection of preparing an estimate for a very 
complicated undertaking where there are many moving parts. Given the 
complexity of this undertaking and two decades of GAO reports 
delineating DOD's overly optimistic planning assumptions in budget 
formulation, which often lead to program instability or costly program 
stretch outs, we believe these uncertainties should be explicitly 
acknowledged so that decision makers can make informed decisions. 

Regarding the inclusion of personnel costs related to the end strength 
increase, we note that the Army's own documents justified the end 
strength increase for the dual purposes of transforming and conducting 
operations. For example, the Army's 2005 Modernization Plan states that 
a 30,000 temporary increase in the Army's end strength enabled the 
beginning of the modular conversion of active component combat units. 
Moreover, the Army's initial 2004 estimate included personnel costs due 
to increases in end strength. Finally, it is not clear how the Army 
would be able to add 10 combat brigades to the active component without 
affecting end strength in some manner. For these reasons we continue to 
believe that the Army needs to recognize these costs in its estimate. 

DOD also suggests that costs associated with resetting the force, BRAC, 
overseas restationing of forces, and FCS are included in our estimate 
of $75.5 billion. While we cite these issues as either pending 
decisions or related programs that could affect the scope or 
affordability of the modular transformation, we do not include the 
costs of these programs in the estimate itself. 

DOD partially concurred with our recommendation that the Secretary of 
Defense direct the Secretary of the Army to provide improved cost 
estimates to reflect the total cost of the modular transformation as 
designed and tested, and recognized the need for periodic reporting on 
the modular force. DOD also cited forthcoming reports that it believed 
would provide official, comprehensive oversight of the modular force 
initiative. Specifically, DOD cited a report due to Congress in 
September 2005 on the long-range plan for executing and funding the 
modular force initiative that includes related budget projections for 
fiscal years 2007 through 2011, funding challenges, equipment 
requirements, and program management oversight practices. In addition, 
according to the comments, the Army was directed to provide the Office 
of Management and Budget, through the Office of the Secretary of 
Defense, an annual report for the Army modular force. We agree with DOD 
that additional reporting on this initiative is needed, and note that 
the reporting requirements from both Congress and the Office of 
Management and Budget also indicate a need for improved information. 
Our recommendation does not seek to create redundant and unnecessary 
additional reporting requirements, as was indicated in DOD's comments. 
Indeed, our recommendation allows DOD wide latitude in how it provides 
the information we believe Congress needs for oversight to avoid such 
redundancy. However, we also note that the reports DOD cited have not 
yet been finalized, and we are unable to determine from DOD's 
description whether these reports would address our recommendations. If 
these reports adequately address the reporting requirements we 
recommend, there would be no need for additional reporting on DOD's 
part. 

DOD also partially concurred with our recommendation that the Secretary 
of Defense direct the development of a plan for overseeing the costs 
related to the Army's transformation to a modular force. DOD noted that 
the Undersecretary of Defense (Comptroller) will closely monitor the 
funding and execution of projects and programs associated with 
transformational efforts as part of its oversight responsibilities. 
However, DOD also noted that there were no plans to establish an 
encompassing framework, grouping Army projects together under 
"modularity." It stated that such a framework would dramatically expand 
the billing process, increase administrative costs, and more 
importantly complicate distribution of material in a wartime 
environment. We continue to believe that the Army will need a framework 
or approach to oversee expenditures for modularity in order to provide 
DOD and the Congress the information needed for effective oversight. We 
note that the recommendation provides DOD wide latitude to establish an 
approach for tracking modular transformation costs, and we do not 
advocate a framework that would require a separate billing system or 
complicate distribution of material in a wartime environment (or any 
environment). 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. DOD is asking Congress to allocate $48 
billion to this modular transformation (over $75 billion when personnel 
and some other costs are included). As with any initiative of this 
magnitude, the Secretary of Defense and Congress require the best data 
available to weigh competing resource requirements so that they can 
make appropriate trade-off decisions. Information on how the Army has 
spent funds provided for modularity should be considered in formulating 
future funding requests. Therefore, our recommendation is intended to 
provide assurance that future such requests consider the obligations 
made thus far so that Congress has a sound basis on which to determine 
whether funds allocated to the modular force are being obligated as 
intended. Because DOD stated it has no plans to establish a framework 
to track these obligations, and given the magnitude and significance of 
the effort as well as the fact that DOD has requested funds from 
Congress specifically for modularity, we continue to believe oversight 
of expenditures is needed. Therefore, we have included a matter for 
congressional consideration. Specifically, the Congress should consider 
requiring the Secretary of Defense to provide a plan for overseeing 
spending of funds provided for modularity. 

