Defense Management
Observations on the Department of Defense's Fiscal Year 2011 Budget Request for Corrosion Prevention and Control Gao ID: GAO-10-607R April 15, 2010This 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.
GAO-10-607R, Defense Management: Observations on the Department of Defense's Fiscal Year 2011 Budget Request for Corrosion Prevention and Control
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GAO-10-607R:
United States Government Accountability Office:
Washington, DC 20548:
April 15, 2010:
Congressional Committees:
Subject: Defense Management: Observations on the Department of
Defense's Fiscal Year 2011 Budget Request for Corrosion Prevention and
Control:
This report formally transmits the attached briefing (see enclosure 1)
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 April 2, 2010, we provided the
briefing to your committees' offices to satisfy the mandate to provide
analysis and the 60-day reporting requirement. The Related GAO
Products section at the end of the report lists additional GAO
publications on these issues.
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) 512-8246 or edwardsj@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 Ann Borseth, Assistant Director; Janine Cantin; and Foster
Kerrison.
Signed by:
Jack E. Edwards:
Director, Defense Capabilities and Management:
List of 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 Howard P. "Buck" McKeon:
Ranking Member:
Committee on Armed Services:
House of Representatives:
The Honorable Norman D. Dicks:
Chairman:
The Honorable C. W. Bill Young:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
[End of section]
Enclosure 1:
Observations on DOD's Fiscal Year 2011 Budget Request for Corrosion
Prevention and Control:
Briefing for Congressional Committees:
April 2, 2010:
Background:
Corrosion can have negative effects on military equipment and
infrastructure in terms of cost, readiness, and safety.
* The Department of Defense (DOD), in its July 2009 report, DOD Annual
Cost of Corrosion, estimated that corrosion costs the military
Services over $22 billion a year.
* GAO has previously reported that corrosion negatively affects
military readiness by taking critical systems out of action, and has
also impacted safety resulting in fatal accidents due to the
degradation of equipment.[Footnote 1]
* Corrosion affects all military assets and is defined as the
unintended destruction or deterioration of a material due to
interaction with the environment. It includes such varied forms as
rusting; pitting; galvanic reaction; calcium or other mineral buildup;
degradation due to ultraviolet light exposure; and mold, mildew, or
other organic decay.
Congress, concerned with the high cost of corrosion and its negative
effects, enacted legislation that created an Office of Corrosion
Policy and Oversight within the Office of the Under Secretary of
Defense for Acquisition, Technology, and Logistics (OUSD(AT&L)),
responsible for the prevention and mitigation of corrosion of military
equipment and infrastructure.[Footnote 2]
According to Corrosion Office officials, to target funding toward
corrosion prevention and control (CPC), DOD established, in fiscal
year (FY) 2006,
* a separate funding CPC program element for Research, Development,
Test & Evaluation, and,
* a separate corrosion line item within an existing program element
for Operation & Maintenance funds.
Since FY06, the CPC program element and line item have been managed by
the Corrosion Policy and Oversight Office (Corrosion Office) within
OUSD(AT&L).
DOD's CPC funding goes towards projects proposed by the Services and
other DOD-wide activities that are aimed at preventing and mitigating
corrosion. The Services contribute complementary funding for each
approved project.
* Projects are specific corrosion prevention and mitigation efforts
with the objective of developing and testing new technologies.
* Activities encompass efforts, such as training and cost studies,
that enhance and institutionalize corrosion prevention and mitigation
efforts within the department.
Beginning with DOD's budget for FY09, legislation[Footnote 3] has
required the Secretary of Defense to annually submit, with defense
budget materials, a supplemental corrosion funding report that
includes:
* funding requirements for DOD's long-term CPC strategy,
* estimated return on investment (ROI) from implementing this strategy,
* funds requested compared to funding requirements, and;
* an explanation if requirements are not fully funded.
Engagement Objectives:
As required by 10 U.S.C. § 2228, GAO is to analyze annually DOD's CPC
budget submission and related funding report.
* For FY11, these documents were submitted on Feb. 1, 2010, and Feb.
17, 2010, respectively.
Our objectives were to:
1. identify DOD's process for developing its CPC budget submission.
2. determine the extent to which DOD's FY11 budget request for CPC met
total estimated requirements as stated in DOD's FY11 Corrosion Funding
Report.
3. calculate the potential cost avoidance for DOD's estimated funded
and unfunded CPC requirements as stated in DOD's FY11 Corrosion
Funding Report.
Scope and Methodology:
Scope:
* We examined DOD's FY11 CPC budget submission and related budget
materials, including DOD's corrosion report, for the CPC program
element and line item managed by the Corrosion Office.
