United States General Accounting Office

GAO Briefing Report to Congressional

Requesters

March 1996 CONTINGENCY

OPERATIONS

Defense Cost and

Funding Issues

G O A

years

1921 - 1996

GAO/NSIAD-96-121BR

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-271388 

March 15, 1996

The Honorable Strom Thurmond

Chairman

Committee on Armed Services

United States Senate

The Honorable Floyd D. Spence

Chairman

Committee on National Security

House of Representatives

The Department of Defense (DOD) participated in contingency operations

in several places during fiscal year 1995, including Haiti, Southwest Asia,

and the former Yugoslavia. To help cover the incremental costs1

 of these

operations, Congress provided DOD with a supplemental appropriation. As

requested, we are providing information on (1) the extent that the

supplemental appropriation fully covered DOD’s reported incremental costs

and the impacts on the services from any funding shortages or overages

and (2) the accuracy of the methods of estimating incremental costs in

comparison to actual costs and potential improvements to better estimate

costs. We plan to further examine DOD’s reported fiscal year 1995 costs, as

explained below, and will provide a report on our findings.

Background DOD received appropriations of $253 billion for fiscal year 1995, of which

$92 billion was for operation and maintenance (O&M). Through fiscal year

1996, DOD’s annual appropriations have not included funds for possible

contingency operations. DOD has not budgeted for the incremental costs of

military operations or contingencies. It has budgeted to be ready to

conduct such operations.

When the services have had to conduct these operations, the planned

budget execution cycle was disrupted. DOD then had to absorb the

incremental costs of these operations, which were mostly O&M items,

within its existing appropriations or seek supplemental appropriations.2

1

As used in this report, incremental costs are those costs that would not have been incurred except for

the operation. This is the same definition contained in the Omnibus Budget and Reconciliation Act of

1990 (P.L. 101-508).

2

The Air Force has included funds in its military personnel appropriation account for the payroll cost

of reserve volunteers participating in contingency operations.

Page 1 GAO/NSIAD-96-121BR Contingency Operations
B-271388 

In the Emergency Supplemental Appropriations and Rescissions for the

DOD to Preserve and Enhance Military Readiness Act of 1995 (P.L. 104-6),

Congress in April 1995 provided DOD $2,235 million for incremental costs

associated with ongoing operations in a variety of locations, including

Somalia, Rwanda, the former Yugoslavia, Haiti, Cuba, Southwest Asia, and

Korea.

Contingency operations begin when the President decides to commit U.S.

military forces to respond to developing world conditions that he judges

affect U.S. interests. Some of these operations carry over from one year to

the next. For new operations, DOD’s requests for supplemental funds are

based on cost estimates that are developed before the actual deployment

of military forces or early in the deployment. Developing the estimate

involves (1) making assumptions about a variety of factors such as the

operation’s expected duration and (2) costing out the assumed

requirements, using standard cost factors that are in turn based on

historical costs and, where there are no cost factors, military judgment.

For existing operations, DOD projects costs based on costs incurred in the

previous year unless it expects an operation to change in size, scope, or

duration.

Results in Brief DOD reported fiscal year 1995 contingency operations-related incremental

costs of $2,223 million. While DOD ended the fiscal year with supplemental

funding of $12 million above its reported incremental costs, some of the

services and DOD agencies had reported costs that were in excess of their

portion of the supplemental appropriation while other services and DOD

agencies reported costs that were below their portion of the supplemental

appropriation.

The Air Force, the Marine Corps, the Defense Intelligence Agency, and the

U.S. Special Operations Commmand collectively received fiscal year 1995

supplemental funding of $133 million in excess of their reported

incremental costs for contingency operations. The Air Force and the

Marine Corps used the excess funding for a variety of otherwise unfunded

operational needs, such as runway repairs (Air Force) and equipment

maintenance (Marine Corps). The Army, the Navy, the Defense Health

Program, and the Defense Mapping Agency, on the other hand, collectively

reported costs that exceeded supplemental funding by $120 million.3

 Army

officials believed that the Army covered its funding shortfall by reductions

3

The differences between the reported incremental costs and funding do not add due to rounding.