DOD's comments are reprinted in appendix II and addressed as 
appropriate in the body of the report. Annotated evaluations of DOD's 
comments are also included in appendix II. 

We are sending copies of this report to the Secretary of Defense, the 
Undersecretary of Defense (Comptroller), and the Secretary of the Army. 
We will also make copies available to others upon request. In addition, 
this report will be available at no charge on the GAO Web site at 
http://www.gao.gov. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-9619 or pickups@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made major contributions to 
this report are listed in appendix III. 

Signed by: 

Sharon L. Pickup: 
Director, Defense Capabilities and Management: 

List of Committees: 

The Honorable John Warner: 
Chairman: 
The Honorable Carl Levin: 
Ranking Minority Member: 
Committee on Armed Services: 
United States Senate: 

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

The Honorable Judd Gregg: 
Chairman: 
The Honorable Kent Conrad: 
Ranking Minority Member: 
Committee on the Budget: 
United States Senate: 

The Honorable Duncan Hunter: 
Chairman: 
The Honorable Ike Skelton: 
Ranking Minority Member: 
Committee on Armed Services: 
House of Representatives: 

The Honorable Bill Young: 
Chairman: 
The Honorable John Murtha: 
Ranking Minority Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Jim Nussle: 
Chairman: 
The Honorable John Spratt: 
Ranking Minority Member: 
Committee on the Budget: 
House of Representatives: 

[End of section]

Appendix I: Objectives, Scope and Methodology: 

Overall, our analysis of the Army's cost estimate, funding plan, and 
approach for tracking obligations pertaining to its modular 
transformation was limited to an examination of data presented in broad 
spending categories, such as equipment, facilities, and personnel costs 
by year. We interviewed and examined documents from knowledgeable Army 
officials about assumptions underlying each of these funding 
categories. Further, at headquarters and command levels, we examined 
the processes in place to monitor obligations related to the modular 
force. We found this information sufficiently reliable to analyze the 
assumptions underlying costs of the modular force and funding plans. 
Because of the uncertainties in the cost estimates and weaknesses in 
its approach to monitor obligations related to the modular force, we 
made recommendations to address each of these areas in order to improve 
data available for decision makers. Our specific methodology for each 
reporting objective follows. 

To determine the extent to which Army reflected expected costs and 
identify areas of uncertainty in the estimate, we obtained overall cost 
estimates from the offices of the Deputy Chief of Staff G-8[Footnote 
21] and the Deputy Assistant Secretary of the Army for Budget. We also 
examined justification materials supporting the fiscal year 2006 budget 
request, as well as the fiscal year 2005 request for supplemental 
appropriations, and monitored the development of the strategy, scope, 
schedule, and status of Army restructuring by examining key planning 
documents, such as the Army Campaign Plan, the 2004 Army Transformation 
Roadmap, and the Army Modernization Plan. To examine areas of cost 
uncertainty likely to be produced by transforming to a modular force, 
we discussed assumptions underlying these estimates and obtained 
corroborating documentation in interviews with officials from the 
Department of the Army Deputy Chiefs of Staff for Personnel (G1), 
Intelligence (G2), and Operations and Training (G3), and the Assistant 
Chief of Staff for Installation Management. We further discussed 
assumptions and areas of uncertainty with these offices' organizational 
counterparts at Forces Command in Fort McPherson, Georgia; the 3rd 
Infantry Division, in Fort Stewart, Georgia; the 101st Airborne 
Division in Fort Campbell, Kentucky; and the 4th Infantry Division, in 
Fort Hood, Texas. We also reviewed reports by non-Department of Defense 
entities such as the Congressional Budget Office, and our own reviews 
related to Army personnel. We compared these sources against the Army's 
cost assumptions to determine if they comprehensively accounted for 
expenses stemming from the strategy, scope, and schedule for 
transforming to a modular force. 