* We did not include a review of related information on Service-
provided CPC funding, but instead reviewed the funding managed by
OUSD(AT&L) and the related report from the Corrosion Office.
Methodology:
* We obtained and analyzed DOD CPC budget and requirements data,
as well as DOD's corrosion strategy and other pertinent documents.
* We calculated the potential cost avoidance by projecting DOD's
estimated ROI based on historical averages for unfunded projects to
the unfunded requirements identified in DOD's FY11 corrosion report.
* We interviewed officials at the Corrosion Office, as well as Service
corrosion officials.
As in prior years, we did not independently validate DOD's CPC
estimated requirements or the estimated ROI. Instead, we relied on
data provided by the Corrosion Office after assessing the general
reliability of the data by cross-checking with other data sets and
interviewing the officials responsible for data collection. We found
the data to be sufficient and reliable for the purposes of this report.
We conducted this performance audit from January through April 2010 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:
To develop its CPC budget, the Corrosion Office adjusts the amount of
the estimated Service CPC projects by a historical project acceptance
rate and adds an estimated amount for DOD-wide CPC activities. This
total is then adjusted to reflect departmental priorities and included
in the annual budget submission.
In its corrosion funding report, the Corrosion Office estimated that
CPC requirements for FY11 totaled $47.0 million, but the FY11 budget
request identified $12.0 million for CPC, including $8.8 million for
projects and $3.2 million for activities. Therefore, DOD's estimated
unfunded requirements were about $35.0 million. However, due to
historical discrepancies between estimated and actual project costs,
the unfunded requirements could be overstated.
Using DOD's estimated ROI, if the amounts identified in the FY11
funding report are funded, the potential cost avoidance would be $418
million. By applying DOD's estimated ROI for unfunded projects to the
unfunded requirements identified in the corrosion funding report, DOD
may be missing an opportunity for additional cost avoidance totaling
$1.4 billion by not funding all of its estimated requirements.
Objective 1: Process for Developing CPC Budget--Overview:
The Corrosion Office uses a multi-step process to develop the CPC
budget. This process starts with the Services estimating their CPC
project requirements. The Corrosion Office then adjusts these Service-
provided preliminary project estimates by a historical acceptance rate
for CPC projects and adds an estimated amount for Corrosion Office-
funded, DOD-wide activities. This total is revised by OUSD(AT&L),
based on funding priorities, to determine the estimated funding
request for the budget.
Objective 1: Process for Developing CPC Budget-”Estimating
Requirements:
In developing its FY11 CPC budget and the information for the related
corrosion report, the Corrosion Office:
* asked the Services in September 2009 to estimate the total number of
projects that would need funding in FY11 and the cost of these
projects, which totaled $64.4 million;
* assumed, based on historical trends, that about 63 percent of the
total cost of the Services' projects would be accepted for funding;
* adjusted the $64.4 million project cost estimate by the 63 percent
to determine the total estimated requirements for CPC projects, which
produced an estimate of $40.6 million for FY11;
* estimated an additional $6.4 million for other non-project-related
corrosion activities funded by the Corrosion Office, based on
activities identified as necessary to execute the Corrosion Prevention
and Mitigation Strategic Plan; and;
* added the $40.6 million and the $6.4 million for a total estimated
CPC requirement of $47.0 million.
Objective 1: Process for Developing CPC Budget-”Developing a Budget
Estimate:
According to Corrosion Office officials, they submitted a request for
FY11 of $25 million to OUSD(AT&L), which is less than the $47 million
identified requirement. Corrosion Office officials believe that an
annual budget of approximately $25 million would have been sufficient
to meet most of the essential CPC projects and activities.
According to these officials, OUSD(AT&L) denied part of the $25
million request as acceptable offsets within OUSD(AT&L) could not be
identified.
* According to DOD's corrosion funding report, global commitments,
constrained budgets, and competing requirements preclude full funding
of CPC requirements.
* Officials from the Office of the Under Secretary of Defense
(Comptroller) previously told us that program offices may consider ROI
benefits in developing budget submissions; however, requirements for
systems and Services, rather than ROI, drive funding levels in DOD's
annual budget request.
The final amount requested in the FY11 budget for CPC was $12.0
million, which Corrosion Office officials told us was determined by
OUSD(AT&L) and is a slight increase to DOD's 6-year budget projections.
