a

GAO

United States Government Accountability Office

Report to Congressional Committees

May 2005 DEFENSE 

MANAGEMENT

Processes to Estimate 

and Track Equipment 

Reconstitution Costs 

Can Be Improved

GAO-05-293
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-293.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact William M. Solis 

at (202) 512-8365 or solisw@gao.gov. 

Highlights of GAO-05-293, a report to 

congressional committees 

May 2005

DEFENSE MANAGEMENT 

Processes to Estimate and Track 

Equipment Reconstitution Costs Can Be 

Improved 

DOD’s two-phased process to develop its fiscal year 2004 equipment 

reconstitution cost estimates contained weaknesses that produced errors, 

which may result in misstatements of future-year reconstitution cost 

requirements. The model DOD used to estimate costs in the first phase of the 

process generated unreliable estimates due to two main reasons. First, the 

model can overstate aircraft and ship reconstitution costs because these 

costs are covered in two different sections of the model. As a result, the 

model’s estimate for Air Force aircraft reconstitution was overstated by over 

$1 billion. Second, there is uncertainty over what maintenance requirements 

the model covered. The Office of the Secretary of Defense (OSD) and the 

services developed their requirements with the understanding that the model 

did not calculate all maintenance requirements. GAO learned that the model 

may duplicate some requirements that the services manually calculated and 

included in their cost estimates. Consequently, DOD cannot have confidence 

that its equipment reconstitution budget estimate is reliable. There are also 

reconstitution estimating and guidance problems associated with the second 

phase of the process, where the services may develop alternative estimates 

outside of the model. For instance, the Army failed to consider funding in its 

baseline budget that would be available for equipment reconstitution. In 

another instance, the services included requirements in their reconstitution 

estimates that appear to go beyond equipment reconstitution as established 

by OSD’s guidance. Nonetheless, GAO found an accumulation of unfulfilled 

equipment reconstitution requirements, because OSD guidance excluded the 

services from requesting funds for projected battle and other expected 

losses. The effect of losses not recognized in OSD’s supplemental budget 

requirements have not yet been quantified and may be significant. GAO 

believes these problems are creating a backlog of equipment reconstitution 

requirements that will eventually need to be addressed in future budgets. 

DOD has not accurately tracked and reported its equipment reconstitution 

cost because the services are unable to segregate equipment reconstitution 

from other maintenance requirements as required. As a result, DOD cannot 

accurately report the cost of equipment reconstitution and, consequently, 

the total cost of the global war on terror. The Air Force does not break out 

its equipment reconstitution obligations from other global war-on-terrorism 

obligations in a DOD monthly cost report because it does not have a 

mechanism that can track the amounts obligated on equipment 

reconstitution and delineate such obligations from routine maintenance. 

Further, Army- and Navy-reported equipment reconstitution obligations are 

likely overstated in the monthly report because they include other 

maintenance costs—such as those related to equipment used in training 

exercises—that do not fall within DOD’s description of equipment 

reconstitution. 

The high pace of military 

operations in Iraq and elsewhere 

has generated a multibillion dollar 

equipment maintenance 

requirement that must be 

addressed after units return home. 

Upon returning from deployments, 

active, reserve, and National Guard 

units reconstitute, or restore, their 

equipment to a condition that 

enables them to conduct training 

and prepare for future 

deployments. The Department of 

Defense (DOD) uses a two-phased 

process to develop equipment 

reconstitution supplemental budget 

estimates. GAO reviewed this 

process for the fiscal year 2004 

supplemental budget to determine 

(1) the extent to which the process 

produced reliable estimates of 

reconstitution requirements in the 

fiscal year 2004 supplemental 

budget, and (2) whether DOD is 

accurately tracking and reporting 

reconstitution costs.

What GAO Recommends

GAO is making several 

recommendations to correct 

weaknesses identified in DOD’s 

equipment reconstitution cost 

estimating and tracking processes. 

In commenting on a draft of this 

report, DOD concurred or partially 

concurred with five 

recommendations and did not 

concur with the other 

recommendation. 
Page i GAO-05-293 Defense Management

Contents

Letter 1

Results in Brief 3

Background 6

DOD’s Equipment Reconstitution Estimating Process Contained 

Weaknesses that Produced Errors 10

DOD Not Accurately Reporting Equipment Reconstitution Costs 19

Conclusions 23

Recommendations for Executive Action 24

Agency Comments and Our Evaluation 25

Appendix

Appendix I: Scope and Methodology 30

Tables Table 1: Fiscal Year 2004 Reconstitution Requirements Identified 

by Services and Requested in Supplemental 9

Table 2: Comparison of Army’s Estimated Reconstitution Cost to 

Actual Cost for 38 Selected Items for Fiscal Year 2004 15

Table 3: Reconstitution Obligations Reported by Services in DFAS 

Terrorist Cost Report, as of the End of September 2004 20

Figures Figure 1: Army Prepositioned Equipment Awaiting Maintenance at 

Camp Arifjan 8

Figure 2: Bradley Fighting Vehicle—Example of Projected 

Equipment Item Damage 18

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Page 1 GAO-05-293 Defense Management

United States Government Accountability Office

Washington, D.C. 20548

A

May 5, 2005 Letr

Congressional Committees 

The high pace of military operations in Iraq and elsewhere has generated a 

multibillion dollar equipment maintenance requirement that must be 

addressed after units return home. Upon returning from Iraq and other 

global war-on-terrorism deployments, units reconstitute—that is, restore—

their equipment to a condition that enables them to conduct training 

exercises, achieve required readiness levels, and prepare for future 

deployments. While the Department of Defense (DOD) has not formally 

defined equipment reconstitution, its financial regulation describes 

reconstitution costs as including costs to clean, inspect, maintain, replace, 

and restore equipment to the required condition at the conclusion of the 

contingency operation or unit deployment. Furthermore, the department 

has issued additional specific guidance as to what costs should be included 

as reconstitution. Reconstitution is performed at each level of 

maintenance—organizational, intermediate, and depot—depending on the 

condition of returning equipment and the capacity available at each 

maintenance level.1

 The department’s equipment reconstitution 

maintenance requirement is based on the amount of repairs that need to be 

performed at all maintenance levels. As the global war on terrorism 

continues, the department will be generating additional equipment 

reconstitution requirements, which will have to be estimated for inclusion 

in future baseline or supplemental budgets.2

 

The department has a two-phased process in place to estimate the 

incremental costs3

 of supporting contingency operations, which includes 

the determination of equipment reconstitution requirements. During the 

1

 Organizational maintenance normally consists of inspecting, servicing, lubricating, 

adjusting, and replacing parts. Intermediate maintenance includes calibration, and the 

repair or replacement of damaged and unserviceable parts. Depot maintenance is 

performed on equipment requiring major overhaul or a complete rebuild of parts.

2

 Fiscal years 2004 and 2005 global war-on-terrorism equipment reconstitution requirements 

are included in the supplemental budget requests. 

3

 The term incremental costs means those directly attributable costs that would not have 

been incurred if it were not for the operation. Sections 230406 and 230902 of Department of 

Defense Financial Management Regulations 7000.14R, volume 12, chapter 23, Contingency 

Operations (February 2001) provide additional information on incremental costs. We further 

note that DOD’s financial systems only capture total obligations and the services use various 

management information systems to identify incremental obligations and to estimate costs. 
Page 2 GAO-05-293 Defense Management

first phase, the Office of the Secretary of Defense (OSD) comptroller and 

the services use an OSD model, developed by the Institute for Defense 

Analyses (IDA), called the contingency operations support tool (COST),4 

which covers much of what is needed to conduct contingency operations, 

as well as some aspects of equipment reconstitution. Each service and OSD 

input information into the model regarding the period of deployment for 

units and equipment that will need reconstitution. The model generates an 

estimated funding requirement. During the second phase, the services may 

accept or reject the COST model’s estimates and provide alternative 

estimates they developed outside the model. When the services propose an 

estimate other than that derived from the COST model, they meet with the 

OSD comptroller and provide support for their estimate and, in conjunction 

with the comptroller, determine the requirement to be submitted. The 

services also provide estimates for some requirements that are not covered 

by the model—such as depot-level maintenance and procurement for 

replacement equipment. OSD then reviews these estimates and, in 

conjunction with the services, determines a final estimate for inclusion in 

OSD’s supplemental budget submission. However, when differences occur, 

the OSD comptroller has the final say in what equipment reconstitution 

requirement will be submitted in the supplemental budget.