To determine the Army's plan for funding these costs and factors that 
may affect its ability to fund the modular force, we considered the 
cost estimates in the context of the larger Army budget, particularly 
the Army's reliance on supplemental appropriations and how funding the 
modular force fit into other programs and initiatives. Specifically, we 
examined justification materials for the 2006 presidential budget, the 
2005 supplemental appropriation request, and budget guidance from the 
Office of the Deputy Secretary of Defense. To identify factors that 
could affect the Army's ability to fund modularity, we questioned 
Deputy Chief of Staff G-8 officials about the Army's plan to garner 
efficiencies to apply to costs of the modular force to determine the 
status of these plans. We also relied on ongoing and previous GAO 
reviews of business process reengineering to evaluate Army efficiency 
claims. In addition, we considered the impact other priorities might 
have on the implementation of the Army's modularity plan, including 
current operations, the Future Combat Systems, Base Realignment and 
Closure decisions, and decisions to restation soldiers from overseas. 

Applying federal internal control standards, we determined whether the 
Army has an adequate approach in place to track obligations related to 
the modular force. In that regard, we interviewed officials from the 
Office of the Deputy Assistant Secretary of the Army for Budget and the 
Resource Management Office at Forces Command, and resource management 
officials at the 3rd Infantry Division, the 101st Airborne Division, 
and the 4th Infantry Division to determine how these entities tracked 
funds earmarked for the modular force. We reviewed documents 
establishing guidance from Army headquarters and discussed and 
documented how this guidance was implemented at lower command levels. 
In addition, we relied on the results of GAO's analyses of funds used 
to support the Global War on Terrorism, to the extent that these funds 
were used to support the modular force. 

Our review was conducted from May 2004 through June 2005 in accordance 
with generally accepted government auditing standards. 

[End of section]

Appendix II: Comments from the Department of Defense: 

DEPARTMENT OF THE ARMY: 
OFFICE OF THE DEPUTY CHIEF OF STAFF, G-8: 700 ARMY PENTAGON: 
WASHINGTON, DC 20310-0700: 

September 7, 2005: 

Ms. Sharon Pickup:
Director, Defense Capabilities and Management: 
U.S. Government Accountability Office: 
441 G Street, N.W.: 
Washington, DC 20548: 

Dear Ms. Pickup: 

Enclosed is the Department of Defense response to the GAO draft report, 
"FORCE STRUCTURE: Actions Needed to Improve Estimating and Tracking of 
Costs for Transforming Army to a Modular Force," dated August 4, 2005, 
(GAO Code 350547/GAO-05-926). 

The Department strongly disagrees with the GAO view of the Army Modular 
Force estimate and the cited uncertainties surrounding this estimate as 
described in the report. The Army's $48 billion cost estimate for the 
Army Modular Force is solid. The Army has portrayed the cost of the 
Army Modular Force both consistently and accurately. The GAO report 
includes costs related to personnel increases required to support 
current combat operations in the Global War on Terror, resetting the 
force, Base Realignment and Closure, overseas restationing, and Future 
Combat Systems (FCS). These costs are not included in the Army Modular 
Force estimate nor should they since they are addressed separately. 

The Department recognizes the need for periodic reporting on the Army 
Modular Force and partially concurs with the recommendations. 

