Defense Management
Observations on DOD's Fiscal Year 2010 Budget Request for Corrosion Prevention and Control Gao ID: GAO-09-732R June 1, 2009This report formally transmits the briefing in response to section 2228(e) of title 10 of the United States Code. The statute requires the Comptroller General to provide an analysis of the Department of Defense's budget submission for corrosion prevention and control, as well as an analysis of the corrosion report accompanying defense budget materials, and provide the results to the congressional defense committees within 60 days after submission of the Department of Defense budget. On May 26, 2009, we provided the briefing to staff Congressional committees to satisfy the mandate and 60-day reporting requirement.
GAO-09-732R, Defense Management: Observations on DOD's Fiscal Year 2010 Budget Request for Corrosion Prevention and Control
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GAO-09-732R:
United States Government Accountability Office:
Washington, DC 20548:
June 1, 2009:
Congressional Committees:
Subject: Defense Management: Observations on DOD's Fiscal Year 2010
Budget Request for Corrosion Prevention and Control:
This report formally transmits the attached briefing in response to
section 2228(e) of title 10 of the United States Code (see enclosure
I). The statute requires the Comptroller General to provide an analysis
of the Department of Defense's budget submission for corrosion
prevention and control, as well as an analysis of the corrosion report
accompanying defense budget materials, and provide the results to the
congressional defense committees within 60 days after submission of the
Department of Defense budget. On May 26, 2009, we provided the briefing
to staff of your committees to satisfy the mandate and 60-day reporting
requirement.
We are sending copies of this report to the appropriate congressional
committees. We are also sending copies to the Secretary of Defense; the
Deputy Secretary of Defense; the Under Secretary of Defense
(Comptroller); the Under Secretary of Defense (Acquisition, Technology,
and Logistics); the Secretaries of the Army, Navy, and Air Force; and
the Commandant of the Marine Corps. This report will also be available
at no charge on our Web site at [hyperlink, http://www.gao.gov]. Should
you or your staffs have any questions concerning this report, please
contact me at (202) 512-8365 or solisw@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors to this report were Tom
Gosling, Assistant Director; Janine Prybyla; Matt Spiers; and Allen
Westheimer.
Signed by:
William M. Solis:
Director, Defense Capabilities and Management:
List of Congressional Committees:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
The Honorable Daniel Inouye:
Chairman:
The Honorable Thad Cochran:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Ike Skelton:
Chairman:
The Honorable John M. McHugh:
Ranking Member:
Committee on Armed Services:
House of Representatives:
The Honorable John P. Murtha:
Chairman:
The Honorable C.W. Bill Young:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
[End of section]
Enclosure: Briefing on Fiscal Year 2010 Corrosion Budget:
Observations on DOD‘s Fiscal Year 2010 Budget Request for Corrosion
Prevention and Control:
Briefing for Congressional Defense Committees:
May 26, 2009:
Background:
Corrosion can have a deleterious effect on military equipment and
infrastructure in terms of cost, readiness, and safety. The Department
of Defense (DOD), through its cost of corrosion studies, estimates that
corrosion costs the military services nearly $12 billion a year (not
including Air Force aviation and missiles).
To target funding toward corrosion prevention and control (CPC),DOD
established a separate funding CPC program element for Research,
Development, Test & Evaluation funds and a separate corrosion line item
within an existing program element for Operation & Maintenance funds in
fiscal year 2006.
The CPC program element and line item are managed by the Corrosion
Policy and Oversight office within the Office of the Under Secretary of
Defense for Acquisition, Technology, and Logistics (USD(AT&L)).
DOD‘s CPC funding goes towards projects proposed by the services and
toward other activities aimed at reducing corrosion costs. The services
contribute additional funding for the projects.
Section 2228 of title 10, United States Code, requires the Secretary of
Defense, for each fiscal year beginning with 2009, to submit with
defense budget materials a report that includes:
- Funding requirements for DOD‘s long-term corrosion prevention and
control strategy;
- The return on investment (ROI) achieved by implementing this
strategy;
- Funds requested compared to funding requirements; and;
- An explanation if requirements are not fully funded.