This report focuses on DOD’s planning, budgeting, and tracking and 

reporting for equipment reconstitution for military units that have returned 

from Iraq and other global war-on-terrorism operations. The objectives of 

this report are to examine the extent to which (1) the process DOD used to 

develop its fiscal year 2004 supplemental budget equipment reconstitution 

requirements produced reliable estimates and (2) the department is 

accurately tracking and reporting equipment reconstitution obligations. We 

performed our work on the basis of the authority of the Comptroller 

General5

 and are reporting the results to you because of your oversight 

roles. 

We examined OSD’s and the services’ processes for developing their fiscal 

year 2004 equipment reconstitution requirements and collected data 

related to OSD and service equipment reconstitution requirements. We 

held discussions at service headquarters and also visited Army and Marine 

4

 IDA is a federally funded research and development center that OSD used to develop, 

maintain, and modify its COST model.

5

 31 U.S.C. 717. 
Page 3 GAO-05-293 Defense Management

Corps units in the process of reconstituting equipment to review the 

equipment reconstitution planning process at these levels, observe 

implementation of these plans, and collect actual reconstitution costs. We 

reviewed reported reconstitution costs for Army equipment and 

determined that the reliability of these data was sufficient for our purposes. 

We performed our work from September 2003 through March 2005 in 

accordance with generally accepted government auditing standards. The 

scope and methodology section contains more detailed information about 

the work we performed.

Results in Brief The two-phased process DOD used to develop its fiscal year 2004 

equipment reconstitution cost estimates contained weaknesses that 

produced errors, which, if not corrected, may result in misstatements of 

future-year reconstitution cost requirements. Specifically, we observed 

problems in both phases of the process, as follows. 

• The COST model, which the department used during the first phase of 

the process, generated unreliable estimates due to two main reasons. 

First, the COST model contains an error that can result in a duplication 

of reconstitution cost estimates. OSD and IDA officials were unaware 

that the model’s equipment reconstitution cost section duplicated 

reconstitution costs that were already covered by the operating cost 

section of the model. For example, the COST model estimate for Air 

Force aircraft reconstitution was overstated by $1.2 billion because the 

department did not take into account that these costs were already 

entered into the model as operating costs. Duplication of cost elements 

causes an overstatement of cost estimates and may result in DOD 

receiving more funds than are necessary to cover reconstitution costs. 

Second, there is uncertainty over what maintenance requirements the 

model covered. OSD and the services developed their equipment 

reconstitution requirements with the understanding that the COST 

model calculated organizational- and intermediate-level maintenance 

only, and thus calculated their depot-level maintenance requirements 

outside of the model during the second phase of the process. However, 

we later learned that, according to IDA officials, the model may include 

some depot-level maintenance, which could have resulted in the model 

duplicating the depot-level maintenance requirements calculated 

outside the model. This confusion occurred because the OSD 

comptroller’s office apparently did not clearly identify what 

maintenance requirements are to be calculated by the model. 

Furthermore, neither OSD nor IDA was able to provide us with any 
Page 4 GAO-05-293 Defense Management

written guidance regarding what maintenance requirements should be 

covered in the model’s equipment reconstitution section. Without 

clearly identifying what maintenance requirements OSD expected the 

COST model to estimate and clearly communicating this information to 

IDA, IDA officials were not able to ensure that the COST model 

generates accurate and complete reconstitution maintenance cost 

estimates, and does not duplicate maintenance costs calculated outside 

of the model. Consequently, the department cannot have confidence in 

the equipment reconstitution budget estimate generated by the model. 

• We also found reconstitution estimating and guidance problems during 

the second phase of the process. These problems involve the services 

developing requirements not calculated by the COST model and 

modifying COST model estimates. In one instance, the Army did not 

consider baseline peacetime operation and maintenance funding when 

calculating its equipment reconstitution requirements outside of the 

COST model. This was because the Army does not have a step in its 

supplemental estimating process to offset estimates with the baseline 

budget, as required by the department.6

 Not recognizing and adjusting 

for normal operating budgets overstates the funding requirement and 

could, if not addressed, result in the Army overstating funding 

requirements for equipment reconstitution in the future. Moreover, the 

services included costs in their reconstitution estimates calculated 

outside the COST model that appear not to be equipment reconstitution 

as established by OSD’s supplemental budget preparation guidance. For 

example, while OSD guidance specifically directed the services to 

request funds needed to restore forces to the same operational level as 

prior to deployment, and to limit requests to those costs already 

incurred as a direct result of operations in support of the global war on 

terrorism, the Navy and the Air Force included unfunded fiscal year 

2004 depot maintenance requirements in their supplemental funding 

cost estimates that did not arise from Operation Iraqi Freedom and 

other global war-on-terrorism operations. This occurred due to a lack of 

clear guidance on how the services should calculate their reconstitution 

costs, and according to Navy and Air Force officials, they wanted all of 

their equipment in the best condition possible to fight the global war on 

6

 OSD fiscal year 2004 supplemental budget preparation guidance instructed the services to 

offset costs from the baseline budget that will not be incurred (e.g., peacetime training- and 

maintenance-related activities that will not occur since units will be deployed in support of 

the global war on terrorism) when calculating their incremental costs. 
Page 5 GAO-05-293 Defense Management

terrorism. Including these unfunded peacetime requirements may 

overstate the estimated cost of reconstituting equipment involved in 

operations in Iraq and Afghanistan. Nonetheless, we found an 

accumulation of unfulfilled equipment reconstitution requirements 

because OSD guidance limited the services to requesting funding for 

replacement of known battle losses only. In preparing the fiscal year 

2004 supplemental budget, the services were not permitted to request 

funds for projected battle losses and other expected losses. The effect of 

losses not recognized in OSD’s supplemental budget calculations has 

not yet been quantified and may be significant. 

DOD is unable to accurately track and report its equipment reconstitution 

cost because the services are unable to segregate equipment reconstitution 

from other maintenance requirements, as required. In an effort to meet 

congressional requests for information on global war-on-terrorism 

obligations7

 and provide the OSD comptroller with a means to assess 

variance between obligations and the budget, Defense Finance and 

Accounting Service (DFAS) produces a monthly report to track these 

obligations. The DFAS report on funds obligated in support of the war 

includes a category for tracking equipment reconstitution obligations. 

However, the data in the report are not reliable for determining accurately 

how much money each service is obligating on equipment reconstitution. 

For example, the Air Force does not break out its equipment reconstitution 

obligations from other global war-on-terrorism obligations in the DFAS 

report in accordance with DOD guidance, because it does not have a 

mechanism in its accounting system that can track the amounts specifically 

obligated for equipment reconstitution. Thus, the Air Force is reporting 

zero dollars in the DFAS report’s equipment reconstitution category. 

Additionally, Army and Navy equipment reconstitution obligations may also 

be inaccurate in the DFAS report, because the services’ accounting codes 

for equipment reconstitution are capturing global war-on-terrorism and 

other obligations that were not incurred exclusively for equipment 

reconstitution. Consequently, Army- and Navy-reported equipment 

reconstitution obligations are likely overstated because they include other 

maintenance costs—such as those related to equipment used in training 

exercises—that are not consistent with DOD’s guidance relating to 

7

 Obligations are incurred through actions such as orders placed, contracts awarded, 

services received, or similar transactions made by federal agencies during a given period 

that will require payments during the same or a future period. See Department of Defense 

Financial Management Regulations, 7000.14-R, vol. 1, Definitions, page xvii. 
Page 6 GAO-05-293 Defense Management

reporting reconstitution obligations for equipment used in support of the 

global war on terrorism. As a result, DOD cannot accurately report the cost 

of equipment reconstitution and, consequently, the total cost of the global 

war on terrorism.

We are making recommendations that correct weaknesses we identified in 

DOD’s process for estimating and tracking equipment reconstitution costs. 