Page 2 GAO/NSIAD-96-121BR Contingency Operations
B-271388 

in areas such as training and travel. The Navy absorbed its shortfall by

realigning funding from lower priority programs.

Through August 1995, DOD had reported costs of $1.9 billion. Projecting

August costs to September, we estimate that had September costs

approximated August costs, DOD’s full fiscal year 1995 reported costs

would have been $266 million below appropriated funding. However,

reported September costs were about 4 times more than the costs of the

previous month and over $120 million more than the sum of the prior 3

months—June through August. We are continuing to review the

September costs to determine the reasons for this surge.

Accurately estimating the cost of contingency operations, particularly

those involving uncertain situations such as the one in Bosnia, is difficult.

DOD has to make judgments about a variety of factors, such as the duration

of operations, before operations begin. Events, however, may differ from

the assumptions. For example, in the case of Vigilant Warrior, the

deployment of military forces to Southwest Asia in response to Iraqi troop

movements, DOD originally estimated that the operation would cost

$462 million in fiscal year 1995. However, the operation had reported costs

that were about $200 million below the estimate because the operation

concluded sooner than expected as the Iraqis pulled their troops back. In

costing out its assumptions, one of the services, the Army, uses a

mathematical model to some extent. Because the model was not designed

for contingency operations, it has some limitations, such as the lack of

worldwide transportation rates, and the data are sometimes up to 3.5 years

old.

While some improvements can be made to estimating methodologies, cost

estimates, by their inherent nature, will often be inexact. Therefore, it will

often be difficult for Congress to know how much funding it should

authorize for contingency operations. There are steps Congress can take,

however, to deal with the uncertainty.

Matters for

Congressional

Consideration

If Congress does not want emergency supplemental funds authorized and

appropriated for contingency operations to be spent for other purposes, it

may want to clearly specify in supplemental appropriation legislation that

supplemental funds provided for contingency operations may only be used

for (1) the expenses incurred in support of contingency operations and

(2) the reimbursement of accounts initially utilized to fund those

operations. In instances where initial funding proves to be inadequate and

Page 3 GAO/NSIAD-96-121BR Contingency Operations
B-271388 

Congress considers providing further funding, it may also wish to require

DOD to reprogram or transfer excess funds among the services if some

services have costs below their funded level while others have costs above

it before providing additional funds.

Scope and

Methodology

To analyze DOD’s incremental costs and funding for contingency

operations, we compared its reported incremental costs to approved

supplemental funding. To do this, we reviewed DOD’s contingency

operations cost reports, supplemental funding legislation, and DOD

documents distributing funding to the military services and other DOD

agencies. We also interviewed officials in DOD, each of the service

headquarters, and selected major commands.

To obtain information on the impact of funding shortfalls and overages,

we reviewed service documents and met with officials in the military

services, including selected major commands. We also discussed these

matters with officials from the Office of the Secretary of Defense.

To obtain information on the methodology for estimating costs, we

reviewed service documents and interviewed relevant officials in DOD,

each service headquarters, and selected major commands. We discussed

the kinds of assumptions that must be made in developing estimates and

how these assumptions are costed out. Where models were used for

costing, we discussed the primary use of these models and their

adaptability for costing contingency operations. We focused our work on

the Army’s use of models because it makes the most use of models in

estimating contingency costs.

We have previously reported that when considering the cost of operations

it should be recognized that DOD’s financial systems cannot reliably

determine costs. Systems are classified as high risk and cannot easily

capture actual incremental costs. Only the total obligations are captured

by the accounting systems. The services use various management

information systems to identify incremental obligations and to estimate

costs.

We performed our work between January and March 1996 in accordance

with generally accepted government auditing standards. We reviewed the

information in this briefing report with DOD officials and made changes

where appropriate.

Page 4 GAO/NSIAD-96-121BR Contingency Operations
B-271388 

We are providing copies of this report to the Chairmen and Ranking

Minority Members of the House and Senate Committees on Appropriations

and the Ranking Minority Members of the Senate Committee on Armed

Services and the House Committee on National Security. We are also

sending copies to the Secretaries of Defense, the Army, the Air Force, and

the Navy and the Director, Office of Management and Budget. Copies will

be made available to others upon request.