Objective 2: Extent the CPC Budget Met Estimated CPC Requirements”-
Overview:
In its corrosion funding report, the Corrosion Office estimated that
CPC requirements for FY11 total $47.0 million, but the FY11 budget
request identified $12.0 million[Footnote 4] for CPC, including $8.8
million for projects and $3.2 million for activities. Therefore, DOD's
estimated unfunded requirements are about $35.0 million. However,
because of the method DOD uses to calculate the total estimated
requirements, the unfunded requirements could be overstated.
Objective 2: Extent the CPC Budget Met Estimated CPC Requirements”-
Funding Accepted Projects:
While the Services submitted their preliminary project estimates for
FY11 in fall 2009, they will submit their actual project plans in
summer 2010. This later submission will include detailed funding
requests for each project.
At that time, Corrosion Office officials will convene a panel of
experts from OUSD(AT&L), the Joint Staff, and the Defense Acquisition
University to review the project plans and decide which of those
projects will actually be funded. The review includes:
* determining which projects are acceptable based on criteria (such as
ROI, mission criticality, or whether the project has a joint aspect)
the Services address in their project submissions; and;
* ranking acceptable projects based on how well they meet the criteria.
Objective 2: Extent the CPC Budget Met Estimated CPC Requirements”-
Unfunded Requirements:
As stated earlier, the Corrosion Office estimated that unfunded
corrosion requirements total $35.0 million for FY11. However, this
unfunded corrosion requirement could be overstated.
* In FY09 and FY10, the Services' preliminary estimates for project
funding submitted in the tall were significantly higher than the
amounts requested in actual project plans submitted for r6view in the
summer. (See table 1.) Some examples follow.
- In FY09, the estimated cost of accepted projects was $28.5 million
and the estimated budgeted amount was $10.7 million, creating an
estimated unfunded requirement of $17.8 million.
- However, in FY09, the actual cost of these projects was $13.7
million and the actual amount budgeted was $9.8 million, leaving an
actual unfunded requirement or $3.9 million.
- FY10 showed similar differences between estimated and actual amounts.
If the preliminary estimates for project funding continue to
significantly differ from actual project plans, DOD may not be in a
position to accurately report unfunded requirements in its annual
budget reports to Congress.
Objective 2: Extent the CPC Budget Met Estimated CPC Requirements-”
Estimated v. Actual:
Table 1: CPC Project Funding (FY09 through FY11):
Fiscal year: 2009;
Cost of all submitted projects, Estimated[B]: $47.6 million;
Cost of all submitted projects, Actual: $18.4 million;
Cost of accepted projects (requirements), Estimated: $28.5 million;
Cost of accepted projects (requirements), Actual: $13.7 million;
Amount budgeted, Estimated: $10.7 million;
Amount budgeted, Actual: $9.8 million;
Unfunded requirement[A], Estimated: $17.8 million;
Unfunded requirement[A], Actual: $3.9 million.
Fiscal year: 2010;
Cost of all submitted projects, Estimated[B]: $35.8 million;
Cost of all submitted projects, Actual: $21.5 million;
Cost of accepted projects (requirements), Estimated: $21.5 million;
Cost of accepted projects (requirements), Actual: $16.1 million;
Amount budgeted, Estimated: $9.5 million;
Amount budgeted, Actual: $7.3 million;
Unfunded requirement[A], Estimated: $12.0 million;
Unfunded requirement[A], Actual: $8.8 million.
Fiscal year: 2011;
Cost of all submitted projects, Estimated[B]: $64.4 million;
Cost of all submitted projects, Actual: N/A;
Cost of accepted projects (requirements), Estimated: $40.6 million;
Cost of accepted projects (requirements), Actual: N/A;
Amount budgeted, Estimated: $8.7 million;
Amount budgeted, Actual: N/A;
Unfunded requirement[A], Estimated: $31.8 million;
Unfunded requirement[A], Actual: N/A.
Source: GAO analysis of DOD data.
[A] Unfunded requirements are projects that are accepted but not
funded and represent the difference between the "requirements" column
and the "Amount budgeted" column
[B] The preliminary estimates for FY09 through FY11 were developed for
DOD's reports to Congress, pursuant to 10 USC § 2228(e). FY09 was the
first year that the Corrosion Office estimated CPC requirements.
[End of table]
Objective 3: Potential Cost Avoidance and CPC Requirements”-Overview:
If DOD's estimated ROIs for projects and activities are accurate:
* the $12.0 million identified in the FY11 budget request, if
approved, would result in a potential cost avoidance of approximately
$418 million;
* and, if all estimated unfunded requirements of $35.0 million
identified in the FY11 corrosion funding report were funded, the
potential total cost avoidance would be approximately $1.4 billion.