In concurring or partially concurring on our recommendations DOD 

indicated that it was taking steps to eliminate the duplication of 

maintenance requirements in its COST model, would consider including a 

factor to reflect maintenance washout trends in future supplemental 

budget requests, and has revised its financial management regulation to 

improve the reporting of equipment reconstitution obligations. However, 

we believe that further improvements, such as providing instructions in the 

DOD financial management regulation regarding how to avoid duplication 

of maintenance requirements in DOD’s COST model, are needed to meet 

the intent of our recommendations. In not concurring with our 

recommendation that the Army establish a step to offset its equipment 

reconstitution estimate with its baseline budget, department officials said 

that their process for developing the supplemental budget already includes 

a process for excluding costs for equipment maintenance funded in the 

baseline budget. However, we believe that the Army’s, and the other 

services’, supplemental budget-estimating processes also need to have 

such assurances built in. DOD’s comments and our evaluation of them are 

discussed on page 25. 

Background In preparation for the initiation of Operation Iraqi Freedom (OIF), the 

United States deployed four Army divisions and their supporting reserve 

component units, a Marine Expeditionary Force, and a significant portion 

of the Navy’s and Air Force’s combat power to southwest Asia. The Army’s 

Third Infantry Division (mechanized) and its supporting reserve 

component units were primarily equipped with Army-prepositioned 

assets—consisting of over 17,000 pieces of rolling stock8

 and almost 6,000 

standard 20-foot shipping containers of supplies—drawn from 

prepositioned equipment sites located in southwest Asia and offloaded 

from Army prepositioned ships. The 1st Marine Expeditionary Force was 

also primarily equipped with prepositioned assets offloaded from Marine 

8

 Rolling stock includes items such as tanks, trucks, and trailers. 
Page 7 GAO-05-293 Defense Management

Corps prepositioned ships. By the height of the combat portion of OIF, the 

United States had deployed a significant portion of its combat power to 

southwest Asia. For example, during fiscal year 2003, the Army deployed 

four divisions and numerous supporting active, reserve, and national guard 

units which participated in the combat phase of OIF. As a result, the Army 

estimated that these units, with assistance from other Army maintenance 

activities, would have to reconstitute over 53,000 pieces of rolling stock9

when the units redeployed to their home stations. 

In Iraq and Afghanistan, the U.S. military—especially the Army and Marine 

Corps—are operating at a pace well in excess of their normal peacetime 

level, which is driven by units’ training requirements. This not only greatly 

increases the day-to-day operational maintenance requirements, including 

spare parts demands, of deployed Army and Marine Corps units, but also 

generates a large post-operational maintenance requirement that must be 

addressed when the units redeploy to their home station. Upon 

redeployment, the units need to bring their equipment at least back up to 

fully mission-capable status10 in order for the units to be able to train on 

their equipment and achieve their readiness levels and be prepared for 

future deployments. In addition, before leaving Iraq, redeploying units 

turned in a large amount of prepositioned equipment that must undergo 

maintenance and repair before the equipment can be reissued to units 

deploying to or already in southwest Asia in support of OIF, or returned to 

prepositioned equipment stock for future use. Figure 1 shows some 

prepositioned equipment stored in Kuwait awaiting repair.

9

 This figure includes prepositioned rolling stock that has remained in Iraq in support of 

ongoing operations.

10 Fully mission capable means an item can “move, shoot and communicate”, and has no 

outstanding safety issues.
Page 8 GAO-05-293 Defense Management

Figure 1: Army Prepositioned Equipment Awaiting Maintenance at Camp Arifjan 

Source: GAO.

Army and Marine Corps units returning from deployments related to the 

global war on terrorism have equipment that has been heavily used and is 

in various degrees of disrepair. Upon returning to home station, the units’ 

equipment is inspected to determine what maintenance is needed to bring 

the equipment back to the condition needed to allow the unit to conduct 

mission-essential training and be prepared for future deployments. The 

services use myriad repair and maintenance sources to assist units in 

reconstituting their equipment. At military installations, various 

maintenance personnel—including military personnel within units, 

installation personnel (including contractors) who support day-to-day 

maintenance operations, contractors who have been hired to augment the 

units’ and installations’ day-to-day workforces, and contractors who have 

been hired to increase an installation’s maintenance capacity—are all 

working in concert to reconstitute the units’ equipment in a timely manner 

so that the units will be ready to again deploy. In addition, military depots 

and contractors are using their vast maintenance and repair capabilities to 

help in the equipment reconstitution effort.
Page 9 GAO-05-293 Defense Management

To fund the global war on terrorism in fiscal year 2003, Congress provided 

DOD with $62 billion in the fiscal year supplemental appropriation, 

primarily funding operations in Iraq.11 While most of this funding was used 

to cover the costs of combat operations, the DFAS monthly terrorist 

report12 indicate that about $3.8 billion in funds were obligated for 

equipment reconstitution in fiscal year 2003.

The fiscal year 2004 global war-on-terrorism supplemental budget included 

a significantly larger amount for equipment reconstitution than the 

previous supplemental budget. DOD requested $65.6 billion for executing 

the global war on terrorism in its fiscal year 2004 global war on terrorism 

supplemental budget request, which Congress funded at $64.3 billion.13 In 

the budget-building process that was used for developing its fiscal year 

2004 global war-on-terrorism supplemental budget request, the department 

included $5.9 billion for equipment reconstitution. (See table 1.) 

Table 1: Fiscal Year 2004 Reconstitution Requirements Identified by Services and 

Requested in Supplemental 

Source: Unaudited DOD data. 

a

Includes ship intermediate maintenance.

11 Emergency Wartime Supplemental Appropriations Act for Fiscal Year 2003, Pub. L. 108-11 

(Apr. 16, 2003).

12 The DFAS monthly terrorist report tracks the amount of funds the services are obligating 

on the global war on terrorism by various categories, including equipment reconstitution.

13 Emergency Supplement Appropriation Act for Defense and for the Reconstruction of Iraq 

and Afghanistan Fiscal Year 2004, Pub. L. 108-106 (Nov. 6, 2003).

Dollars in billions

Service requested OSD supplemental request

Service Unit level Depot level Total Unit level Depot level Total

Army $3.64 $1.47 $5.11 $1.85 $1.22 $3.07

Navy 0.00 0.78a 0.78 0.00 0.78a 0.78

Air Force 1.30 0.98 2.28 1.30 0.72 2.02

Marine Corps 0.17 0.26 0.43 0.00 0.07 0.07

Total $5.11 $3.49 $8.60 $3.15 $2.79 $5.94
Page 10 GAO-05-293 Defense Management

For the fiscal year 2004 supplemental budget process, table 1 shows the 

requirements the services developed and what OSD ultimately included in 

its supplemental budget submission to Congress. The requirements are 

broken down between unit-level and depot-level requirements. Unit-level 

maintenance, which consists of organizational- and intermediate-level 

maintenance, includes maintenance performed by military units in motor 

pools and maintenance support units, and by DOD civilians and contractor 

personnel at installation maintenance organizations. Depot-level 

maintenance includes maintenance performed by DOD civilian employees 

and DOD contractors at military depots or private facilities. The fiscal year 

2004 supplemental defense appropriation does not delineate the amounts 

appropriated for unit- and depot-level equipment reconstitution. 

DOD’s Equipment 

Reconstitution 

Estimating Process 

Contained Weaknesses 

That Produced Errors 

The two-phased process DOD used to develop its fiscal year 2004 

supplemental budget equipment reconstitution requirements contained 

weaknesses that produced errors that may result in misstatements of 

future-year budget estimates if not corrected. We observed two problems 

with the COST model associated with the first phase of DOD’s process that 

have generated unreliable estimates. First, the COST model can overstate 

reconstitution costs related to aircraft and ship costs because these costs 

are covered in both the operations and reconstitution sections of the 

model. Second, there is uncertainty in DOD over the maintenance 

requirements covered by the model. We also noted problems with the 

second phase of DOD’s process. In one instance, the Army did not consider 

funding in its baseline peacetime operation and maintenance budget that 

would be available for equipment reconstitution. The Army also 

significantly overestimated the organizational- and intermediate-level 

maintenance costs to reconstitute individual equipment items. In another 

instance, the services included requirements in their reconstitution 

estimates that appear to be inconsistent with equipment reconstitution 

activities established by OSD’s supplemental budget preparation guidance. 

Also, OSD guidance only allowed the services to request funding to replace 

known battle losses—excluding projected battle losses and other expected 

losses—in preparing their fiscal year 2004 supplemental budget 

submissions. 