If you or your staff have any questions about this report, please contact me

at (202) 512-3504. The major contributors to this report are listed in

appendix I.

Richard Davis

Director, National Security

 Analysis

Page 5 GAO/NSIAD-96-121BR Contingency Operations
Contents

Letter 1

Briefing Section I 

Background

8

Reported Incremenetal Costs for Fiscal Year 1995 Contingency

Operations

8

Briefing Section II 

Cost and Funding

10

Summary of Incremental Costs and Funding During Fiscal Year

1995

10

Army Incremental Costs and Funding During Fiscal Year 1995 12

Air Force Incremental Costs and Funding During Fiscal Year 1995 14

Navy Incremental Costs and Funding During Fiscal Year 1995 16

Marine Corps Incremental Costs and Funding During Fiscal Year

1995

18

Other DOD Incremental Costs and Funding During Fiscal Year

1995

20

Reported Incremental Costs Surged in Late Fiscal Year 1995 22

Briefing Section III 

Estimating

Methodology

24

Contingency Operation Cost Estimating 24

Assumptions 26

Use of Models 30

Improving Cost Estimating 34

Appendix I 

Major Contributors to

This Report

36

Abbreviations

DOD Department of Defense

OMB Office of Management and Budget

O&M operation and maintenance

LOGCAP Logistics Civil Augmentation Plan

Page 6 GAO/NSIAD-96-121BR Contingency Operations
Page 7 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section I 

Background

GAO Reported Incremental Costs for Fiscal 

Year 1995 Contingency Operations

Cuba

$266M

Haiti

$569M

Former Yugoslavia

$347M

Rwanda

$36M

Somalia

$49M

Iraq--

Provide Comfort $138M

Southern Watch $468M

Vigilant Warrior $258M

Korea

$91M

Page 8 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section I 

Background

The Secretary of Defense’s 1995 Annual Report to the President and the

Congress describes contingency operations as military operations that go

beyond the routine deployment or stationing of U.S. forces abroad but fall

short of large-scale theater warfare. U.S. military forces participated in

several contingency operations during fiscal year 1995. These operations

included (1) the activities in support of United Nations peace operations in

Haiti, Southwest Asia, and the former Yugoslavia; (2) the increased

deployment of military capability to South Korea in response to

heightened tensions; (3) the deployment of additional military forces to

Kuwait and Saudi Arabia in response to the threat of renewed Iraqi

aggression against Kuwait; and (4) the enforcement of a revised U.S. policy

designed to prevent Cuban migrants from reaching the United States. The

map shows where these operations occurred and the Department of

Defense’s (DOD) reported incremental costs for each operation.

Most of DOD’s reported incremental costs were for operations in four

areas—Southwest Asia, Haiti, Cuba, and the former Yugoslavia. These

costs totaled about $2 billion, or 92 percent of DOD’s total reported

incremental costs. Within Southwest Asia, DOD participated in operations

to (1) enforce United Nations sanctions against Iraq, (2) enforce the no-fly

zone over both northern and southern Iraq, and (3) provide humanitarian

relief to the population of northern Iraq.

Page 9 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section II 

Cost and Funding

GAO Summary of Incremental Costs and 

Funding During Fiscal Year 1995

Dollars in millions

Reported incremental 

costs

$2,223

Supplemental funding 

in April 1995

2,235

Funding overage 12

Page 10 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section II 

Cost and Funding

In April 1995, Congress provided DOD with an emergency supplemental

appropriation of $2,235 million to fund contingency operations occurring

in fiscal year 1995. The vast majority—91 percent—of the appropriation

was for operation and maintenance (O&M), which funds the operating costs

of a deployment, such as transportation and contractor support. The

balance of the appropriation was for military personnel accounts, which

fund the cost of incremental pay, such as imminent danger pay. Through

the end of fiscal year 1995, DOD reported about $2,223 million for

contingency operations-related incremental costs. Therefore, DOD ended

the fiscal year with supplemental funding of $12 million above its reported

incremental costs. Some of the services and other DOD agencies, however,

had reported costs that were in excess of their portion of the supplemental

appropriation, while other services and DOD agencies reported costs that

were below their share of the supplemental appropriation.

