Defense Infrastructure: Continued Management Attention Is Needed to Support Installation Facilities and Operations
Published: 2008-04-24T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Defense (DOD) manages and operates about 577,000 structures worldwide, valued at about $712 billion. DOD has worked for several years to develop models that can reliably estimate the installation support funds needed to sustain these facilities, and plans to spend over $55 billion to support these facilities and operate its bases in fiscal year 2008. Because GAO has identified support infrastructure as a high-risk area that affects DOD's ability to devote funds to other more critical needs, GAO initiated this review under the Comptroller General's authority. This report discusses (1) the reliability of the annual funding estimates produced by the facilities sustainment model, (2) DOD's progress in meeting funding goals for facility sustainment and recapitalization, (3) the extent to which DOD has addressed deferred facility sustainment funding needs, and (4) the status of DOD's efforts to develop a new installation services model. To address these objectives, GAO reviewed the accuracy and support for the model's key inputs, analyzed pertinent documents, and visited eight judgmentally selected installations.
section_title: What GAO Found
paragraphs: Although the facilities sustainment model, implemented in 2003, provides a consistent and reasonable framework for preparing estimates of DOD's annual facility sustainment funding requirements, accuracy and supportability issues with two of the model's key inputs have affected the reliability of the model's estimates. First, regarding the inventory quantity input, GAO found that the services had not complied with DOD regulations requiring verification of each real property inventory record. Without the verifications, DOD lacked assurance that the model used accurate inventory quantities, and GAO's analysis identified inaccuracies in some quantities used by the model. Second, regarding the sustainment cost factor input, GAO identified issues concerning some cost factors used by the model. For example, an independent study reported that only 13 of 45 cost factors evaluated were deemed to be reasonably accurate and adequately supported. Until DOD improves the accuracy of these two inputs, the model's estimates of facility sustainment funding requirements will not be as reliable as possible. The military services have not met all of DOD's goals for funding facility sustainment and recapitalization at levels to prevent deterioration and ensure that facilities are restored and modernized. Service officials stated that they generally did not meet the sustainment funding goals because resources were limited and programs such as force modernization often had higher funding priority. Although the services achieved more success in meeting DOD's goal to fund recapitalization, funding remains an issue with the Army, the Navy, and the Air Force reporting recapitalization backlogs of over $50 billion at the end of fiscal year 2007. DOD has not taken actions to estimate and address its deferred facility sustainment requirements. In fiscal years 2005 through 2007, the services did not fund over $3.5 billion of their estimated annual facility sustainment requirements. The services do not have consistent estimates of their deferred sustainment requirements or plans to deal with these needs because DOD has not provided adequate guidance to clearly define deferred sustainment requirements, or direct the services to measure, track, and address these needs. As a result, DOD's plans to address facility sustainment requirements do not include all deferred sustainment requirements, which could result in continued facility deterioration and increased future recapitalization costs. DOD's progress in developing a new model to estimate funding requirements for installation services, such as airfield and port operations, has been slow. Although DOD's goal is to establish common standards and metrics for installation services by the end of 2008, the services had agreed on common definitions and standards for only 2 of 29 areas by the end of 2007. DOD officials stated that reaching agreement has been difficult for several reasons, such as differences among the services in how tasks for installation services are performed and managed. Without a reliable model, DOD cannot provide the Congress with a clear basis for making funding decisions.

section_title: Letter
paragraphs: Since 1997, we have identified the Department of Defense’s (DOD)  management of its support infrastructure as a high-risk area because  infrastructure costs have affected the department’s ability to devote funds  to other more critical programs and needs. DOD is one of the world’s  largest organizations in terms of physical plant, managing and operating  about 577,000 buildings and structures at more than 5,300 sites worldwide  with a total replacement value of about $712 billion. In fiscal year 2008,  DOD plans to spend more than $55 billion to support these facilities and  operate its bases. DOD refers to this funding as installations support,  which includes funds for facilities sustainment, facilities recapitalization,  installation services, and facilities operation services. Accurate and  consistent estimates of funding requirements for these areas can enable  DOD to establish goals to optimally meet installation facility and  operations needs and make informed decisions to more efficiently allocate  resources at a time when our nation faces increased fiscal constraints. By  providing adequate funding for facilities support to meet these goals, DOD  can prevent facilities from becoming deteriorated and outdated faster than  expected, and ensure that installations can provide the services needed to  fully support military missions and personnel at the levels desired.
DOD has worked for several years to develop models that can reliably  estimate the funds needed in several installation support funding areas to  effectively and efficiently support DOD’s missions and personnel. To date,  DOD has developed and implemented only one installation support  funding model—the facilities sustainment model. This model has been  used by the military services since fiscal year 2003 to estimate the annual  sustainment funds the services need to budget to perform maintenance  and repair activities necessary to keep their buildings and structures in  good working order and maximize facility service life. To help estimate  other installation facility and operations funding needs, DOD has used a  metric for facility recapitalization, has developed and will soon implement  a model for facilities operation services, and continues to work on a model  for other installation services, such as installation airfield and port  operations, security, and family support services.