Duplication of Cost 

Requirements Overstates 

Reconstitution Estimate 

The model that OSD and the services used in the first phase of the process 

to calculate reconstitution requirements for fiscal year 2004 resulted in an 

overstatement of about $1.2 billion. This is because the COST model 
Page 11 GAO-05-293 Defense Management

contains an error that can result in a duplication of reconstitution cost 

requirements. The equipment reconstitution section of the COST model 

provides funding for aircraft and ship reconstitution that is already funded 

through the operations section of the model. 

All services support their aircraft through a flying-hour program that covers 

costs associated with operating aircraft, such as petroleum, oil and 

lubricants, consumables (supplies), and spare parts. As a result, all 

organizational- and intermediate-level maintenance and repair 

requirements are met through the flying-hour program.14 Since the 

operations section of the COST model already includes flying-hour 

program funding, the inclusion of an equation for aircraft reconstitution in 

the equipment reconstitution section of the model is redundant. Air Force 

officials told us that due to their flying-hour program, additional funding 

specifically addressing organizational- and intermediate-level 

reconstitution of aircraft was not needed. However, the Air Force’s fiscal 

year 2004 supplemental budget request included about $1.2 billion in the 

equipment reconstitution section for aircraft maintenance that was also 

covered by the operations section of the COST model. According to Air 

Force officials, they were unaware that the equipment reconstitution 

section duplicated the aircraft maintenance costs that are covered in the 

operations section of the COST model. In contrast, the Navy removed 

funding that the COST model’s equipment reconstitution section provided 

for aircraft organizational- and intermediate-level maintenance. 

The equipment reconstitution section of the COST model also duplicates 

organizational-level ship reconstitution that is already covered in the 

operations section of the model. However, the Navy treated this potential 

duplication in the same manner as it treated the flying-hour program 

duplication. Recognizing that this maintenance was already covered in the 

COST model’s operations section, the Navy only included intermediatelevel ship maintenance, and aircraft and ship depot-level maintenance in 

the equipment reconstitution section of its requirements calculation. 

The different ways that the Air Force and Navy treated aircraft 

reconstitution demonstrate how this potential redundancy is a weakness in 

the structure of OSD’s COST model. In discussing these redundancies in 

the model with OSD comptroller officials, they told us that OSD and IDA 

14 Depot-level aircraft maintenance and repair requirements are funded through a process 

separate from the flying-hour program.
Page 12 GAO-05-293 Defense Management

officials were unaware of this potential duplication. This lack of awareness 

was demonstrated when OSD comptroller officials did not identify and 

correct the Air Force’s duplication described previously. Air Force finance 

officials told us that they have taken steps when preparing their fiscal year 

2005 supplemental budget to prevent this duplication from occurring again. 

We observed that the fiscal year 2005 supplemental budget did not repeat 

this duplication. 

DOD Had Uncertainty Over 

Which Maintenance 

Requirements Were Covered 

by Its COST Model 

There was uncertainty within the department regarding which maintenance 

requirements were covered in the COST model. OSD and the services 

developed their equipment reconstitution requirements with the 

understanding that the COST model calculated organizational- and 

intermediate-level maintenance only, and they thus calculated their depotlevel maintenance requirements outside of the model during the second 

phase of the process. However, we later learned that the model may have 

calculated some depot-level maintenance requirements, which could have 

resulted in the model duplicating the depot-level maintenance 

requirements calculated outside the model. 

We held a series of discussions with officials from OSD—the owners of the 

model—and IDA—the developers of the model—to determine what types 

of maintenance requirements are included in the equipment reconstitution 

section of the model. Both OSD and IDA officials provided us with 

different descriptions of what was included in the model. In addition, these 

officials were unable to produce any written guidance that OSD provided 

IDA regarding what maintenance requirements the model’s equipment 

reconstitution section should cover. They stated that this was determined 

so long ago that the paper trail no longer exists and that in all probability 

the guidance was transmitted either verbally or via e-mail, or both. 

For example, in our initial meeting with OSD comptroller officials to 

determine how OSD and the services developed their equipment 

reconstitution estimates for the fiscal year 2004 supplemental budget, we 

were told that the equipment reconstitution section of the COST model 

included organizational- and intermediate-level maintenance requirements 

and excluded depot-level maintenance requirements. Officials from each 

of the services corroborated this viewpoint and stated that they understood 

the equipment reconstitution section of the COST model to include 

organizational- and intermediate-level maintenance requirements and 

exclude depot-level requirements. Army, Navy, Air Force, and Marine 
Page 13 GAO-05-293 Defense Management

Corps finance officials also told us that they developed depot-level 

maintenance estimates separate from the COST model. 

Next, we met with IDA officials to better understand what levels of 

reconstitution maintenance were included in the equipment reconstitution 

section of the COST model. The IDA officials said that the model included 

organizational- and intermediate-levels of maintenance, and could include 

some depot-level maintenance. However, IDA could not provide us with 

the documentation to support this assertion and we were therefore unable 

to determine whether model calculations included or excluded depot-level 

maintenance. 

We shared IDA’s comments about the levels of maintenance covered in the 

model with OSD comptroller officials in a follow-up meeting. At this point, 

they told us that its COST model was intended to provide organizationallevel maintenance costs only, which represents a small portion of the total 

equipment reconstitution requirement.15 However, based on our analysis of 

the COST model, we concluded that intermediate-level requirements are 

indeed included in the COST model equations. In the end, OSD comptroller 

officials stated that they are now taking steps to clear up confusion 

regarding the requirements for each type of maintenance and repair. 

As described previously, OSD comptroller officials did not clearly establish 

and communicate to IDA what levels of maintenance they expected the 

COST model to estimate. Without clearly identifying what levels of 

maintenance OSD expected in the COST model and subsequently clearly 

communicate this information to IDA, IDA officials are not able to ensure 

that the COST model generates accurate and complete organizational and 

intermediate maintenance cost estimates, and does not duplicate depot 

maintenance costs calculated outside of the model. Consequently, the 

department cannot have confidence in its equipment reconstitution budget 

estimate. 

15 OSD’s supplemental request was split 53 percent for organizational- and intermediate-level 

maintenance and 47 percent for depot-level maintenance. OSD comptroller officials were 

not able to delineate organizational- and intermediate-level maintenance. 
Page 14 GAO-05-293 Defense Management

Army’s Equipment 

Reconstitution Estimate Did 

Not Consider Baseline 

Peacetime Budget

The Army did not consider funding in its baseline peacetime operation and 

maintenance budget that would be available for equipment reconstitution 

when developing its own estimate outside of the COST model. As a result, 

the Army overestimated its equipment reconstitution requirements. 

The Army used the COST model as a starting point for determining its 

equipment reconstitution requirements for fiscal year 2004. However, 

Army officials concluded that the $1.9 billion calculated by the model was 

inadequate. As a result, the Army developed its own methodology for 

calculating equipment reconstitution requirements and estimated $3.0 

billion would be needed for organizational- and intermediate-level repair 

and maintenance, which was about $1 billion higher than the OSD COST 

model estimate. 

Our analysis of the Army’s methodology for calculating equipment 

reconstitution requirements revealed a major weakness in the Army 

estimate. The Army’s process for estimating its equipment reconstitution 

requirements did not include steps to offset total requirements with 

baseline funding.16 Consequently, we estimate that the Army’s equipment 

reconstitution estimate may have been overstated by between $299 million 

to $497 million. 

OSD’s guidance to the services for developing the supplemental budget 

specifies that the services were to offset funds already contained in their 

baseline budgets—peacetime maintenance costs that would not be 

incurred because the unit was deployed in support of the global war on 

terrorism—when estimating a contingency operation’s cost. Not 

recognizing and adjusting for normal operating budgets overstates the 

funding requirement and could result in the Army overstating funding 

requirements for equipment reconstitution in the future if not addressed. 

According to Army officials, this oversight occurred because the Army did 

not establish a specific step in its supplemental estimating process to offset 

the Army’s estimate with baseline budget funds. 