Sincerely, 

Signed by: 

N. Ross Thompson III: 
Major General, U.S. Army: 
Director, Program Analysis and Evaluation: 

Enclosure: 

GAO DRAFT REPORT - DATED AUGUST 4, 2005 GAO CODE 350547/GAO-05-926: 

"FORCE STRUCTURE: Actions Needed to Improve Estimating and Tracking of 
Costs for Transforming Army to a Modular Force"

DEPARTMENT OF DEFENSE COMMENTS AND COMMENTS TO THE RECOMMENDATIONS: 

COMMENTS: 

The GAO report has attached or asserted unrelated costs to the Army 
Modular Force estimate. GAO also contends that the funding profile and 
force design changes create additional fiscal uncertainties. The Army 
strongly disagrees with the GAO view of the Army Modular Force estimate 
and the cited uncertainties surrounding this estimate as described in 
the report. The Army's $48 billion cost estimate for the Army Modular 
Force is solid. The Army has portrayed the cost of the Army Modular 
Force both consistently and accurately. The GAO report includes costs 
related to personnel increases required to support current combat 
operations in the Global War on Terror, resetting the force, Base 
Realignment and Closure, overseas restationing, and Future Combat 
Systems (FCS). These costs are not included in the Army Modular Force 
estimate nor should they since they are addressed separately. 

The Army disagrees with GAO's position that there are still 
uncertainties surrounding the current estimate. The Army's estimate of 
$48 billion dollars coupled with $4.5 billion gained internally through 
business process efficiencies allows for procurement of equipment and 
essential facilities required to equip and house the Army Modular Force 
as planned by the end of fiscal year 2011. Though there have been and 
there will continue to be Army Modular Force design changes subsequent 
to the current estimate, these are normal in the Army's force 
development process and will not substantially change the Army's 
estimate as GAO asserts. 

The Army has been forthright about the challenges of transforming while 
engaged in combat operations and understands that funding does not 
specifically match the current modular conversion schedule. Some units 
will face equipment shortages in the early years of transformation but 
the Army will manage these shortfalls through preplanned processes and 
stringent management controls. The systematic management of these 
shortages is directed from the highest leadership levels to ensure the 
right soldier and the right piece of equipment is in the right place at 
the right time. These shortages will be filled, as transformation 
progresses, by the end of fiscal year 2011. As an example of management 
emphasis, the Army has equipped and manned all deploying and deployed 
Brigade Combat Teams to the required level while transforming on 
schedule and within current estimates. 

The GAO report incorrectly links personnel endstrength cost increases 
directly to the Amy Modular Force cost estimate. The Army Chief of 
Staff requested a temporary endstrength increase to provide "head room" 
to enable the Army to transform while simultaneously fighting the 
Global War on Terror (GWOT). Based on a Presidential decision in 
January 2004, the active component is adding up to 30,000 Soldiers, 
increasing endstrength from 482,400 to 512,400. This endstrength 
increase is required to sustain ongoing combat operations and would not 
have been necessary in a peacetime environment. The Army considers all 
personnel costs related to the temporary endstrength increase to be 
GWOT related. Both the Secretary of the Army and the Army Chief of 
Staff have publicly acknowledged that endstrength increases due to 
current operations are temporary and all endstrength increases above 
482,400 are GWOT related. Assertions made otherwise are inaccurate. As 
a result, endstrength costs are not part of the Army Modular Force 
estimate. 

The GAO report asserts the Army will not be able to achieve $4.5 
billion in business process re-engineering efficiencies in fiscal years 
2009, 2010 and 2011. The Army is confident that it will achieve these 
efficiencies. In fact, the Army has already identified programmatic 
offsets for these efficiencies and will include the $4.5 billion as 
part of the fiscal year 2007 President's Budget Request. The Army is 
training leaders in proven techniques such as Lean Six Sigma in order 
to implement disciplined and measurable approaches to reduce waste and 
streamline organizations. By the end of FY07, the Army will have the 
internal infrastructure established to train our entire workforce to 
develop a learning culture of innovation that focuses on continuous 
measurable improvement and increased productivity. 