Because of the challenges the department has faced in budgeting for the  significant funding required to support DOD installations and the  importance of adequate installation support to DOD’s missions and the  quality of life for DOD personnel, we initiated this engagement under the  authority of the Comptroller General of the United States to conduct  evaluations on his own initiative. We are reporting the results of our  evaluation to you because of expressed interest related to your  committees’ oversight responsibilities. This report discusses (1) the  reliability of the annual funding estimates produced by the facilities  sustainment model, (2) DOD’s progress in meeting funding goals for  facility sustainment and recapitalization, (3) the extent to which DOD has  addressed deferred facility sustainment funding needs, and (4) the status  of DOD’s efforts to develop a funding requirements model for installation  services.
To address these questions, we (1) reviewed the adequacy of the  documentation supporting the key inputs used by the facilities  sustainment model as well as the military services’ compliance with  procedures designed to verify the accuracy of the inventory information  used by the model; (2) compared DOD’s goals for facility funding with  accomplishments and discussed progress towards the goals with DOD and  military service officials; (3) discussed with DOD and military service  officials efforts to identify and address deferred facility sustainment  requirements, determined the amount of the annual sustainment  requirement that was not funded, and reviewed the deferred facility  maintenance amounts reported in the military services’ financial  statements; and (4) documented the development history and status of the  installation services model and discussed with DOD officials the remaining  obstacles to the model’s completion. We also visited eight judgmentally  selected military installations, selected to represent several different  geographic locations, to gain local-level insight into compliance with  inventory verification procedures, the accuracy of real property inventory  records, support funding issues, and the condition of facilities. We  conducted this performance audit from May 2007 through April 2008, in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives. A detailed description of our scope and  methodology is included in appendix I of this report.
subsections: section_title: Background
paragraphs: Since 1997, we have identified management of DOD support infrastructure  as a high-risk area because infrastructure costs have affected the  department’s ability to devote funds to other more critical programs and  needs. In a January 2007 update to our high-risk series, we noted that DOD  continued to face significant challenges in funding its installation support  and sustainment, restoration, and modernization of its facilities, and  questions persisted over the adequacy of funding provided to these areas.  Further, we noted that because of these long-standing issues, DOD’s  management of support infrastructure remains a high-risk area.
We have issued several reports in recent years highlighting the long-term  challenges DOD faces in managing its portfolio of facilities and halting the  degradation of facilities. For example, in February 2003, we found that  funds designated for facilities sustainment were held back at the service  headquarters, major command, and installation levels to cover more  pressing needs or emerging requirements, which resulted in continued  facility deterioration. In May 2003, we reported that although funding for  maintaining and constructing reserve component facilities had increased  by almost 50 percent during 1998 through 2003, the reserve components  indicated the condition of about 64 percent of their facilities was  inadequate. In a June 2005 report, we found that DOD did not have a  common framework for identifying base operating support functions and  funding requirements to ensure adequate delivery of services, particularly  in a joint environment. We also found that, because of a lack of a common  terminology across the services in defining base support functions and the  lack of a mature analytic process for developing credible and consistent  requirements, the services moved hundreds of millions of operation and  maintenance dollars designated for facilities sustainment and other  purposes to pay for base operations support. While such funding  movements are permissible, we found that they were disruptive to the  orderly provision of services and contributed to the overall degradation of  facilities. In another 2005 report, we found that many of DOD’s training  ranges were in deteriorated condition and lacked modernization, which  adversely affected training activities and jeopardized the safety of military  personnel.
subsections: section_title: Funding of Installation Support
paragraphs: The Office of the Deputy Under Secretary of Defense for Installations and  Environment has overall responsibility for DOD’s facilities and  installations, which includes about 577,000 buildings and structures at  more than 5,300 sites worldwide with a total replacement value of about  $712 billion. During fiscal year 2008, DOD plans to spend around              $55 billion to support its facilities and installations. DOD refers to this  funding as installation support, which includes five broad categories of  services, programs, and support activities—facilities, installation services,  family housing, environment, and base realignment and closure. As shown  in figure 1, the facilities category is composed of five subcategories— sustainment, recapitalization, disposal, facilities operation services, and  new footprint, which includes facility construction related to new or  expanded missions.
Of these installation support categories, this report focuses on facility  sustainment, recapitalization, installation services, and facilities operation  services—the categories where DOD has or intends to implement models  to help estimate funding requirements.
Sustainment, funded primarily with operation and maintenance  appropriations, includes the maintenance and repair activities  necessary to prevent deterioration, maintain safety, and keep facilities  in good working order over their service lives. Sustainment includes  regularly scheduled adjustments and inspections, preventive  maintenance tasks, and emergency response and service calls for  minor repairs. Sustainment also includes major repairs or replacement  of facility components that are expected to occur periodically  throughout a facility’s life cycle, such as regular roof replacement;  refinishing wall surfaces; repairing and replacing electrical, heating,  and cooling systems; and replacing tile and carpets. According to DOD,  needed sustainment work that is not performed will eventually result in  damaged facilities, shortened facility service lives, and increased future  costs for facility restoration.
Recapitalization, funded primarily with operation and maintenance and  military construction appropriations, provides for improving facilities  through restoration and modernization. Restoration includes repair and  replacement work needed to restore facilities degraded from several  causes, such as natural disaster, fire, accident, excessive age, or  inadequate sustainment. Modernization includes both renovation and  replacement of existing facilities to implement new or higher  standards, accommodate new functions, or replace building  components that typically last more than 50 years.