16 We have previously reported that contingency costs were being overstated because they 

were not adjusted to reflect baseline budget offsets. See GAO, Contingency Operations: 

DOD’s Reported Costs Contain Significant Inaccuracies, NSIAD-96-115 (Washington, D.C.: 

May 17, 1996).
Page 15 GAO-05-293 Defense Management

Army Overestimated 

Organizational and 

Intermediate Maintenance 

Costs for Numerous 

Equipment Items

In the process of reviewing the Army’s methodology for calculating 

equipment reconstitution requirements, we also found that the Army 

overestimated organizational- and intermediate-level maintenance costs for 

numerous equipment items. A comparison of the actual fiscal year 2004 

equipment reconstitution obligations reported by the Army with the Army’s 

equipment reconstitution cost estimate showed that organizational- and 

intermediate-level repair costs for individual equipment items were 

significantly overestimated. Specifically, we collected actual cost data on 

38 types of equipment included in the Army’s estimate and determined that 

the actual costs for reconstituting the items were lower than the Army’s 

estimates for 34 of the 38 items. (See table 2.) The Army was unable to 

provide us with adequate support for its estimates because it did not retain 

supporting documentation. Consequently, we were not able to determine 

the reasons for differences between estimated costs and reported 

equipment reconstitution obligations. 

Table 2: Comparison of Army’s Estimated Reconstitution Cost to Actual Cost for 38 

Selected Items for Fiscal Year 2004 

 Item

Estimated

reconstitution

cost per item

Average actual

reconstitution

cost per item a

Actual as percent

of estimate

M119 howitzer $50,000 $1,869 4%

M1101 12,931 1,312 10%

M88A1 140,000 14,587 10%

M969 30,000 4,528 15%

M1A1 120,000 18,213 15%

M916 (10T tractor) 44,000 8,560 19%

M1078 (FMTV) 33,000 6,508 20%

M35A3 33,000 6,780 21%

Compressor 9,000 2,013 22%

M9 ACE 60,000 14,136 24%

M113A3 (FOV) 46,000 11,391 25%

MKT 9,000 2,594 29%

M113A2 (FOV) 46,000 13,738 30%

M871 17,000 5,319 31%

M978 2.5K tankers 38,000 11,932 31%

M992 FAASV 50,000 15,940 32%

M1083 (LMTV) 25,000 8,830 35%
Page 16 GAO-05-293 Defense Management

Sources: U.S. Army and GAO analysis.

a

Represents incremental cost comprised of direct labor and material costs and does not include any 

indirect cost allocation. 

Alternative Service 

Estimates Included 

Equipment Maintenance 

That May Exceed OSD’s 

Reconstitution Guidance 

The services included costs in their reconstitution estimates calculated 

outside the COST model that appear not to be equipment reconstitution as 

established by OSD’s guidance. In one case, the Navy and the Air Force 

included unfunded fiscal year 2004 depot-level maintenance requirements 

in their supplemental funding cost estimates that did not arise from OIF 

and other operations related to the global war on terrorism. 

The Navy and Air Force used unfunded peacetime depot maintenance 

requirements as the basis for the depot-level maintenance portion of their 

fiscal year 2004 supplemental equipment reconstitution requests. The Navy 

requested funding for unfunded ship overhauls, and according to Atlantic 

AVLB 96,000 34,917 36%

Generator sets 5,565 2,024 36%

D7 25,000 9,527 38%

MICLIC 6,000 2,327 39%

M915 (8T tractor) 25,000 9,914 40%

M2A2/M3A3 77,000 31,266 41%

M109A6 Paladin 55,000 24,064 44%

M1076 (PLS trailer) 15,000 6,851 46%

M872 22,000 10,740 49%

PLS truck 39,000 19,477 50%

ATLAS forklift 15,000 7,552 50%

M984 HEMTT wrecker 39,000 19,868 51%

M977 10T cargo truck 38,000 23,880 63%

M149 3,777 2,435 64%

FLU-419 35,000 24,629 70%

M101 2,288 1,612 70%

4K forklift 9,000 8,363 93%

M105 2,288 2,654 116%

PLS racks 1,200 1,783 149%

M1061 1,200 1,973 164%

M200A1 trailer 1,200 2,390 199%

(Continued From Previous Page)

 Item

Estimated

reconstitution

cost per item

Average actual

reconstitution

cost per item a

Actual as percent

of estimate
Page 17 GAO-05-293 Defense Management

fleet officials, unfunded ship overhauls occur every year. These officials 

also stated that the Navy typically finds the funding needed to perform 

unfunded overhauls somewhere in its baseline budget or will delay the 

overhauls until the following year. In addition, the Air Force’s fiscal year 

2004 supplemental request for depot-level equipment reconstitution 

consisted of funding engine and airframe overhauls that were not funded in 

its fiscal year 2004 baseline budget. 

These requirements may not fall within the description of equipment 

reconstitution as established in OSD’s guidance, which directed the 

services to request funds needed to restore forces to the same operational 

level as prior to deployment and to limit requests to those costs already 

incurred as a direct result of operations in support of the war on terrorism. 

However, the DOD guidance also instructed the services to prepare their 

supplemental budget estimates around the DOD Financial Management 

Regulation, Chapter 23 Contingency Cost Breakdown Structure, which 

provides a broader description of reconstitution costs. Taken as a whole, 

the DOD supplemental budget preparation guidance is unclear on what the 

services could and could not include in their budget submissions. In 

addition, Air Force and Navy officials said that funding for these 

requirements was needed to prepare their forces to be fully ready to fight 

the global war on terrorism. However, including these unfunded depot 

maintenance peacetime requirements may overstate the estimated cost of 

reconstituting equipment involved in operations in Iraq and Afghanistan. 

OSD Guidance Excluded 

Estimates of Potential 

Equipment Losses During 

the Budgeting Process 

In preparing the fiscal year 2004 global war-on-terrorism supplemental 

budget, OSD only allowed the services to request funding to replace known 

battle losses and excluded projected battle losses and other expected 

losses. Such expected losses include equipment that would be considered 

beyond economic repair, such as crash-damaged vehicles and maintenance 

washouts.17 However, the replacement of these excluded items ultimately 

will need to be funded in future budgets to ensure that the Army and 

Marine Corps have an adequate amount of equipment needed to meet 

future challenges. 

17 Maintenance washouts are equipment that has been deemed too expensive to repair when 

compared to the cost to replace the equipment item, and is removed from the active 

inventory. 
Page 18 GAO-05-293 Defense Management

Figure 2: Bradley Fighting Vehicle—Example of Projected Equipment Item Damage

Source: GAO.

The equipment replacement needs being quantified by the services for 

inclusion in the fiscal year 2005 global war-on-terrorism supplemental 

budget will incorporate some of the expenses excluded by OSD guidance in 

the fiscal year 2004 supplemental budget request. However, as of December 

2004, the magnitude of this requirement is unknown. 

Using the Army’s equipment reconstitution requirements analysis, we 

estimated that the fiscal year 2004 equipment replacement requirement due 

to maintenance washouts ranged from $259 million to $562 million.18 

Recognizing that not all OIF equipment losses were covered in the fiscal 

year 2004 supplemental, the Army has included some unknown battle 

losses, crash losses, and maintenance washouts in its Tactical Wheeled 

Vehicle Study. The Army engaged this study to identify shortfalls in its 

tactical wheeled vehicle fleets and also included transformation and 

underfunded requirements in past baseline budgets. This study will 

identify multiyear procurement requirements and, according to Army 

resource officials, it is hoped the Army will have these requirements funded 

18 This estimate is based on the Army’s ability to locate excess carcasses that could be 

remanufactured at its intermediate-level maintenance facilities and depots. If carcasses are 

unavailable or maintenance capacity is unavailable due to operational and reconstitution 

requirements, the funding needed will be higher because the requirement will have to be 

met with procurement of new equipment.
Page 19 GAO-05-293 Defense Management

through future baseline and supplemental budgets. As of March 2005, the 

study has not been issued and the Army has been unable to provide us with 

an estimate of the procurement funding requirements, including the 

amount directly related to OIF equipment reconstitution requirements. 

Furthermore, the Army’s and Marine Corp’s reconstitution requirements for 

prepositioned equipment still being used in Iraq will also increase because 

the anticipated battle and crash losses and maintenance washouts will also 

continue to increase the longer the equipment remains in use. Until OSD 

allows the services to consider anticipated operational equipment losses 

and maintenance washouts in their supplemental budgeting process, 

equipment reconstitution requirements generated during the current fiscal 

year will inevitably be pushed out for funding in upcoming years. Not doing 

so could also have an impact on the ability of the services to quickly 

reconstitute equipment in the current fiscal year. 