Congress appropriates funds to the military services and other DOD

components by appropriation accounts. Reprogramming large sums within

an appropriation requires congressional approval. Transferring funds

across appropriations accounts requires statutory authority. In comparing

reported costs with funding, it is necessary to examine not only the total

appropriation but also its individual components. The overages and

underages we found in total and by service and appropriation account are

discussed in more detail later.

Page 11 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section II 

Cost and Funding

GAO Army Incremental Costs and Funding 

During Fiscal Year 1995

Dollars in millions

Total O&M Military Personnel

0

200

400

600

800

1,000

842

775

67

767

694

72

Cost Funding

a

aTotals do not add due to rounding.

Page 12 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section II 

Cost and Funding

The Army had a $75-million shortfall between its reported incremental

costs and its portion of the supplemental appropriation. Within

appropriation accounts, the Army had an $81-million shortfall in O&M

funding compared to reported costs and a $6-million4 excess in military

personnel funding.

The Army had to absorb its O&M shortfall within its fiscal year 1995

appropriations. Army officials told us that they could not specifically

identify what expenditures were reduced to absorb the shortfall. They

were, however, able to tell us that there were no reductions in base

operations. They believed that reductions were made in areas such as

training and travel. We were unable to document the impact of reductions

at this time, but we plan to pursue this matter further.

The Army’s reported shortfall may not be as great as its reported costs

suggests. In related work we are doing on the reliability of DOD’s reported

incremental costs for contingency operations at the request of the

Chairmen of the House Committees on International Relations and

National Security, we are finding that some Army O&M costs are

overstated. The Army has not offset its reported incremental costs to

reflect costs that it does not incur when soldiers are deployed for

contingency operations, such as normal base operations or training that

cannot be attended. For example, in fiscal year 1995, the U.S. Army Forces

Command estimated that military units did not incur about $11 million in

normal operating costs as a result of deploying to contingency operations.

Consequently, this estimate would reduce reported costs by that amount.

While there were instances of underreporting of costs in fiscal year 1994,

we are not aware of any such instances in fiscal year 1995.

The Army received $6 million more in its portion of the supplemental

military personnel appropriation than it reported in military personnel

costs. According to the Army, it used these excess funds to help cover an

overall funding shortage in its total military personnel appropriation.

4

The Army reported $66.7 million in incremental military personnel contingency costs and received

funding of $72.4 million, for a difference of $5.7 million. The slide and text differ by $1 million due to

rounding.

Page 13 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section II 

Cost and Funding

GAO Air Force Incremental Costs and 

Funding During Fiscal Year 1995

Dollars in millions

 Total O&M Military Personnel

0

200

400

600

800

1,000

811

735

76

921

853

68

Cost Funding

Page 14 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section II 

Cost and Funding

The Air Force’s portion of supplemental funding was $110 million above

its reported incremental costs. Within its O&M appropriation account, the

Air Force received $118 million more in supplemental funding than it

reported in costs. At the same time, it reported that military personnel

costs exceeded its supplemental military personnel appropriation by

$8 million.

Our related ongoing work suggests that the Air Force’s O&M overage may

be even greater than the amount reported. For example, we found that the

Air Force overstated its fiscal year 1995 incremental flying hour costs by

$7 million at one command because of the way flying hour costs are

calculated. According to Air Force officials, the Air Force calculates flying

hours by multiplying reported flying hours by a budgeted flying hour cost

factor reflecting historical costs. Actual costs for flying hours may be

above or below the budgeted factor. In this example, actual costs were

lower than the reported costs.

Excess O&M funding was used for a variety of otherwise unfunded

operational needs, such as (1) runway repairs; (2) roof repairs; (3) heating,

air conditioning, and ventilation projects; and (4) quality-of-life projects,

such as repairs to child development centers and dormitories. These

projects were categorized by the Air Force as “unsatisfactory” real

property maintenance requirements for fiscal year 1995. Excess funding

was also used to support depot maintenance requirements, command and

control communication systems, and underground fuel storage tanks in

the Pacific theater.

To partly cover the military personnel funding shortfall of $8 million, the

Air Force reprogrammed $156 million in fiscal year 1995 within its military

personnel appropriation. According to an Air Force official, the

reprogrammed funds covered the shortfall in supplemental appropriations

for incremental military pay.