Installation services, funded primarily with operation and maintenance  appropriations, includes the personnel, support equipment, contracts,  and associated costs to plan, manage, and deliver installation services  and functions. Installation services consists of nine major program  areas which include many diverse subfunctions, such as installation  airfield and port operations; security; transportation; supply;  communications; information management; personnel management;  food services; administrative, legal, and financial services;  unaccompanied personnel housing management; family and quality of  life programs; and environmental compliance.
Facilities operation services, funded primarily with operation and  maintenance appropriations, includes 10 facility-related services—fire  and emergency services, utilities, pavement clearance, refuse collection  and disposal, real property leases, grounds maintenance, pest control,  custodial services, real property management and engineering services,  and engineering readiness. DOD previously referred to facility  operations as real property services and, together with installation  services, family housing, and environment, were referred to as base  operations support. In general, the military services’ budgets continue  to refer to funding for installation services and facility operation  services as base operations support funding.
section_title: DOD Intends to Use Models to Estimate Funding Requirements
paragraphs: In order to more effectively and efficiently support DOD missions, several  years ago the Office of the Deputy Under Secretary of Defense for  Installations and Environment began to lead the military services in  developing more accurate methods to estimate installation support  funding requirements. According to DOD officials, in the past installation  support funding requirements were often artificially derived, such as by  basing funding needs on prior-year execution levels. DOD lacked  departmentwide standards for determining future funding needs and did  not have sufficient data to support informed decision making. DOD’s  solution was to develop models that could predict future requirements  based on known inputs that were specific to a facility category type,  service, and location. The idea was to better support funding decisions by  developing models that used benchmarked and validated inputs, estimated  needs based on service levels commensurate with industry standards,  where applicable, and showed the impact if funds were not provided.  According to DOD officials, models can improve consistency, increase  credibility, establish an auditable process, and provide a tool for setting  funding goals and measuring progress towards meeting those goals. The  following is a summary status of DOD’s model development for  installation support as of January 2008.
The facilities sustainment model has been implemented and used by  the military services to estimate the annual facility sustainment funding  requirements since fiscal year 2003. The model estimates sustainment  requirements for each of DOD’s 448 facility categories. DOD  determined the facility categories by grouping facilities with similar  functions and units of measure to provide for consistent analysis and  planning across the military.
The facilities modernization model is under development and DOD  plans to begin using the model to estimate recapitalization funding  requirements in fiscal year 2010. According to DOD, the model will  estimate annual funding requirements and improve upon DOD’s  recapitalization metric that has been used for several years to help  assess restoration and modernization funding needs. The  recapitalization metric uses as a measure the number of years it would  take for facilities to be replaced based on the annual funding provided  for restoration and modernization. DOD’s current goal is for military  services to fund facility restoration and modernization in annual  amounts that would result in facilities being replaced every 67 years.  DOD established the 67-year benchmark after an assessment of DOD’s  real property inventory in the late 1990s. According to DOD, the  facilities modernization model will determine funding needs based on  DOD’s real property inventory and the expected service life for each  facility category, rather than using the 67-year average service life for  all facility categories.
The facilities operation model has been under development since fiscal  year 2005 and DOD plans for all military services to use the model to  estimate the fiscal year 2010 facilities operation funding requirements.  According to DOD, the model will use commercial benchmarks for  similar services performed in the private sector. The Air Force used a  prototype of the model to help estimate the Air Force fiscal year 2008  funding requirement for facilities operation.
The installation services model has been under development since  2006, although work required to support the model, such as developing  DOD-wide common definitions for support services, began in fiscal  year 2004. The model is intended to provide a consistent framework in  which the military services can develop annual funding requirements  for installation services. DOD’s goal is to complete development of the  model in calendar year 2008. DOD has not set a date for the military  services to begin using the model to develop their installation services  funding requirements.
section_title: Reliability of the Facilities Sustainment Model’s Estimates Can Be Improved
paragraphs: Although the facilities sustainment model provides a consistent and  reasonable framework for preparing estimates of DOD’s annual facility  sustainment funding requirements, accuracy and supportability issues with  two of the model’s key inputs—the inventory quantity and the sustainment  cost factor associated with each of DOD’s 448 facility categories—have  affected the reliability of the model’s estimates. Regarding the inventory  quantity input, we found that the military services had not verified the  accuracy of the facility inventory records as required by DOD guidance,  the model has used some inaccurate inventory quantities, and  discrepancies existed between some facility inventory quantities used by  the model and the quantities shown in supporting installation inventory  records. Regarding the sustainment cost factor input, we identified issues  concerning the accuracy and supportability of some cost factors used by  the model. Because of these issues, the model’s estimates of annual facility  sustainment funding requirements are not as reliable as possible.
subsections: section_title: Facilities Sustainment Model Provides a Consistent and Reasonable Framework for Preparing Funding Estimates
paragraphs: Sustainment requirement = (inventory quantity) times (sustainment cost factor) times  (geographic location adjustment factor) times (inflation adjustment)
The inventory quantities used by the model come from the real property  inventory records maintained by military installations. Inventory quantities  are totaled for each facility category and reported to DOD at the end of  each fiscal year. Sustainment cost factors are estimates of the average  annual unit cost to sustain the average size facility in each facility  category—such as $2.53 per square foot for an aircraft maintenance  hangar. DOD determines the sustainment cost factor from a variety of  sources, such as private sector cost benchmarks for buildings and building  components, other government agency standard cost estimates, and  military-component-validated cost factors for facilities with no  commercial counterpart. Although DOD prefers these sources to  determine sustainment cost factors, DOD officials noted that such sources  are not available for some facility categories. In these cases, DOD usually  determines the cost factor based on costs from a separate but similar  facility category. The model also adjusts sustainment costs to account for  geographic location differences and annual inflation. To do this, the model  applies a location factor developed by DOD to account for differences in  labor, material, and equipment costs depending on where installations are  located, and applies an inflation factor, determined by DOD, to account for  cost escalation. Finally, the model makes adjustments to remove those  facilities that are slated for closure or demolition in the near future, add  those facilities under construction, account for some data differences  among the military services, and categorize sustainment costs under the  appropriate DOD organization and appropriation type.