The GAO report asserts that FCS has "significant risk for not 
delivering required capabilities." FCS is a system of systems 
consisting of individual elements with technology maturing at different 
times. In addition, the Army considers a technology ready for 
transition to an acquisition program when it reaches Technology 
Readiness Level (TRL) 6 (demonstrated in a relevant environment), and 
provides technology base funding consistent with this philosophy. GAO, 
on the other hand, considers a technology ready for transition at TRL 7 
(demonstrated in an operational environment). The FCS program is on 
track and the Army believes there is sufficient flexibility in our 
investment accounts and any financial risk can and will be addressed 
through extended planning period adjustments in future programming 
cycles. 

The decision to add an additional five Brigade Combat Teams will be 
determined by the Secretary of Defense in 2006. It would be 
inappropriate to prematurely add the potential increases of five 
additional Brigade Combat Teams to the current cost estimate. If the 
decision is made to add an additional five brigades, the Army Modular 
Force estimate will be updated at that time. 

The GAO concerns regarding tracking Army Modular Force costs are based 
on a single system program approach. The Army Modular Force conversion 
is not an individual program but is instead a reorganization affecting 
almost 70 percent of the Army's total structure in the Active and 
Reserve Components as well as hundreds of individual procurement 
programs throughout the force. 

Funds for Army Modular Force transformation are requested and 
appropriated separately by Congress for each piece of equipment. Each 
acquisition item has a designated program manager with specialized 
acquisition experience and training. The Army uses a standard defense 
wide (DoD) financial system to manage and control the execution of 
these funds at the Budget Line (BLIN) item level in the manner 
appropriated. This standardized accounting system lacks the 
functionality required to split out modular components within each line 
of equipment nor is such a system desirable. 

An accounting mechanism that specifically earmarks individual items of 
equipment as modular will, by necessity, have the undesirable effect of 
dramatically expanding the billing process and increasing 
administrative costs. More importantly, this change would complicate 
equipment distribution in a wartime environment. The Army requires a 
responsive, flexible system that facilitates the rapid maneuvering of 
equipment and materiel to transforming units preparing to deploy to 
combat. The current DoD financial system provides the best possible 
internal control for the acquisition of modular components and gives 
the Army the requisite flexibility necessary to meet operational 
requirements and contingencies. 

In our view, the GAO report should include a balance of positive 
commentary regarding the Army's strategic transformation specifically 
acknowledging significant accomplishments to date. 

Army Transformation supports and complies with Department of Defense 
(DOD) operational goals as identified in the Defense Planning Guidance 
(DPG). In response to the DPG, the Army is transforming now while 
engaged in combat operations around the world. While engaged and 
transforming, the Army has equipped and manned all deploying Brigade 
Combat Teams on schedule and within current cost estimates. Although 
this has posed some challenges, the Army has and will continue to 
manage the force to meet the needs of the Nation and its Soldiers and 
families both at home and abroad. 

In the short time since concept approval, the Army has completed 29 of 
the 50 major decisions critical to achieve the Army Modular Force and 
the Modular Force Objectives defined by the Chief of Staff of the Army. 
The following actions critical to organizational transformation have 
been completed within estimated costs and on schedule: 

* Created the modular designs and scheduled the conversion of almost 
every Army Modular Force unit, with completion by FY12: 

* Built five new BCTs and modularly converted 16 BCTs: 

- 4 modular BCTs currently deployed to Operation Iraqi Freedom: 

- 8 modular BCTs preparing to deploy Created 16 modular Support 
Brigades Realigned resources to fund crucial transformation efforts: 

* Made rebalancing decisions affecting over 100,000 Active and Reserve 
Component personnel positions, with over 34,000 already executed; 

* Designed and began the implementation of a unit operational cycle 
process that maximizes readiness and availability of forces while 
restructuring Institutional Army capabilities to provide better support 
to the Army Modular Force. 