Page 15 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section II 

Cost and Funding

GAO Navy Incremental Costs and Funding 

During Fiscal Year 1995

Dollars in millions

 Total O&M Military Personnel

0

100

200

300

400

500

600

479

420

59

445

389

56

Cost Funding

Page 16 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section II 

Cost and Funding

The Navy had a $34-million shortfall between its reported incremental

costs and its portion of the supplemental appropriation. The Navy had

reported shortfalls in both its O&M and military personnel accounts.

The reported O&M shortfall was $31 million. Navy officials stated that the

Navy absorbed its shortfall by realigning funding from lower priority

programs, but they could not identify the affected programs. Our related

ongoing work, however, suggests that the shortfall may not be as great as

the reported costs suggest. We found an instance where the Navy may

have overstated its costs in fiscal year 1995 because it did not adjust

incremental flying hour costs to reflect over $1 million worth of free fuel

received. While the Navy has advised us that it does account for free fuel

in its flying hour cost factors, it did not provide any documents to support

this position.

The Navy’s reported military personnel costs were $3 million below its

share of the supplemental military personnel appropriation. According to a

Naval Reserve Force official, this shortfall was absorbed within the

reserve military personnel appropriation.

Page 17 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section II 

Cost and Funding

GAO Marine Corps Incremental Costs

and Funding During Fiscal Year 1995

Dollars in millions

Total O&M Military Personnel

0

20

40

60

80

100

29

19

10

44

34

10

Costs Funding

Page 18 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section II 

Cost and Funding

The Marine Corps’ portion of the supplemental appropriation was

$15 million above its reported incremental costs. The Marine Corps

applied the additional O&M funds toward the Fleet Marine Forces’ fiscal

year 1995 depot level reparables, corrosion control, and equipment

maintenance requirements.

Page 19 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section II 

Cost and Funding

GAO Other DOD Incremental Costs and 

Funding During Fiscal Year 1995

 Total

0

20

40

60

80

100

62

59

Costs Funding

Dollars in millions

Page 20 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section II 

Cost and Funding

Other DOD agencies, such as the U.S. Special Operations Command, the

Defense Health Program, the Defense Intelligence Agency, and the

Defense Mapping Agency, collectively reported $62 million in incremental

costs. They received $59 million from the supplemental appropriation,

resulting in a funding shortfall of $3 million. However, some agencies had

reported costs in excess of their portion of the supplemental

appropriation, while other agencies had reported costs below their portion

of the supplemental appropriation. The Defense Intelligence Agency and

the U.S. Special Operations Commmand together reported costs that were

$8 million below their portion of the supplemental appropriation. The

Defense Health Program and the Defense Mapping Agency together

reported costs that were $11 million above their portion of the

supplemental appropriation. We do not know at this time how the

agencies that had funding shortfalls absorbed these costs and how the

agencies that had remaining funding utilized those funds.

Page 21 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section II 

Cost and Funding

GAO Reported Incremental Costs Surged in 

Late Fiscal Year 1995

June

July

August

September

0 100 200 300 400

63

73

86

344

DOD Monthly Totals

Dollars in millions

Page 22 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section II 

Cost and Funding

Through August 1995, DOD had reported costs of $1.9 billion. Projecting

August costs to September, we estimate that had September costs been

the same as August costs, DOD’s full fiscal year 1995 reported costs would

have been $266 million dollars below appropriated funding. However,

reported costs surged in September to bring reported costs within

$12 million of the funding provided through the supplemental

appropriation. The reported September costs were about 4 times more

than the costs of the previous month and over $120 million more than the

sum of the prior 3 months—June through August. This surge was related

to $134 million in reported costs for Operation Southern Watch and

$75 million in reported costs for operations involving the former

Yugoslavia.

We are continuing to review these September costs for fiscal year 1995 to

determine the reasons for this surge. The amount of costs reported in any

reporting period can vary due to the pace of operations or the advent of

new operations. For example, reported fiscal year 1994 costs surged in late

fiscal year 1994 largely because of the U.S. intervention in Haiti, which

began in September 1994. We are not aware of any similar surge of

operations in late fiscal year 1995 other than the bombing campaign in

Bosnia, which began in late August and ended September 22, 1995.