section_title: Facility Inventory Data Used in the Model Have Not Been Validated as Required
paragraphs: We found the model’s estimates (output) were less reliable than possible  in part because the facility inventory data used as an input by the model  had not been validated as required. The model uses facility inventory  information from each military installation as a key input in determining  sustainment funding requirements, so the inventory information must be  accurate if the model’s estimates are to be accurate. To help ensure  inventory accuracy, DOD guidance requires that DOD components verify  the accuracy of each real property inventory record every 5 years. The  instructions require that the verifications be based on a physical inventory,  which can verify that the inventory records accurately describe all  installation facilities and accurately record each facility’s size, or quantity,  using the unit of measure that DOD has prescribed for each facility  category. The verification of real property inventory records also helps  ensure the accuracy of facility-related information included in the military  services’ annual financial statements.
Despite the guidance, we found that the military services had not verified  the accuracy of all facility inventory records within the past 5 years.  According to service officials, the inventory verifications had not been  performed because personnel resources at military installations were  limited and the installations had higher priority work for the personnel  who were available. The level of compliance with the verification  requirements varied among the military services.
Army information showed that the inventory records for over 90,000  Army facilities, about 39 percent of all Army facilities, had not been  verified within the 5-year period ending with fiscal year 2007. Although  some Army installations met the 5-year verification requirement, most  installations did not. At some installations, a significant percentage of  inventory records was not verified. For example, at Forts Irwin, Bragg,  Shafter, and Polk, 93 percent, 83 percent, 82 percent, and 75 percent,  respectively, of the inventory records had not been verified within the  past 5 years.
Navy information showed that Navy installations had not verified the  accuracy of about 59 percent of their real property inventory records  within the 5-year period ending with fiscal year 2007. More specifically,  the inventory records for about 49 percent of the Navy’s buildings,       58 percent of other Navy structures, and 80 percent of the Navy’s utility  facilities had not been verified within the required time frame.
Although Air Force headquarters did not track compliance with the real  property inventory verification requirement, at our request the Air  Force queried its major commands about compliance levels. The Air  Education and Training Command reported that about 17 percent of its  inventory records had not been verified within the past 5 years. The Air  Combat Command, the Space Command, and Materiel Command  reported that about 10 percent, 3 percent, and 2 percent, respectively,  of their inventory records had not been verified within the past 5 years.  Reported information from the remaining commands did not state their  level of compliance but stated that the commands were verifying about  20 percent of their inventory records each year.
Marine Corps headquarters also did not track compliance with the real  property inventory verification requirement. However, in May 2007, the  Naval Audit Service issued a report on the reliability of the real  property information included in the Marine Corps’ financial  statements. The report stated that physical inventories of real property  were not being performed every 5 years as required and that  documentation supporting the performance of the physical inventories  did not exist, except for critical facilities.
During visits to eight installations, we found that while four installations  had verified their facility inventory records within the past 5 years, the  other four installations had not performed this verification. For example,  Randolph Air Force Base officials stated that about 60 percent of the  installation’s real property inventory records had not been validated by a  physical inventory within the past 5 years because of limited personnel.  The officials stated that inventory validations were one of the last tasks to  be performed because other tasks were given higher priority. At Langley  Air Force Base, officials stated that about 50 percent of the installation’s  real property inventory records had not been validated within the past        5 years, also because of limited personnel. From a list of the inventory  records that had been verified, we judgmentally selected and reviewed the  documentation supporting the verifications of 10 records. We found  discrepancies in 8 of the 10 records that raise questions about the  reliability of the verifications at Langley Air Force Base. For example, the  inventory verification documentation identified one facility as a billboard  when the real property record identified the facility as a vehicle bridge,  and the verification documentation identified another facility as a youth  center when the real property record identified the facility as an Air Force  clinic. In addition, the inventory verification documentation in some cases  included no signature, date, or facility size, as required by installation  procedures.
section_title: Inaccurate Inventory Quantities Used by the Model
paragraphs: We also question the reliability of the facilities sustainment model’s  estimate (output), because we found several errors in the inventory  quantities used as input to the model. As shown in the following examples,  the inventory quantity errors caused inaccuracies in the model’s funding  estimates.
The inventory quantity used in the model to estimate sustainment  requirements for the military services’ vehicle maintenance facilities  increased from 6,785 facilities in fiscal year 2006 to 14,760 facilities in  fiscal year 2007, an increase of 118 percent. The quantity then  decreased to 6,599 facilities in fiscal year 2008. When we asked for an  explanation for the fluctuation, DOD officials stated that the  fluctuation was most likely caused by errors in five inventory records  at one installation. These records used the wrong unit of measure in  fiscal year 2007 to report inventory quantity. Specifically, the  installation reported the square footage of the facilities as the inventory  quantity instead of reporting the number of facilities. For example, a  vehicle maintenance facility with 3,325 square feet was counted as  3,325 separate facilities. Because of this error, the facilities sustainment  model overstated the sustainment requirement for vehicle maintenance  facilities by about $12.0 million in fiscal year 2007.