These actions are occurring as the Army annually is rotating over 
160,000 troops into combat theaters to fight the Global War on Terror. 

The primary and most appropriate metric to monitor both the short and 
long-term performance of the Army Modular Force is building and 
converting current brigades to modular Brigade Combat Teams in 
accordance with the Army Campaign Plan schedule. 

COMMENTS TO THE RECOMMENDATIONS: 

RECOMMENDATION 1: The GAO recommended that the Secretary of Defense 
direct the Secretary of the Army to provide Congress a detailed plan 
estimating the costs of modularity sufficient to provide Congress 
reasonable assurance that estimated costs reflect total costs of 
modularity as designed and tested. Such a plan should be prepared 
annually and submitted as part of justification material supporting 
DOD's budget request, until the modular force is fully implemented. 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 fiscal year; and: 

* Divergences from the plan as stated in the prior year's report, and 
contributing factors. (pages 20-21/GAO Draft Report): 

DoD RESPONSE: Partially Concur. DoD recognizes the need for periodic 
reporting on the Army Modular Force. The Army will provide a report to 
Congress on the Army Modular Force initiative as of 1 September 2005. 
The report provides the long-range plan for executing and funding the 
Army Modular Force initiative, as well as the budget for the Army 
Modular Force in fiscal years 2007-2011. The report also encompasses 
funding challenges, equipment requirements and program management 
oversight practices. This report can be prepared annually and submitted 
as part of the justification material. 

In addition, the Army was directed this fiscal year by the Office of 
Management and Budget (OMB) through the Office of the Secretary of 
Defense (OSD) to begin annual reporting for the Army Modular Force. The 
process used for this reporting is through the OMB Program Assessment 
Rating Tool (PART). 

The PART comprehensively reviews federal programs looking at program 
purpose, design, strategic plans, management, and execution metrics. 
The PART is a systematic method of assessing the performance of program 
activities across the Federal government. It is a diagnostic tool used 
to improve program performance. The PART assessments help inform budget 
decisions and identify actions to improve results. Agencies are held 
accountable for implementing PART follow-up actions and working toward 
continual improvements in performance. 

Since the Army Modular Force Initiative report and the OMB PART provide 
official, comprehensive oversight, we recommend that these reporting 
mechanisms be used as the authoritative source. The GAO proposal as 
structured creates redundant, and unnecessary additional reporting that 
will be addressed by both the Army Modular Force Initiative Report to 
Congress and the Army Modular Force PART. 

RECOMMENDATION 2: The GAO recommended that the Secretary of Defense 
direct the Secretary of the Army in coordination with the 
Undersecretary of Defense (Comptroller) to develop a plan for 
overseeing the costs related to the Army's transformation to a modular 
force. This plan should include an approach for tracking modular 
transformation costs that clearly identifies obligations for the 
modular force. (p. 21/GAO Draft Report): 

DOD RESPONSE: Partially Concur. The transformation of the Army is not a 
specific budget line item in the Army budget. Instead, funds provided 
to convert the Army to a modular force are spread throughout various 
appropriations and programs, which in total contribute to the 
transformation effort. The Undersecretary of Defense (Comptroller), as 
part of its oversight responsibilities, will closely monitor the 
funding and execution of projects and programs associated with 
transformational efforts. However, there are no plans to establish an 
encompassing framework, grouping Army projects together under 
"Modularity that would dramatically expand the billing process, 
increase administrative costs and more importantly complicate 
distribution in a wartime environment when the Army requires a 
responsive, flexible system that facilitates the rapid maneuvering of 
equipment and materiel to transforming units preparing to deploy to 
combat. Instead, to address cost oversight, funding and execution will 
be separately tracked at the component and project level. 

The following are GAO's comments on the Department of the Defense's 
letter dated September 7, 2005. 