Objective 3: Potential Cost Avoidance and CPC Requirements-”ROI
Estimation Process:
As part of the project selection process, the Corrosion Office
requires that an ROI cost-benefit analysis be submitted with project
plans.
* The Services estimate ROI as the ratio of the present value of
benefits to the present value of the project's total cost based on
funding requested from DOD and the Service's contribution.
* Corrosion Office guidance uses a 7 percent annual discount rate by
default to estimate the present value of benefits and costs. According
to Corrosion Office officials, this is a conservative estimate to
avoid overstating the ROI.
* Submitted ROI analyses and estimated project savings vary by
individual project and may span many years.
Corrosion Office officials informed us that the Project Point of
Contact in each Service estimates the ROI, and the Military Department
Corrosion Executive approves the analyses submitted to DOD. However,
the Military Department Corrosion Executives said that while they have
not yet taken on this responsibility, they plan to do so in the future.
Objective 3: Potential Cost Avoidance and CPC Requirements”-Estimated
Potential Cost Avoidance:
Based on the 6-year average estimated ROI, the Corrosion Office
projects an ROI of 47:1 for all accepted (both funded and unfunded)
FY11 projects and 2:1 for activities.
If DOD's estimated ROIs for projects and activities are accurate,
* the $12.0 million identified in the FY11 budget request, if
approved, would result in a potential cost avoidance of approximately
$418 million.
Based on historical averages, the Corrosion Office estimates an ROI of
about 43:1 for accepted, but unfunded projects, and 2:1 for activities.
* Using DOD's estimated ROI, the Corrosion Office's FY11 estimated
unfunded requirements of $35.0 million, would result in a potential
cost avoidance for these requirements (projects and activities) of
$1.4 billion.
Views of Agency Officials:
To obtain agency views, we discussed a draft of the briefing with
officials from the Corrosion Policy and Oversight Office and the
Services.
They concurred with the facts presented and provided some clarifying
comments that we have incorporated as appropriate.
[End of Briefing Slides]
Related GAO Products:
Defense Management: Observations on DOD's Fiscal Year 2010 Budget
Request for Corrosion Prevention and Control. [hyperlink,
http://www.gao.gov/products/GAO-09-732R]. Washington, D.C.: June 1,
2009.
Defense Management: Observations on DOD's Analysis of Options for
Improving Corrosion Prevention and Control through Earlier Planning in
the Requirements and Acquisition Processes. [hyperlink,
http://www.gao.gov/products/GAO-09-694R]. Washington, D.C.: May 29,
2009.
Defense Management: Observations on DOD's FY 2009 Budget Request for
Corrosion Prevention and Control. [hyperlink,
http://www.gao.gov/products/GAO-08-663R]. Washington, D.C.: April 15,
2008.
Defense Management: High-Level Leadership Commitment and Actions Are
Needed to Address Corrosion Issues. [hyperlink,
http://www.gao.gov/products/GAO-07-618]. Washington, D.C.: April 30,
2007.
Defense Management: Additional Measures to Reduce Corrosion of
Prepositioned Military Assets Could Achieve Cost Savings. [hyperlink,
http://www.gao.gov/products/GAO-06-709]. Washington, D.C.: June 14,
2006.
Defense Management: Opportunities Exist to Improve Implementation of
DOD's Long-Term Corrosion Strategy. [hyperlink,
http://www.gao.gov/products/GAO-04-640]. Washington, D.C.: June 23,
2004.
Defense Management: Opportunities to Reduce Corrosion Costs and
Increase Readiness. [hyperlink,
http://www.gao.gov/products/GAO-03-753]. Washington, D.C.: July 7,
2003.
Defense Infrastructure: Changes in Funding Priorities and Strategic
Planning Needed to Improve the Condition of Military Facilities.
[hyperlink, http://www.gao.gov/products/GAO-03-274]. Washington, D.C.:
February 19, 2003.
[End of section]
Footnotes:
[1] GAO, Defense Management: High-Level Leadership Commitment and
Actions Are Needed to Address Corrosion Issues, [hyperlink,
http://www.gao.gov/products/GA0-07-618] (Washington, D.C.: Apr. 30,
2007).
[2] 10 USC § 2228.
[3] 10 U.S.C. § 2228(e), added by the National Defense Authorization
Act for Fiscal Year 2008, Pub. L. No. 110-181, § 371(d) (2008).
[4] The Corrosion Office FY11 funding report identified $300,000 more
(for a total of $12.3 million) than that requested in the FY11 budget.
Based on discussion with Corrosion Office officials, we corrected the
funding report data to reflect a reduction of $300,000 for corrosion
activities.
[End of section]
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