The inventory quantity used by the model to estimate sustainment  requirements for the Navy’s hazardous waste storage or disposal  facilities increased from 399 facilities in fiscal year 2006 to 2,350  facilities in fiscal year 2007, an increase of 489 percent. The quantity  then decreased to 385 facilities in fiscal year 2008. When we asked for  an explanation for the fluctuation, Navy officials stated that the  fluctuation was caused by an error in reporting the inventory quantity  in fiscal year 2007. Because of this error, the facilities sustainment  model overstated the sustainment requirement for the Navy’s  hazardous waste storage or disposal facilities by about $10.8 million in  fiscal year 2007.
The inventory quantity used by the model to estimate sustainment  requirements for unsurfaced airfield pavement in the Army increased  from 762,553 square yards in fiscal year 2005 to 2,634,221 square yards  in fiscal year 2008, an increase of 245 percent. When we asked Army  officials to explain the basis for the increase, Army officials stated that  the Army had increased data emphasis and installations made great  efforts to accurately capture their entire inventories. Although the  dollar amount associated with this change in inventory is relatively  small, the Army’s statement indicates that the Army’s previously  reported inventory quantities for unsurfaced airfield pavement were  not accurate.
section_title: Discrepancies Existed between Quantities Used in the Model and Supporting Inventory Records
paragraphs: Our review also identified discrepancies between facility inventory  quantities used by the facilities sustainment model and quantities shown in  the supporting real property inventory records. We identified such  discrepancies at five of the eight installations we visited. In many  instances, the difference in the inventory quantities was relatively small.  Nevertheless, local officials could not explain the differences, which cause  the accuracy of the facility quantities used by the model to be  questionable. The following examples illustrate discrepancies we  identified during installation visits.
At Fort Eustis, we selected 39 facilities and for each facility compared  the inventory quantity shown in the installation’s real property  inventory record with the inventory quantity used in the facilities  sustainment model. In 36 of the 39 cases, the inventory quantities did  not match and local officials could not explain why. For example, the  Fort Eustis inventory record showed the size of a shore erosion  prevention facility to be 9,333 linear feet but the inventory size used in  the model was 30,839 linear feet, a difference of 230 percent. In another  instance, the Fort Eustis inventory record showed the size of a  bulkhead facility to be 2,594 linear feet but the inventory size used in  the model was 1,394 linear feet, a difference of 86 percent. In neither  case could Fort Eustis officials explain the discrepancy between the  quantities contained in the facility inventory records and the quantities  used by the model.
At Randolph Air Force Base, we selected 39 facilities and for each  facility compared the inventory quantity shown in the installation’s real  property inventory record with the inventory quantity used by the  facilities sustainment model. In 5 of the 39 cases, the inventory  quantities did not match and local officials could not explain why. For  example, the Randolph Air Force Base inventory record showed the  size of a heat source facility to be 5,918 million British thermal units,  but the inventory size used in the model was 27.15 million British  thermal units. The quantity used by the model was a default reset value  that the model used when the reported size for this facility type  exceeded 500 million British thermal units and the reporting  installation did not confirm that its reported facility size was correct.  Randolph Air Force Base officials did not resolve the discrepancy  during our visit.
At Camp Lejeune, we found discrepancies in several of the inventory  records we checked. For example, the model estimated sustainment  requirements for seven aircraft runways at Camp Lejeune. When we  asked for the supporting facility inventory records in order to compare  inventory quantities in the records with the quantities used by the  model, Camp Lejeune officials stated that they could not locate the  inventory record for one of the runways. The model had used an  inventory size of 172,083 square yards for this runway and estimated  that its annual sustainment requirement was about $207,000. Camp  Lejeune officials did not resolve the discrepancy during our visit.
section_title: An Independent Study Found Concerns with the Model’s Sustainment Cost Factors
paragraphs: An independent study that found concerns with the sustainment cost  factors used in the model contributed to our finding that the model’s  estimates were less reliable than possible. As with inventory quantities, the  facility sustainment cost factors associated with each of DOD’s 448 facility  categories are a key input to the facilities sustainment model. The cost  factors used by the model must be reliable in order for the model’s  requirements estimates to be reliable. To assess the quality of the factors,  DOD hired a contractor in fiscal year 2005 to perform an independent  validation and verification study. The contractor selected 45 cost factors,  primarily from those factors associated with facility categories with the  highest sustainment requirements, independently determined a value for  each factor, and compared these values with the cost factor values used by  DOD. The study, completed in February 2006, reported that only 13 of 45  factors evaluated were deemed to be reasonably accurate and adequately  supported. The study concluded that 32 of DOD’s cost factors were either  overvalued or undervalued and recommended that DOD adjust its cost  factor values in order to more accurately estimate sustainment  requirements. Table 1 illustrates selected results from the study.