GAO's Comments: 

1. We did not state that the Army would be unable to achieve 
efficiencies. Rather we noted the Army's ability to realize savings is 
uncertain because DOD has historically had difficulty achieving 
expected efficiencies. 

2. We did not state that the costs of an additional five brigade combat 
teams should be included in the estimate. Rather, as with other 
uncertainties cited in this section, we noted that pending future 
decisions, including whether to add five brigade combat teams, could 
impact the cost of the modular transformation. 

3. We revised the text to reflect DOD's comments that Army 
transformation supports DOD's goals and that the Army has taken steps 
to design, schedule, build, and convert brigade combat teams and 
support brigades. We did not include the comments that these actions 
were completed within estimated costs because, as our report states, 
uncertainties remain about the Army's cost estimates and the Army does 
not have a system for tracking modularity costs. 

[End of section]

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Sharon L. Pickup (202) 512-9619: 

Acknowledgments: 

In addition to the contact named above, Gwendolyn Jaffe, Assistant 
Director; Margaret Best; J. Andrew Walker; and Joah Iannotta made major 
contributions to this report. 

FOOTNOTES

[1] FCS is a program that consists of a family of systems composed of 
advanced network combat and sustainment systems, unmanned ground and 
air vehicles, and unattended sensors and munitions. 

[2] GAO, Force Structure: Preliminary Observations on Army Plans to 
Implement and Fund Modular Forces, GAO-05-443T (Washington, D.C.: Mar. 
16, 2005). 

[3] Unless otherwise noted, costs presented in this report are in then- 
year dollars. 

[4] In constant fiscal year 2006 dollars, this totals $71.6 billion. 

[5] GAO, Standards for Internal Control in the Federal Government, , 
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). 

[6] The Army's plan calls for three variants of the modularized brigade 
combat team. The infantry variant will have about 3,300 personnel, the 
armored variant 3,700 personnel, and the Stryker variant 4,000 
personnel. 

[7] Ronald W. Reagan National Defense Authorization Act for Fiscal Year 
2005, Pub. L. No. 108-375 § 401 (2004). 

[8] Ibid, § 403. 

[9] In constant fiscal year 2006 dollars, this totals $71.6 billion. 

[10] The initial estimate for the active component transformation, 
which accounted for $20.1 billion of the initial $28 billion, was 
presented to the President and Secretary of Defense in a January 2004 
briefing on the modular force transformation. In later briefings the 
Army added $7.9 billion to cover the costs of transforming the reserve 
component. 

[11] Army officials told us they excluded fiscal year 2004 costs from 
the estimate because the Army wanted to present future requirements, as 
opposed to past expenditures, and that the inclusion of the fiscal year 
2004 modular force costs would add a relatively minor increase to the 
overall costs. 

[12] GAO, Military Prepositioning: Better Management and Oversight 
Needed to Reduce Risk and Improve Future Programs, GAO-05-427 
(Washington, D.C.: July 2005). 

[13] H.R. 1815, 109th Cong. §§ 401, 1521, and 1522 (2005). 

[14] S. 1402, 109th Cong. § 401 (2005). 

[15] Congressional Budget Office, Options for Restructuring the Army 
(Washington, D.C.: May 2005), www.cbo.gov (downloaded May 11, 2005). 

[16] This amount includes $5 billion per year from 2007 through 2011 
that the Secretary of Defense specifically allocated to the Army for 
modularity in guidance for preparing the fiscal year 2006 budget 
request. 

[17] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: 
January 2005). 

[18] GAO, Defense Acquisitions: Future Combat Systems Challenges and 
Prospects for Success, GAO-05-428T (Washington, D.C.: Mar. 16, 2005). 

[19] GAO, Major Management Challenges and Program Risks: Department of 
Defense, GAO-03-98 (Washington, D.C.: January 2003). 

[20] GAO, Standards for Internal Control in the Federal Government, 
GAO/AIMD-00-21.3.1. 

[21] This office is responsible for programming, materiel integration, 
and management of Department of the Army studies and analyses. 

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