However, we do not believe that the campaign by itself was of sufficient

magnitude to account for the surge in reported costs.

Page 23 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section III 

Estimating Methodology

GAO Contingency Operation Cost Estimating

Estimates for new operations developed 

before or early in deployment

Cost estimates tend to increase 

Actual costs can vary from estimates

Contingency operations begin when the President decides to commit U.S.

military forces to respond to developing world conditions that he judges

affect U.S. interests. Some of these operations carry over from year to

year. For new operations, DOD’s requests for supplemental funds are based

on cost estimates that are developed before the actual deployment of

military forces or early in the deployment. Developing the estimate

involves (1) making assumptions about a number of factors, including

military personnel for the operation, its expected duration, and the

Page 24 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section III 

Estimating Methodology

logistical requirements to support operations and (2) costing out the

assumed force, using standard cost factors that are in turn based on

historical costs and, where there are no cost factors, military judgment.

For existing operations, DOD projects costs based on costs incurred in the

previous year unless it expects an operation to change in size, scope, or

duration.

Cost estimates tend to increase. For example, within DOD, in developing

the cost estimate for fiscal year 1995 contingency operations, the overall

estimate increased by $104 million. Within this amount, DOD’s

Comptroller’s office reduced proposed funding for part of one operation,

Cuba migrant operations, by $3 million and increased funding by a total of

$107 million for several other operations, including those operations in

Haiti. Cost estimates have also increased as a result of reviews at the

Office of Management and Budget (OMB), which examines them when the

administration seeks supplemental funding. For example, OMB increased

the estimate by a total of $126 million over the amount proposed by DOD.

In developing the cost estimate for operations in and around Bosnia for

fiscal years 1996 and 1997, the estimated cost increased by $164 million

between the preliminary and final estimates submitted to the Deputy

Secretary of Defense. In approving the final decision document, the

Deputy Secretary added $96 million to the amount proposed in the final

program budget decision to reflect December 1995 special pay for military

personnel deployed in and around Bosnia and command and control

augmentation initiatives, which had not been included in the estimate. In

developing the plan for financing the operation, DOD further increased the

estimated cost by almost $82 million based on more recent information.

Actual costs can vary from the estimate as changes occur to an operation.

For example, DOD estimated that the operation in Haiti would cost

$465 million in fiscal year 1995, but through the end of fiscal year 1995,

DOD had reported costs of $569 million. This was in part due to unforeseen

requirements associated with Operation Uphold Democracy and the

United Nation’s effort.

Page 25 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section III 

Estimating Methodology

GAO Assumptions

Estimating involves making 

assumptions

Events may differ from assumptions 

duration of operations

logistical support

force size

special pay and allowances

Events may differ from the assumptions used to estimate costs. Examples

of potential differences between events and assumptions include the

duration of operations, logistical support requirements, environmental

factors, force size, and eligibility for special pay and allowances. The

nature of contingency operations makes it particularly difficult to have

good assumptions. Initial estimates are developed before or during the

outset of an operation and are frequently “best guess” estimates.

Page 26 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section III 

Estimating Methodology

In the case of Vigilant Warrior, the deployment of military forces to

Southwest Asia in response to Iraqi troop movements, DOD originally

estimated that the operation would cost $462 million in fiscal year 1995.

However, the operation ended with reported costs of only $258 million.

This amount was about $204 million below the estimated amount because

the operation concluded sooner than expected as the Iraqis pulled their

troops back.

Actual logistical support requirements may also differ from assumptions.

For example, in the Bosnia deployment it was assumed that rail would be

the predominant mode of deployment transportation. Because of time

pressures, adverse weather conditions, and rail delays, more airlift was

used than originally anticipated. Through January 1996 Bosnia deployment

transportation costs were currently exceeding DOD’s estimate by

$84 million.