In response to the study’s recommendations, DOD made changes to some  but not all of the factors recommended for adjustment. Specifically, DOD  cited the study as the basis for making changes to 16 cost factors when  factors were adjusted for use in estimating the fiscal year 2009  sustainment requirements. However, some of these changes were not  consistent with the study’s recommendations. For example, the study  found that the factor for general administration buildings was 25 percent  too low and recommended a change. Although DOD made a change and  attributed the study for the change, the revised cost factor was still            16 percent below the study’s recommended amount after adjusting for  inflation. The study also found that the factor for standby emergency  power facilities was 39 percent too high and recommended a change.  Although DOD made a change and attributed the study for the change, the  revised cost factor was still 40 percent higher than the study’s  recommended amount after adjusting for inflation.
DOD did not document the reasons why some of the study’s  recommendations were accepted and some were not, and in some cases  DOD’s decisions appeared inconsistent. For example, the study  recommended increasing the cost factors for surfaced roads and  unsurfaced roads. DOD accepted the recommendation for unsurfaced  roads, which will result in adding over $90 million to the sustainment  requirement, but did not accept the recommendation for surfaced roads.
Because the reasons for these decisions were not documented, we asked  DOD officials to explain the basis for the decisions. The officials stated  that the recommendation for unsurfaced roads was accepted because a  DOD panel decided that the data used to support the study’s  recommended cost factor value were superior to the data used to support  DOD’s cost factor value. However, because the data used by the study  were readily available to DOD, it is unclear why the data were not already  used as the basis for DOD’s cost factor. The officials stated that the panel  decided the opposite for surfaced roads—that the data used to support  DOD’s cost factor were superior to the data supporting the study’s  recommended cost factor. However, the basis for the panel decision is  somewhat unclear because DOD’s cost factor was based on a University of  Kansas study and reasons were not stated to explain why that study was  considered a superior source.
It is important to note that the verification and validation study evaluated  45 (about 10 percent) of DOD’s 448 sustainment cost factors and identified  concerns with 32 (about 71 percent) of the factors evaluated. Of these      32 factors, DOD made changes to 16 factors and attributed the changes to  the study. On the basis of these percentages, it appears likely that if  further study and analysis were performed on the remaining 395 cost  factors not subjected to an independent review, additional reliability  concerns would be identified and DOD would be in a position to make  adjustments to additional factors.
section_title: Support for Some Sustainment Cost Factors Is Unclear
paragraphs: We identified issues concerning the supportability of some cost factors  used by the facilities sustainment model. DOD officials stated that, as  resources permit, several cost factors are refined each year in an effort to  continually improve the accuracy of the model. However, DOD has not  provided a clear audit trail with readily accessible information  documenting the support or basis for each factor’s value, such as the  details on the calculations used and explanations for changes in factors  from year to year. Without this documentation, the support for many  factors is unclear, as illustrated below.
From fiscal year 2008 to 2009, DOD decreased the sustainment cost  factor for potable water storage facilities and pedestrian bridges by     90 percent and 88 percent, respectively. Because documentation did  not explain the reason for these changes, we asked DOD officials for an  explanation. The officials stated that the changes were made to correct  a math error that had been made in the calculation of the previously  used cost factor values. Such errors might be more easily detected if  calculation details were provided in the documentation supporting the  cost factors.
From fiscal year 2008 to 2009, DOD increased the sustainment cost  factor for airfield pavement lighting by 90 percent. The February 2006  verification and validation study had found this factor, before the  increase, to be high. Because documentation did not explain the reason  for the increase, we asked DOD officials for an explanation. The  officials stated that the increase resulted from a change in the basis for  the cost factor. The revised cost factor was based on a detailed cost  analysis of a standard design using vendor quotes. Still, documentation  showing the calculations and the number of vendors contacted to  ensure competitive pricing would help support this cost factor change.
From fiscal year 2008 to 2009, DOD increased the sustainment cost  factor for fences and walls by 92 percent. Because documentation did  not explain the reason for the increase, we asked DOD officials for an  explanation. The officials stated that the change resulted from a change  in the planned design life for fences and walls from 50 to 26 years. The  February 2006 verification and validation study had recommended that  this factor be increased by 22 percent but did not recommend a change  in service life. Documentation showing the detailed reasons for the  change and the calculations used would help support this cost factor  change.
From fiscal year 2008 to 2009, DOD decreased the sustainment cost  factor for sidewalks and walkways from $1.82 per square yard to $0.  The change reduced DOD’s sustainment requirements by about $98  million. Because documentation did not explain the reason for the  decrease, we asked DOD officials for an explanation. The officials  stated that the decrease resulted from a change in the planned design  life for sidewalks and walkways from 50 to 28 years, which resulted in  eliminating sustainment costs but increasing recapitalization costs. We  asked facility maintenance personnel at four of the installations we  visited whether they agreed with the change in the cost factor. In each  case, the officials stated that they disagreed because sidewalks and  walkways do have sustainment costs. Documentation showing the  detailed reasons for the change and the calculations used would help  support this cost factor change.
The support for some sustainment cost factors was also unclear because  of the method DOD used to determine the values for the factors.  Specifically, DOD attempts to use independent data sources as the basis  for determining sustainment cost factors. However, according to DOD  officials, independent data sources are not available for some facility  categories. To develop a sustainment cost factor for one of these facility  categories, DOD normally performs a ratio analysis based primarily on  costs from a similar facility category where costs are based on  independent sources. For example, the sustainment cost factor for  satellite communications buildings is based on a ratio of costs from  communications buildings, where the sustainment cost factor is based on  independent data sources.