DOD Not Accurately 

Reporting Equipment 

Reconstitution Costs

DOD has not accurately tracked and reported its equipment reconstitution 

costs because the services are unable to segregate equipment 

reconstitution from other maintenance requirements, as required. In part to 

provide Congress with information on global war-on-terrorism costs and 

provide the OSD comptroller with a means to assess variance between 

obligations and the budget, DFAS compiles a monthly report to track these 

obligations. The DFAS report on funds obligated in support of the war 

includes a category for tracking equipment reconstitution obligations and 

the guidance associated with this report describes what reconstitution 

costs can include. Our analysis of the DFAS report showed that 1) the Air 

Force is not separately reporting equipment reconstitution obligations 

because it does not have a mechanism within its current accounting system 

to track them, 2) the Army is including unit reconstitution obligations that 

are above and beyond equipment reconstitution and other maintenance 

costs, and 3) the Navy is unable to segregate regular maintenance from 

reconstitution maintenance for ship overhauls. As a result, the equipment 

reconstitution obligations are being inconsistently reported by the services 

and the report data are not reliable for accurately determining how much 

the services are actually obligating for the reconstitution of equipment 

returning from deployments in support of the global war on terrorism. 

Table 3 lists the fiscal year 2004 obligations reported by the services in 

DFAS’s report as of the end of September 2004 for reconstitution. 
Page 20 GAO-05-293 Defense Management

Table 3: Reconstitution Obligations Reported by Services in DFAS Terrorist Cost 

Report, as of the End of September 2004

Source: DOD. 

DOD reports the costs of the global war on terrorism largely in accordance 

with the cost breakdown structure found in its financial management 

regulation.19 This internal DOD guidance describes equipment 

reconstitution costs as including the cost to clean, inspect, maintain, 

replace, and restore equipment to the required condition at the conclusion 

of the contingency operation or unit deployment. This guidance, which 

includes a specific cost category for equipment reconstitution along with 

specific budget guidance issued by the OSD comptroller’s office that 

addresses incremental costs of the global war on terrorism, calls for the 

services to report equipment reconstitution costs separately from other 

incremental costs.20 Despite this guidance, the Air Force is not separately 

reporting equipment reconstitution obligations to DFAS for inclusion in its 

monthly terrorism cost report owing to the way the Air Force accounting 

system was designed. Air Force officials told us that the Air Force’s 

accounting system currently has no way to delineate equipment 

Dollars in thousands

Service Obligations reported

Army $3,704,622

Navy 791,532

Air Force 0

Marine Corps 229,280

Special Operations 54,206

Total $ 4,779,640

19 DOD Financial Management Regulation 7000.14-R, vol. 12, ch. 23, sec. 230406, 

Contingency Operations (2001).

20 Although not pointed out to us by the OSD comptroller office or Air Force officials, we 

noted during the course of our review two provisions of volume 12, chapter 23 of DOD’s 

financial regulation that could be viewed as being inconsistent with this requirement. These 

provisions suggest that the services need not separately report reconstitution obligations if 

1) to do so would require them to establish a cost accounting system solely for the purpose 

of determining costs of contingency operations, or 2) they could not separately identify the 

additive costs for equipment overall and maintenance attributable to the contingency. This 

apparent inconsistency could further confuse service budget and accounting officials as to 

the extent they should specifically report reconstitution costs apart from other incremental 

costs. 
Page 21 GAO-05-293 Defense Management

reconstitution obligations from other global war-on-terrorism obligations 

for DFAS reporting purposes. Specifically, the Air Force does not have a 

mechanism nor has it established codes that can track the dollar amounts 

obligated on equipment reconstitution in fiscal years 2003 and 2004, which 

the guidance does not require. The Air Force’s accounting system has two 

types of codes for classifying expenses: (1) element of expense investment 

codes, which are used for tracking obligations by commodities (such as 

supplies, travel, and civilian pay); and (2) emergency and special program 

codes, which are used to collect costs incurred during an emergency or a 

special program (such as the global war on terrorism). Neither of these 

codes, individually or in combination, equates to equipment reconstitution. 

Instead, equipment reconstitution obligations are spread throughout other 

categories in the DFAS terrorist cost report, as appropriate, for the type of 

obligations incurred. Thus equipment reconstitution obligations are 

reported in the operations category of DFAS’s report, not the reconstitution 

category of the DFAS report, and are mixed with other global war-onterrorism obligations that are tracked by other cost categories in the DFAS 

report. According to OSD comptroller officials, having the ability to track 

actual global war-on-terrorism obligations is important in that it allows 

them insight into the accuracy of the supplemental budget that was 

generated, in part, from the COST model.

Army and Navy equipment reconstitution obligations may also be 

inaccurate in the DFAS report. The Army and Navy track their equipment 

reconstitution obligations through the use of certain codes available in 

their account encoding structure and may overstate reported equipment 

reconstitution obligations, because these codes are accumulating global 

war-on-terrorism and other obligations that were not exclusively for 

equipment reconstitution.

During our review, we found that the Army is including obligations not 

directly related to equipment reconstitution requirements arising from 

global war-on-terrorism deployments. For example, units reconstituting 

after returning from Iraq may be including maintenance obligations 

generated during training exercises. Army officials stated that these units 

are being ordered to rapidly prepare for subsequent deployments, which 

includes reconstituting equipment and engaging in training exercises 

among various other tasks. According to Army officials, training exercises 

can require the use of equipment that has not yet been fully reconstituted 

and the exercises generate additional maintenance requirements not 

related to global war-on-terrorism equipment reconstitution. However, 

these training-related maintenance requirements are not readily separable 
Page 22 GAO-05-293 Defense Management

from the equipment reconstitution requirements, and are therefore being 

included as part of the Army’s reported reconstitution obligations. In 

addition, some reconstitution obligations do not readily align with the cost 

categories in the DFAS report and are thus included in existing categories, 

such as equipment reconstitution. For example, Army budget officials told 

us that when units return home from a deployment they incur 

reconstitution expenses unrelated to their equipment. These expenses 

include training needed to reestablish a unit’s ability to perform its mission 

and personnel expenses related to the movement of soldiers in and out of 

the unit that occur after an extensive deployment. The officials told us that 

these obligations are being included in the equipment reconstitution 

section because this was the best place to account for them. As a result, 

the Army’s equipment reconstitution amounts are likely overstated. 

The Navy’s reported reconstitution obligations include some maintenance 

costs that did not appear to completely result directly from global war-onterrorism deployments. Portions of the Navy’s reported obligations for 

equipment reconstitution include major ship repairs and overhauls, called 

“availabilities”, which are accomplished at specified time intervals 

independent of the ship’s use during the global war on terrorism. The 

specific maintenance tasks performed during an availability depend on the 

type of ship, the type of repair or overhaul being conducted, and the ship’s 

condition. According to Navy officials, they report all of the obligations 

incurred in conjunction with an availability funded by the fiscal year 2004 

supplemental budget as equipment reconstitution regardless of whether 

the obligations are due to conditions that existed prior to a global war-onterrorism deployment or to peacetime maintenance conducted during all 

availabilities. The Navy reports all of these obligations as equipment 

reconstitution, because it does not have a process to capture what 

obligations for an availability are driven by the higher level of operations 

generated by global war-on-terrorism deployments versus baseline 

requirements generated by a ship during deployments not related to the 

global war on terrorism. While all of the maintenance tasks associated 

with availabilities that are funded by supplemental money are needed to 

effectively maintain the condition of Navy ships, not all of the maintenance 

performed during the availabilities resulted from the ships being deployed 

in support of the global war on terrorism. Thus, some of the Navy’s 

reported obligations do not appear to fit DOD’s criteria for equipment 

reconstitution costs that should be reported as an incremental cost of the 

global war on terrorism. 
Page 23 GAO-05-293 Defense Management

Conclusions As the services, especially the Army and Marine Corps, continue to conduct 

operations related to the global war on terrorism at the current high pace, 

they will continue to generate equipment reconstitution requirements. OSD 

and the services will continue to use the department’s two-phased process 

to develop estimates of these maintenance requirements so they can be 

funded through supplemental and baseline budgets. However, DOD and 

the services cannot be assured that its global war-on-terrorism 

supplemental budget requirements are as reliable and complete as possible 

until the OSD comptroller:

• revises its contingency model to ensure that costs covered by the 

model’s operating tempo cost elements are not duplicated by costs in 

the model’s reconstitution cost elements; 

• clearly establishes what equipment reconstitution maintenance 

requirements should be covered by the COST model and communicates 

this information to IDA to ensure that the model calculations reflect 

only these maintenance costs; 

• clarifies its guidance to the services on what types of maintenance 

requirements should and should not be included as equipment 

reconstitution when developing the supplemental budget; and

• ensures that all anticipated equipment reconstitution requirements, 

such as operational losses and maintenance washouts, are considered 

when developing supplemental budget requests. 