GAO is required to provide an analysis of DOD‘s budget submission for
corrosion prevention and control and the related corrosion funding
report.
The President‘s fiscal year 2010 budget for DOD, along with budget
materials, was submitted on May 7, 2009.
Engagement Objectives:
In response to the mandate, GAO:
1. Identified DOD‘s process for developing its CPC budget submission;
2. Determined the extent to which DOD‘s fiscal year 2010 budget request
for CPC met total estimated requirements; and;
3. Calculated the potential cost avoidance for DOD‘s estimated funded
and unfunded CPC requirements.
Scope and Methodology:
Scope: DOD‘s fiscal year 2010 budget submission and related budget
materials, including estimated requirements, for the CPC program
element and line item managed by the corrosion office. Requests for
military service CPC funds were not included in our scope because of a
lack of visibility over these funds within DOD‘s budget.
Methodology: Obtained and analyzed DOD budget and requirements data, as
well as DOD‘s corrosion strategy and other pertinent documents.
Calculated the potential cost avoidance based on DOD‘s projected ROI
and its fiscal year 2010 budget submission. Interviewed officials at
the DOD corrosion office, as well as service corrosion officials and
Joint Staff officials.
Limitations: DOD did not submit the required corrosion funding report
with the defense budget materials. Therefore, we reviewed a draft of
this report. In addition, we did not independently validate DOD‘s CPC
estimated requirements or projected ROI used to develop the CPC budget
submission and draft corrosion funding report.
We conducted this audit from February 2009 through May 2009 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Summary:
The DOD corrosion office develops its CPC budget by considering
historical data on service corrosion project proposals as well as
guidance from USD(AT&L).
In its draft corrosion funding report, the corrosion office‘s total
estimated CPC requirements for fiscal year 2010 are $27.7 million. The
fiscal year 2010 budget submission requests $13.1 million for CPC,
including $9.5 million for projects and $3.6 million for activities.
Therefore,estimated unfunded requirements are about $14.6 million.
Based on the fiscal year 2010 budget and the projected ROI, DOD‘s
potential cost avoidance for its funded requirements is $484 million.
By not funding all of its estimated requirements, DOD is missing an
opportunity for additional cost avoidance totaling $506 million.
Objective 1: Process for Developing CPC Budget:
In developing its fiscal year 2010 CPC budget and the information for
the related corrosion report, the DOD corrosion office followed a
process similar to that used to develop the fiscal year 2009 budget.
According to DOD officials, in 2008 the corrosion office asked the
military services for preliminary estimates of the total number of
projects that would need funding in fiscal year 2010, along with the
cost of these projects.
The corrosion office assumed, based on historical trends, that it would
eventually accept about 60 percent of the total number of projects
submitted by the services. By multiplying the total cost of projects
submitted in the services‘ preliminary estimates by 60 percent,
corrosion officials determined the total estimated requirements for CPC
projects.
Total estimated project requirements for fiscal year 2010 were $21.5
million. This total does not include other non-project-related
corrosion activities funded by the corrosion office. The corrosion
office‘s estimated requirements for these activities amounted to $6.2
million.
The DOD corrosion office submitted a budget request of $24.4 million to
USD(AT&L). This amount represented an additional $10.3 million over the
fiscal year 2009 amount to address unfunded requirements. According to
corrosion officials, USD(AT&L) denied the increase because an offset
within AT&L could not be identified.
According to DOD‘s draft corrosion funding report, global commitments,
constrained budgets, and competing requirements preclude full funding
of CPC requirements.
Comptroller officials previously told us that while program offices may
consider ROI benefits in developing budget submissions, requirements
for systems and services, rather than ROI, drive funding levels in
DOD‘s annual budget request.
Although the services submitted their preliminary estimates in 2008,
they will submit their actual project proposals in the summer of 2009.
The corrosion office goes through a project selection process to make
final selections of projects it will fund from the CPC program element
and line item.