However, we found that the cost factors for some facility categories were  based on costs from seemingly dissimilar facility categories. In such cases,  the support for the factors was unclear because documentation did not  explain the relationship between the facility categories. For example, the  sustainment cost factor for petroleum pipelines, which are measured in  miles, and the sustainment cost factor for aircraft fueling facilities, which  are measured in gallons per minute, were both based on a ratio of costs  from automobile service facilities, which are measured in square feet.  DOD officials stated that sustainment costs for automobile service  facilities include hydrant and fuel truck station records, periodic  maintenance inspections, and replacement of worn parts, which are  similar to costs associated with petroleum pipelines and aircraft fueling  facilities. However, because automobile service facilities also include  costs for items not clearly associated with petroleum pipelines and aircraft  fueling facilities, such as linoleum flooring, painted walls, water heaters,  and heating and air conditioning systems, the connection between these  facility categories remains unclear.
section_title: DOD’s Fiscal Year 2009 Calculation Method Can Reduce the Accuracy of Sustainment Cost Factors Not Based on Independent Data Sources
paragraphs: Each year since the facilities sustainment model was implemented in 2003,  DOD has adjusted the sustainment cost factors for estimated inflation.  However, for fiscal year 2009, DOD changed the calculation method used  to make the inflation adjustment and the change can result in reduced  accuracy for those sustainment cost factors that are not based on  independent data sources but rather are based on ratio analyses. As  discussed above, when independent data sources are not available to  estimate a sustainment cost factor for a facility category, DOD normally  estimates the unknown cost factor by performing a ratio analysis based on  costs from a similar facility category where the costs are based on  independent sources. DOD’s premise is that because there is a similar  relationship between the sustainment and replacement cost factors for the  two facility categories, a ratio analysis can be used to estimate the  unknown sustainment cost factor. DOD uses ratio analyses to estimate  the sustainment cost factors for approximately one-third of DOD’s facility  categories.
DOD officials stated that because several years had passed since the  facilities sustainment model was implemented and the actual inflation  rates for each of those years was known, DOD decided that it could  improve the accuracy of the factors if they were recomputed using the  actual prior year inflation rates. Thus, in developing the cost factors to be  used in estimating DOD’s fiscal year 2009 facility sustainment funding  requirements, DOD recomputed all cost factors using actual prior year  inflation rates.
The recomputation should result in increased accuracy for those  sustainment cost factors that are based on independent data sources.  However, depending on the method used to make the inflation adjustment  for those cost factors that are based on ratio analyses, the recomputation  can also result in decreased accuracy for those factors. To illustrate, for  cost factors based on ratio analyses, DOD previously made inflation  adjustments by first applying the estimated annual inflation rate to the  individual sustainment and replacement cost factors and then using a ratio  analysis to calculate the unknown sustainment cost factor. DOD did not  use this method for fiscal year 2009. Instead, DOD used the value of the  sustainment cost factor that was determined in the first year that a ratio  analysis was used and then applied actual prior year inflation to  recompute the cost factor’s value for fiscal year 2009. DOD’s new method  would be appropriate and result in accurate estimates under two  circumstances—if the similar relationship between the two facility  categories used in the ratio analyses existed only in the first year that the  ratio analysis was used, or if the relationship between the known  sustainment and replacement cost factors used in the ratio analysis  remained the same from the original year to the current year. However,  according to DOD officials and our review of supporting documentation,  neither circumstance is applicable. More specifically, DOD officials stated  that the similar relationship between the facility categories continues from  year to year and our review found that the relationship between the  known sustainment and replacement cost factors often do not stay the  same because the individual costs can change at different rates from year  to year.
For example, the cost factor for retaining structure facilities is not based  on independent data sources but rather on a ratio analysis of costs from  fence and wall facilities. To adjust the retaining structure facilities’ cost  factor for fiscal year 2009, DOD applied actual inflation rates to the  factor’s value in 2005, the year that the factor was first determined using a  ratio analysis. The result was a sustainment cost factor of $11.57 per linear  foot. However, if DOD had used its previously used method and calculated  the cost factor using a ratio analysis after the individual costs used in the  analysis had been adjusted for actual inflation, the sustainment cost factor  would have been $21.99 per linear foot, or 90 percent more. Using the  previously used calculation method would have increased the accuracy of  the cost factor because costs would continue to be based on a current year  ratio analysis and actual prior year inflation would still be considered  because the individual costs used in the ratio analysis would have been  adjusted for actual prior year inflation. Based on DOD’s inventory of  retaining structure facilities, the difference resulted in the facilities  sustainment model estimating about $13 million less for sustaining these  facilities in fiscal year 2009.
As another example, the cost factor for petroleum pump station facilities  is not based on independent data sources but rather on a ratio analysis of  costs for automobile service facilities. To adjust the petroleum pump  station facilities’ cost factor for fiscal year 2009, DOD applied actual  inflation rates to the factor’s value in 2006, the year that the factor was  first determined using a ratio analysis. The result was a sustainment cost  factor of $20.85 per square foot. However, if DOD had calculated the cost  factor using the previously used method, the sustainment cost factor  would have been $18.56 per square foot, or 11 percent less. Based on  DOD’s inventory of petroleum pump station facilities, the difference  resulted in the model estimating about $2.4 million more for sustaining  these facilities in fiscal year 2009.