Overestimating these requirements could result in a misapplication of 

funds, while underestimating them could require the services to draw funds 

from baseline programs or result in the inability of the services to fully 

reconstitute their equipment. Improving DOD’s process for estimating 

equipment reconstitution maintenance and equipment replacement 

requirements will aid the services in reducing the risks they face in 

executing the equipment reconstitution program and help maintain a 

military that is able to meet the nation’s needs. 

With global war-on-terrorism operations continuing at a high pace, the 

Army will be generating additional equipment reconstitution requirements 

that will be funded through future supplemental budgets. Although OSD 

did not use the Army’s fiscal year 2004 equipment reconstitution estimate 

for the fiscal year 2004 supplemental request, that does not preclude OSD 
Page 24 GAO-05-293 Defense Management

from using future Army estimates. Consequently, it is important that the 

Army appropriately offset its equipment reconstitution estimate with 

baseline peacetime funding, which it did not do for its fiscal year 2004 

estimate. Until the Army establishes a step in its supplemental estimating 

process to offset the estimate with the baseline budget, its calculation of 

equipment reconstitution requirements for future supplemental budgets 

will continue to be overstated. Further, if OSD uses the Army-calculated 

equipment reconstitution estimate and does not adjust the estimate for 

baseline funding, the Army’s equipment reconstitution requirements could 

be overfunded, which could limit the funding available for other 

requirements, thus potentially increasing risks in other areas. 

Inconsistencies between how the services are reporting equipment 

reconstitution obligations in the DFAS global war-on-terrorism cost report 

mean that equipment reconstitution and other related cost categories are 

being inaccurately reported. Until DOD develops comprehensive and 

consistent methods for tracking and reporting equipment reconstitution 

obligations—including (1) developing a mechanism within the Air Force 

for identifying, accumulating, and reporting its equipment reconstitution 

obligations; and (2) refining the Navy and Army processes for identifying 

obligations that are incurred exclusively for equipment reconstitution—the 

usefulness of the DFAS report will remain limited. Improving the accuracy 

and completeness of the report will result in a DFAS cost report that will be 

more useful to OSD and Congress in their oversight of global war-onterrorism obligations. 

Recommendations for 

Executive Action 

To correct the weaknesses we identified in the equipment reconstitution 

cost estimating process the department used when developing its fiscal 

year 2004 supplemental budget request, we recommend that the Secretary 

of Defense take the following five actions:

• Direct the OSD comptroller to revise its COST model to ensure that 

costs covered by the model’s operating tempo cost elements are not 

duplicated by costs in the model’s reconstitution cost elements; 

• Direct the OSD comptroller to clearly establish what equipment 

maintenance requirements should be covered by the COST model and 

communicate this information to IDA to ensure that the model 

calculations reflect only these maintenance costs; 
Page 25 GAO-05-293 Defense Management

• Direct the Secretary of the Army to establish a step in its 

supplemental estimating process to offset the estimate with the 

baseline budget to improve future contingency funding estimates;

• Direct the OSD comptroller to clarify its supplemental budget 

guidance to the services on what types of maintenance requirements 

should and should not be included as equipment reconstitution when 

developing the supplemental budget; and

• Direct the OSD comptroller to ensure that all potential equipment 

reconstitution requirements are considered when developing 

supplemental budget requests by allowing the services to include 

anticipated equipment losses—both operational losses and 

maintenance washouts—in their supplemental budgeting process. 

To ensure that Congress has a clear insight into the cost of equipment 

reconstitution, we also recommend that the Secretary of Defense direct the 

services, in conjunction with DFAS, to develop comprehensive and 

consistent methods for tracking and reporting equipment reconstitution 

obligations. This includes (1) developing a mechanism within the Air Force 

for identifying, accumulating, and reporting its equipment reconstitution 

obligations; and (2) refining the Navy and Army processes for identifying 

obligations that are incurred for equipment reconstitution. 

Agency Comments and 

Our Evaluation 

The OSD Comptroller, Director for Operations and Personnel provided oral 

comments on a draft of this report for DOD and concurred with two of our 

six recommendations, partially concurred with three recommendations, 

and did not concur with the other recommendation. 

In concurring with our recommendation that OSD clarify its supplemental 

budget guidance to the services on what types of maintenance 

requirements should and should not be included as equipment 

reconstitution when developing the supplemental budget, the OSD director 

stated that improvements are made to each iteration of the guidance. We 

confirmed that the guidance provided to the services for the fiscal year 

2005 supplemental budget was much more detailed and comprehensive 

than the guidance provided for developing the fiscal years 2003 and 2004 

supplemental budgets.

In concurring with our recommendation that the services, in conjunction 

with DFAS, develop comprehensive and consistent methods for tracking 
Page 26 GAO-05-293 Defense Management

and reporting equipment reconstitution obligations, the OSD director 

stated that they have already revised their financial management regulation 

to improve reporting of equipment reconstitution. However, until 

additional actions are taken, such as improving the services’ financial 

systems’ ability to track obligations, our recommendation will not be fully 

implemented.

In partially concurring with our recommendation regarding the duplication 

of maintenance costs in the COST model, the OSD director stated that they 

have made revisions to DOD’s financial management regulations to ensure 

that the cost of equipment maintenance is not being duplicated in different 

COST model sections. However, as currently written, the revised section 

does not have any instructions on avoiding duplicating maintenance 

requirements calculated by the model’s operations section; instead it 

simply divides reconstitution into four subcategories of maintenance. Until 

further changes are made, the intent of our recommendation will not have 

been met.

In partially concurring with our recommendation that the OSD comptroller 

clearly establish what equipment reconstitution maintenance requirements 

should be covered by the COST model, the OSD director stated that IDA, 

the model’s operator, periodically receives specific guidance from the 

comptroller’s office on the criteria and elements of costs to be included in 

the model’s calculations. However, as we reported, neither OSD 

comptroller nor IDA officials were able to provide us with examples of this 

guidance when requested. The OSD director also told us that they have 

taken action to ensure that the model calculates costs in accordance with 

the DOD Financial Management Regulation and that they issue guidance to 

the services on what costs will be covered by the model. Although Volume 

12, Chapter 23, Section 3.5 of the financial management regulation has been 

revised to delineate equipment reconstitution into four categories—

organizational-, intermediate-, and depot-level maintenance; and contractor 

logistics support—the section does not state which of these categories are 

covered by the COST model. In addition, while OSD guidance to the 

services for developing the fiscal year 2005 supplemental budget stated that 

intermediate- and depot-level maintenance would be calculated outside the 

model, the guidance provided for developing the fiscal years 2003 and 2004 

supplemental budgets only specified that depot-level maintenance would 

be calculated outside the model. Until changes are made establishing what 

maintenance requirements are in the COST model and clearly 

communicating this to IDA, the intent of our recommendation will not have 

been met.
Page 27 GAO-05-293 Defense Management

The OSD director did not concur with our recommendation that the 

Secretary of the Army be directed to establish a step in its supplemental 

budget process for estimating equipment reconstitution requirements to 

offset the estimate with baseline funding. The OSD director said that the 

process for developing the supplemental budget already includes a process 

for excluding costs for equipment maintenance funded in the baseline 

budget. As stated in this report, we acknowledge that OSD’s COST model 

equations for equipment reconstitution contain a factor for reducing the 

reconstitution requirements by taking baseline funding into account. We 

also acknowledge that OSD’s process for building the supplemental budget 

has controls in place to help ensure that only incremental costs are 

included in the supplemental budget. However, we believe that the 

services’ supplemental budget estimating processes also need to have such 

assurances built in. We made our recommendation to address the fiscal 

year 2004 equipment reconstitution requirement that the Army developed 

separate from the COST model during what we have described in this 

report as the second phase of DOD’s process for building the supplemental 

budget. When developing this requirement, the Army did not take into 

account available baseline funding, because it did not have a step in its 

supplemental budget estimating process to offset the estimate with 

baseline funding. If the OSD comptroller had used this Army-generated 

requirement in its fiscal year 2004 supplemental budget, the potential exists 

that OSD comptroller officials might miss the Army’s failure to adjust this 

requirement for baseline funding. Importantly, the very safeguards that the 

OSD comptroller stated it has in place failed to offset the $1.2 billion 

duplication of aircraft maintenance requirements that the Air Force 

included in its fiscal year 2004 supplemental budget requirement. Taking 

action on our recommendation would provide the Army with the necessary 

safeguards to submit accurate budget estimates and avoid the potential 

that future supplemental budgets could provide more than incremental 

funding to the Army. Therefore, we continue to believe our 

recommendation has merit.