DOD‘s current methodology for estimating CPC funding requirements may
result in an inaccurate estimate of unfunded requirements.
* The services‘ preliminary cost estimates can differ significantly
from the total costs in their subsequent project proposals. For fiscal
year 2009”the first year this process was implemented”the preliminary
estimates totaled $47.6 million compared with $20.3 million for the
actual project proposals. It is unclear why this difference occurred.
* If the estimated requirements significantly differ from actual
project proposals, DOD may not be in a position to accurately report
unfunded requirements in its annual budget reports to Congress.For
example, DOD estimated unfunded requirements of $17.8 million for
fiscal year 2009, but it subsequently determined that it had $3.9
million in actual unfunded requirements following the project selection
process.
Table: CPC Project Funding (Fiscal Years 2005 through 2010) (Dollars in
thousands):
Fiscal year: FY 2005 actual;
Cost of all submitted projects: $56,581;
Cost of projects accepted(DOD requirements): $29,559;
Amount budgeted for projects: $17,955;
Unfunded project requirements[A]: $11,604.
Fiscal year: FY 2006 actual;
Cost of all submitted projects: $37,079;
Cost of projects accepted(DOD requirements): $21,733;
Amount budgeted for projects: $10,710;
Unfunded project requirements[A]: $11,023.
Fiscal year: FY 2007 actual;
Cost of all submitted projects: $36,197;
Cost of projects accepted(DOD requirements): $20,590;
Amount budgeted for projects: $8,136;
Unfunded project requirements[A]: $12,454.
Fiscal year: FY 2008 actual;
Cost of all submitted projects: $25,114;
Cost of projects accepted(DOD requirements): $12,128;
Amount budgeted for projects: $9,238;
Unfunded project requirements[A]: $2,890.
Fiscal year: FY 2009 Preliminary estimates[B];
Cost of all submitted projects: $47,563;
Cost of projects accepted(DOD requirements): $28,538;
Amount budgeted for projects: $10,749;
Unfunded project requirements[A]: $17,789.
Fiscal year: FY 2009 actual;
Cost of all submitted projects: $20,266;
Cost of projects accepted(DOD requirements): $13,698;
Amount budgeted for projects: $9,803;
Unfunded project requirements[A]: $3,895.
Fiscal year: FY 2010 Preliminary estimates[B];
Cost of all submitted projects: $35,831;
Cost of projects accepted(DOD requirements): $21,499;
Amount budgeted for projects: $9,543;
Unfunded project requirements[A]: $11,956.
Source: GAO analysis of DOD data.
[A] Unfunded requirements are projects that are accepted but not funded
and represent the difference between the ’DOD requirements“ column and
the ’Amount budgeted for projects“ column.
[B] The preliminary estimates for fiscal years 2009 and 2010 were
developed for DOD‘s reports to Congress, pursuant to 10 USC § 2228(e).
Fiscal year 2009 was the first year that the corrosion office estimated
CPC requirements.
[End of table]
Objective 2: DOD‘s Fiscal Year 2010 Budget Request for CPC:
In its draft corrosion funding report, DOD estimated total CPC
requirements of $27.7 million for fiscal year 2010. DOD‘s fiscal year
2010 budget request includes $13.1 million for CPC, which leaves
estimated unfunded corrosion requirements of $14.6 million. These
amounts exclude funding that the services contribute.
Table: CPC Funding (Fiscal Years 2006 through 2010) (Dollars in
thousands):
Appropriations account: Operation & Maintenance;
FY 2006 (actual): $8,136;
FY 2007 (actual): $7,346;
FY 2008 (actual): $7,869;
FY 2009 (estimated): $8,962;
FY 2010 (requested): $8,239.
Appropriations account: Research, Development, Test & Evaluation;
FY 2006 (actual): $7,402;
FY 2007 (actual): $7,124;
FY 2008 (actual): $18,253;
FY 2009 (estimated): $22,279;
FY 2010 (requested): $4,887.