The Logistics Civil Augmentation Program’s (LOGCAP) support in Bosnia is

also far more than what was originally assumed. DOD estimated the cost of

LOGCAP at $191.6 million. The LOGCAP contractor had originally estimated

the cost at $350 million, but DOD reduced the estimate to $191.6 million

because it believed that there was duplication between the services the

contractor would provide and the services military personnel would

provide. Through February 1996, the Army, which manages LOGCAP and

pays the contractor, had already spent $247.3 million for LOGCAP, or

$55.7 million more than DOD estimated for the entire operation. Estimated

LOGCAP costs have been rising rapidly. At the end of January 1996, the

contractor was estimating that total LOGCAP costs would be $371 million,

whereas by the week ending February 10, 1996, the contractor’s cost

estimate had reached $422 million, and Army officials told us that they

thought the cost could go as high as $500 million. Several factors have

contributed to the increase. The geography of the U.S. sector in Bosnia

and force protection concerns did not allow for the 10 to 12 large base

camps originally planned and so the number of camps has increased to 23.

The number of feeding locations also increased from the 12 originally

planned to 24. Muddy ground conditions and the number of camps

required more extensive site preparation and construction, which cost

more than originally anticipated.

Force size may be greater or less than what is initially assumed in a cost

estimate. For example, the President authorized the activation of up to

4,300 reservists to support operations in Bosnia. The 4,300 and an

estimated 300 volunteers, not counted as part of the call-up, were used as

Page 27 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section III 

Estimating Methodology

the basis for calculating the incremental military personnel salary cost of

$196 million estimated for the Bosnia operation. Fewer reservists have

been called up than were authorized, but more reservists have volunteered

for active duty. On balance, it appears that between 165 and 340 fewer

reservists will be on active duty than was assumed. Using DOD assumptions

and actual deployment figures, we estimate that the salary costs for the

reserve activation, including volunteers, could be over $20 million less

than DOD estimated.

Personnel deployed to contingency operations may be eligible to receive a

variety of special pays and allowances, such as imminent danger pay,

certain places pay (formerly called foreign duty pay), and family

separation pay. Eligibility for these special pays and allowances vary by

location and individual circumstance. For example, in the case of the

Bosnia cost estimate, DOD did not take these variations into account. Only

those personnel deployed to, traveling into, or flying over Bosnia, Croatia,

Serbia, Montenegro, and Macedonia are eligible to receive the $150 per

month for imminent danger pay. This excludes most of the 7,000 personnel

scheduled to be deployed to Hungary and Italy. As a result of not taking

this and other variations into account, DOD overestimated special pays by

about $43 million.

Page 28 GAO/NSIAD-96-121BR Contingency Operations
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Estimating Methodology

Page 29 GAO/NSIAD-96-121BR Contingency Operations
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Estimating Methodology

GAO Use of Models

Army Force cost model sometimes used to 

cost assumptions

Model does not contain worldwide 

transportation rates

Some fuel and transportation rates are 

outdated

DOD and each of the services have models that can be used to develop

costs of potential force structure changes. The Army also uses its model as

an aid in developing contingency operation cost estimates, making the

most use of models among the services in this regard. According to Army

officials, in developing the Bosnia cost estimate, this model was used to

estimate deployment and some operating costs, such as fuel and repair

parts. The model estimates costs based on factors such as the types of

Page 30 GAO/NSIAD-96-121BR Contingency Operations
Briefing Section III 

Estimating Methodology

units, the number of personnel and equipment to be deployed, the

deployment location, and the modes of transportation.

According to Army officials, the Army’s cost model was not originally

designed to provide cost estimates for contingency operations. Since it is

one of the few models available that provides good planning numbers, as

noted above the Army uses it as an aid in developing contingency

operation cost estimates. We found limitations with the model related to

its use in developing the Bosnia cost estimate. One limitation is that the

model does not contain worldwide transportation rates. It only contains

data on those countries in which the United States expects to or has

previously conducted operations. In developing the Bosnia cost estimate,

officials assumed German rail rates in their estimates when they lacked

information on rates in countries through which the rail movement would

transit, such as Hungary and Austria. During the deployment, the Army

found in a number of instances that rail rates in Austria and Hungary were

much higher than German rail rates. For example, the Army’s analysis of

rail charges to move 35 railcars with oversized cargo showed that while

Austria accounted for 26 percent of the rail distance traveled it accounted

for 43 percent of the actual rail cost.