In partially concurring with our recommendation that the services be 

allowed to include equipment losses in their supplemental budget 

requirements, the OSD director stated that they typically address these 

potential future costs through subsequent budget requests or through 

reprogramming efforts. The OSD director also told us that it is conceivable 

that some factor reflecting maintenance washout trends could be 

considered in future supplemental budget requests. If this action is taken, it 

should satisfy the intent of our recommendation. As we stated in our 

report, until OSD allows the services to consider anticipated operational 
Page 28 GAO-05-293 Defense Management

equipment losses and maintenance washouts in their supplemental 

budgeting process, equipment reconstitution requirements generated 

during the current fiscal year will inevitably be pushed out for funding in 

upcoming years. Not doing so could also have an impact on the ability of 

the services to quickly reconstitute equipment in the current fiscal year. 

We are sending copies of this report to other appropriate congressional 

committees, the Secretary of Defense, the Secretary of the Army, the 

Secretary of the Navy, the Secretary of the Air Force, the Commandant of 

the Marine Corps, and the Director, Office of Management and Budget. We 

will also make copies available to others upon request. In addition the 

report will be available at no charge on GAO’s Web site at 

http://www.gao.gov.

If you or your staff have any questions on the matters discussed in this 

letter, please contact me at (202) 512-8412 or solisw@gao.gov or my 

assistant director, Julia Denman, at (202) 512-4290 or denmanj@gao.gov. 

Other major contributors to this letter were John Strong, Bob Malpass, 

Andy Marek, Robert Wild, Dave Mayfield, and Charles Perdue. 

William M. Solis

Director, Defense Capabilities 

and Management
Page 29 GAO-05-293 Defense Management

Congressional Committees 

The Honorable John W. Warner, 

Chairman

The Honorable Carl Levin

Ranking Minority Member

Committee on Armed Services

United States Senate

The Honorable Ted Stevens, 

Chairman

The Honorable Daniel K. Inouye

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable Duncan Hunter, 

Chairman

The Honorable Ike Skelton

Ranking Minority Member

Committee on Armed Services

House of Representative

The Honorable Jerry Lewis, 

Chairman

The Honorable John Murtha

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

House of Representatives
Page 30 GAO-05-293 Defense Management

Appendix I

Scope and Methodology ApApenednxidexiIs

To determine if the process DOD used to develop its fiscal year 2004 

supplemental budget equipment reconstitution requirements was accurate, 

we met with officials from the OSD Under Secretary of Defense 

(Comptroller); Assistant Secretary of the Army, Financial Management and 

Comptroller; Assistant Secretary of the Navy, Financial Management and 

Comptroller; Assistant Secretary of the Air Force, Financial Management 

and Comptroller; Headquarters U.S. Marine Corps Programs and Resources 

Department, and U.S. Marine Corps Deputy Commandant Installations and 

Logistics. We also collected and reviewed OSD and service equipment 

reconstitution guidance to develop an understanding of the processes the 

department used to develop its fiscal year 2004 equipment reconstitution 

requirements. As part of this effort we also met with officials from OSD 

Under Secretary of Defense (Comptroller); Headquarters U.S. Army Deputy 

Chief of Staff G-4; Headquarters U.S. Navy Deputy Chief of Naval 

Operations (Logistics); Headquarters U.S. Air Force Deputy Chief of Staff 

Installation and Logistics; and Headquarters U.S. Marine Corps Programs 

and Resources Department to identify the methodologies used by OSD and 

each of the services for determining equipment reconstitution 

requirements and collected related documentation. To gain further insight 

into the accuracy of the process the Army used to develop its equipment 

reconstitution requirement, we met with officials at and collected data 

from the Army Materiel Systems Analysis Activity; Forts Bragg, Campbell, 

Dix, Hood, Riley, and Stewart; and Camps Arifjan and Doha, Kuwait. We 

collected actual equipment reconstitution cost data from these activities 

and compared them to the data the Army used in developing its equipment 

reconstitution requirement. To determine the reliability of the actual 

reconstitution costs for Army equipment, we discussed and observed the 

equipment reconstitution data collection process at four of the Army bases 

we visited where we observed a consistent process for collecting and 

entering equipment reconstitution data into the Army’s database. We also 

visited the AMSAA team that was managing and summarizing the Army’s 

equipment reconstitution data collection effort to determine that the 

personnel collecting the data and managing the data collection effort were 

performing quality reviews to ensure completeness and accuracy. 

Additionally, the AMSAA management team had the Army commands 

review the data collected at their installations prior to passing the data to 

higher commands. Based on this assessment, we concluded that the data 

collection effort was sufficiently comprehensive and reliable to provide 

data for this engagement. We also collected and analyzed data the services 

use in developing their reconstitution requirements, which were submitted 

to OSD. Further, we collected and analyzed data OSD used to develop the 

department’s overall equipment reconstitution requirement that was 
Appendix I

Scope and Methodology

Page 31 GAO-05-293 Defense Management

included in the fiscal year 2004 global war-on-terrorism supplemental 

budget request. To gain further insight into how OSD developed the 

equipment reconstitution requirement, we met with IDA officials to 

develop an understanding of how OSD’s COST model calculates this 

requirement. We limited our examination of the COST model to the section 

that calculates equipment reconstitution requirements, which consists of 

only 4 of the 188 equations that comprise the COST model. To understand 

the extent to which equipment reconstitution requirements generated 

during fiscal year 2004 will have to be funded in upcoming budgets we met 

with and obtained guidance issued by the OSD Under Secretary of Defense 

(Comptroller) regarding how the services’ equipment reconstitution 

requirements were restricted. To quantify the effect of these limitations we 

collected Army data on potential equipment losses and estimated their 

possible impact on future budgets. To assess the equipment reconstitution 

requirement inputs provided to the services by their component commands 

and units we met with officials of and collected data at Army Forces 

Command, Naval Air Systems Command, U.S. Atlantic Fleet, Air Combat 

Command, and U.S. Marine Corps Logistics Command. Using the 

information and analysis described here we assessed the reasonableness 

and completeness of the department’s equipment reconstitution 

requirements.

To determine how accurately and completely the department is tracking 

and reporting equipment reconstitution costs we met with officials of and 

collected documentation from the Assistant Secretary of the Army, 

Financial Management and Comptroller; Assistant Secretary of the Navy, 

Financial Management and Comptroller; Assistant Secretary of the Air 

Force, Financial Management and Comptroller; and Headquarters U.S. 

Marine Corps Programs and Resources Department. We reviewed the 

structure of how the services are accumulating and reporting obligations 

associated with their equipment reconstitution efforts. We compared and 

contrasted what type of obligations each service considered as equipment 

reconstitution for inclusion in the Defense Financial Accounting Service’s 

report that is tracking fiscal year 2004 global war-on-terrorism obligations. 

We discussed the inconsistencies between the services noted during our 

review with the service officials listed above to determine the reasons for 

the inconsistent manner in which equipment reconstitution obligations 

were reported.

We performed our work from September 2003 through March 2005 in 

accordance with generally accepted government auditing standards. 

(350421)
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