Appropriations account: Total;
FY 2006 (actual): $15,538;
FY 2007 (actual): $14,470;
FY 2008 (actual): $26,122;
FY 2009 (estimated): $31,241;
FY 2010 (requested): $13,126.
Source: GAO analysis of DOD data.
Note: Congress appropriated additional CPC funding above the amounts
requested in fiscal years 2008 and 2009.
[End of table]
Of the $13.1 million requested for fiscal year 2010, about $9.5 million
is expected to fund corrosion projects, and $3.6 million is expected to
fund corrosion activities.
While projects for fiscal year 2010 will not be accepted until summer
2009, examples of potential projects include:
* Air Force temporary corrosion barrier coatings;
* Army corrosion resistant coatings for air conditioning coils;
* Navy coating deterioration analysis and forecasting system; and;
* Marine Corps abrasion, chip, and wear resistant coatings for
wheeled/tracked weapon systems.
Activities may include such things as cost studies, training, and
development and operation of the corrosion Web site. In the past, the
corrosion office has funded the majority of its corrosion-related
activities, but for fiscal year 2010 there is a $2.6 million estimated
shortfall due to an increased effort by the corrosion office to provide
training opportunities.
In addition to CPC funding provided by the corrosion office, the
military services provided an average of $9.318 million in funds for
corrosion projects per year for fiscal years 2006 through 2009.
According to corrosion officials, these service contributions do not
reduce the estimated unfunded requirements for DOD‘s CPC. Service
contributions for fiscal year 2010 will be determined as part of DOD‘s
project selection process.
Table: Military Service Contributions for CPC Projects (Fiscal Years
2006 through 2009) (Dollars in thousands):
Service: Army;
FY 2006: $6,030;
FY 2007: $4,983;
FY 2008: $5,262;
FY 2009: $4,985;
4-year average: $5,315.
Service: Navy;
FY 2006: $2,807;
FY 2007: $2,301;
FY 2008: $3,219;
FY 2009: $5,128;
4-year average: $3,364.
Service: Air Force;
FY 2006: $1,640;
FY 2007: $468;
FY 2008: $275;
FY 2009: $173;
4-year average: $639.
Service: Total;
FY 2006: $10,477;
FY 2007: $7,752;
FY 2008: $8,756;
FY 2009: $10,286;
4-year average: $9,318.
Source: GAO analysis of DOD data.
Objective 3: CPC Requirements and ROI:
As part of the project selection process, the corrosion office requires
that an ROI cost-benefit analysis be submitted with project plans.
ROIs vary by individual project and may span many years.
ROI is calculated as the ratio of the present value of benefits to the
present value of costs. Corrosion office guidance directs the use of a
7 percent annual discount rate in calculating the present value of
benefits and costs. According to corrosion officials, this is a
conservative estimate to avoid overstating the ROI.
According to corrosion officials, beginning in September 2009 they plan
to review service ROI status reports for corrosion projects funded in
fiscal year 2005, the first year CPC funds were provided. According to
corrosion office guidance, the services should track ROI for several
years after project completion to validate the assumptions and costs
used to estimate the pre-implementation projected ROI.
Based on historical averages, the corrosion office projects an ROI of
50-1 for fiscal year 2010 projects and 2-1 for activities. Based on the
projected ROI, if all estimated fiscal year 2010 requirements were
funded, the total cost avoidance would be approximately $990 million.
The fiscal year 2010 budget request, if approved, would result in a
potential cost avoidance of approximately $484 million.
Based on historical averages, the corrosion office projects an ROI of
about 42-1 for projects that were accepted but not funded from fiscal
years 2005 through 2009. Given the corrosion office‘s fiscal year 2010
estimated unfunded requirements of $14.6 million, the potential cost
avoidance for these requirements (projects and activities) would be
$506 million.
Views of Agency Officials:
To obtain agency views, we discussed a draft of the briefing with
officials from the Corrosion Policy and Oversight Office, the military
services, and the Joint Staff.
They concurred with the facts presented and provided some clarifying
comments that we have incorporated.
[End of enclosure]
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