Army officials stated that the cost model has been updated to include rail

rates for Bosnia, but it still does not include rail rates for countries

enroute to Bosnia from Germany, such as Austria, Croatia, and Hungary.

The lack of worldwide information could affect future contingency cost

estimates should U.S. forces deploy to other locations in which the United

States has no previous experience.

The second limitation is that the model does not have current prices and

rates for such items as non-U.S. fuel and transportation, although it can be

updated by the user at any time. In developing the Bosnia estimate in late

1995, Army officials stated that due to time constraints and the

unavailability of current information they used existing data in the model.

In 1995 the model contained a fuel price of 73 cents a gallon for fuel in

Germany. Actual fuel prices in Bosnia in 1996, the year in which most of

the operation is occurring, are between 85 cents and 96 cents a gallon—

16 to 32 percent more. In addition, transportation rates used in the model

may be based on information that is up to three and one-half years old. For

example, the Army calculated costs of the Bosnia operation using a 1995

version of its cost model. Army representatives told us the model had been

updated in 1994 based on 1993 published transportation rates. The 1993

rates were developed by the Military Traffic Management Command using

Page 31 GAO/NSIAD-96-121BR Contingency Operations
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Estimating Methodology

cargo projections that were up to 18 months old. Army officials stated that

they are looking into developing an independent cost model that will

provide more accurate contingency cost estimates.

Page 32 GAO/NSIAD-96-121BR Contingency Operations
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Page 33 GAO/NSIAD-96-121BR Contingency Operations
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GAO Improving Cost Estimating

Need for funding flexibility

Possible funding guidelines

Methodological improvements possible

The major difficulty in preparing contingency operation cost estimates is

the need to make assumptions before or in the early stages of an

operation. Generally, as an operation progresses and the services both

gain operating experience and reporting of costs actually incurred begins,

the cost estimate becomes more refined. While there are methodological

improvements that can be made to improve estimating, because of the

uncertainty in cost estimating, it is difficult to know how much funding

Page 34 GAO/NSIAD-96-121BR Contingency Operations
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Estimating Methodology

Congress should appropriate. Therefore, in considering funding levels we

have identified the following guidelines Congress may wish to consider.

• Any supplemental funding provided should only be available for

(1) expenses incurred in support of contingency operations and

(2) reimbursement of accounts initially utilized to fund those operations.

In fiscal year 1995, some of the military services ended the year with

contingency costs below the amounts appropriated by Congress for

contingency operations in that year, while other services had costs that

exceeded those appropriations. Because the supplemental appropriations

were not earmarked for contingency operations, those services with

excess funds used the funds for other needs that otherwise would have

gone unfunded.

• If initial contingency operation funding proves to be inadequate, but some

services have costs below their funded level while others have costs above

it, excesses earmarked for contingencies should be redistributed by

transfer before Congress provides additional funds. DOD’s plan for funding

Bosnia operations, for example, which involves an initial reprogramming,

followed by supplemental appropriations, and then a second

reprogramming for any remaining costs, lends itself to redistributing funds

at the time of the second reprogramming.

• Appropriation levels should be reevaluated as more experience and actual

cost data become available. The second reprogramming in the Bosnia

funding plan would lend itself to a reevaluation.

There are some methodological improvements that can be made in the

cost estimating process. These involve estimating special pays and

allowances. Cost estimators should be able to improve this part of the

estimate by first establishing which special pays and allowances apply for

a contingency operation and the approximate number of people eligible

for them. Longer term improvements include developing independent cost

models or adapting existing models to better reflect contingency

operations.

Page 35 GAO/NSIAD-96-121BR Contingency Operations
Appendix I 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Steven H. Sternlieb, Assistant Director

Ann Borseth, Evaluator

Lisa M. Quinn, Evaluator

James F. Reid, Evaluator

Office of the General

Counsel

Margaret L. Armen, Attorney-Adviser

Norfolk Field Office Joseph A. Rutecki, Evaluator-in-Charge

Carleen C. Bennett, Evaluator

Suzanne K. Wren, Evaluator

Kansas City Field

Office

John G. Wiethop, Evaluator

David J. Henry, Evaluator

(701081) Page 36 GAO/NSIAD-96-121BR Contingency Operations
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