In commenting on the calculation method used for fiscal year 2009 and the  resulting impact on those factors based on ratio analyses, DOD officials  stated that the intent was to reduce the number of variables and  unknowns in developing the cost factors and inflating the original  calculation appeared to be the least complicated method. Although the  method used by DOD for fiscal year 2009 may provide for some  consistency, the method does not appear to be any less complicated than  the previously used method, does not appear to reduce any variables or  unknown quantities, and can result in reduced accuracy for those cost  factors that are determined by a ratio analysis.
section_title: Military Services Have Not Met All Funding Goals for Facility Sustainment and Recapitalization
paragraphs: The military services have not met all of DOD’s goals for funding facility  sustainment and recapitalization at levels to prevent deterioration and  ensure that facilities are restored and modernized in accordance with  established benchmarks. Full funding of sustainment requirements is the  most cost-effective approach to managing facilities because it provides the  most performance over the longest period for the least investment.  However, the military services collectively have not met DOD’s facility  sustainment funding goals each year since goals were established in fiscal  year 2005, and some facilities had fallen into disrepair at most installations  we visited. As a result, some facilities have deteriorated and will likely  experience reduced service lives, which, in turn, will lead to more costly  recapitalization requirements in the future. Although the military services  achieved more success in meeting DOD’s recapitalization goals—largely  because of factors outside the normal facility recapitalization funding  process—service officials noted concern over the shortage of restoration  and modernization funds and a growing backlog of restoration and  modernization requirements.
subsections: section_title: Full Funding of Sustainment Requirements Is Cost Effective
paragraphs: According to DOD, full funding of sustainment requirements is the most  cost effective approach to managing facilities because it provides the most  performance over the longest period for the least investment. However, as  other important priorities, such as force modernization, have competed for  funding, DOD has been challenged to provide adequate resources for  sustaining and recapitalizing its facilities. In April 2007 testimony, DOD  noted that full funding of facilities sustainment had been and continued to  be the foundation of the department’s long-term facilities strategy and  goals in order to optimize DOD’s facility investment and ensure facility  readiness. When full sustainment funding is not provided, service officials  noted that facility deterioration accelerates, facility service lives shorten,  mission capabilities and quality of life decrease, and expected future costs  increase. In view of these positions and recognizing that funding of  sustainment requirements had been a challenge because of competing  budget priorities, DOD’s 2004 installations strategic plan established a goal  for the military services to fund sustainment at 95 percent of the  requirement determined by the facilities sustainment model beginning in  fiscal year 2005, and at 100 percent of the requirement beginning in fiscal  year 2008. Because the facilities sustainment model provides a consistent  and reasonable framework for estimating sustainment requirements, use  of the model for setting funding goals appears reasonable, even though the  reliability of the model’s estimates can be improved.
section_title: Military Services Have Not Met Sustainment Goals
paragraphs: Collectively, the military services did not meet DOD’s sustainment funding  goal in fiscal years 2005 through 2007 and they did not budget funds to  meet the goal in fiscal year 2008. As shown in table 2, during fiscal years  2005 through 2007, only the Marine Corps met or exceeded the goal by  funding over 100 percent of the Marine Corps’ annual sustainment  requirement in fiscal years 2006 and 2007, thus reducing some of the  Marine Corps’ backlog of deferred sustainment needs.
Service officials stated that they generally did not meet the sustainment  funding goals because resources were limited and some programs, such as  force modernization, often had higher funding priority. In addition, in  some cases funds budgeted for sustainment needs were used to pay for  other needs, such as unfunded facility restoration projects or unfunded  bills for installation services. When sustainment funds are used to pay for  other needs, the result is that even more facility sustainment requirements  are unmet, which could lead to additional restoration and modernization  requirements in the future. The following is a summary of the comments  on this issue from the military services.
Army officials stated that the Army achieved a lower facility  sustainment rate than budgeted in some years because facility  sustainment funds were used to make up for funding shortages in  installation services by covering some must-pay bills. In fiscal year  2005, the officials stated about $600 million of budgeted sustainment  funds were used to pay for installation support services. The officials  also noted that, because sustainment requirements have not been fully  funded, using sustainment funds for other purposes amplifies the  impact on facilities by causing additional deterioration.
Navy officials also stated that budgeted sustainment funds were used  to pay for other critical unfunded needs. The officials stated that about  $200 million in budgeted sustainment funds were used each year to pay  for critical restoration and modernization projects. In addition, Navy  officials told us that about $195 million and $184 million of budgeted  sustainment funds in fiscal years 2005 and 2006, respectively, were  used to pay for installation support services. Navy officials also stated  that although other critical needs were met with the sustainment funds,  the result was the deferment of a significant amount of needed  sustainment work.
Air Force officials noted that in some instances installations have used  sustainment funds to pay for unfunded restoration and modernization  projects in order to repair damaged facilities or prevent catastrophic  facility failures so that missions were met. The officials stated that in  fiscal year 2005 and also in fiscal year 2006, about $250 million of  budgeted sustainment funds were used each year to pay for facility  restoration projects. Although the result was less funding for needed  sustainment work, the officials stated that the funds were still used on  facility needs rather than on other needs, such as installation services.
Marine Corps officials stated that nearly all budgeted sustainment,  restoration, and modernization funds have been used as intended.
section_title: Underfunding of Sustainment Requirements Has Resulted in Some Deteriorated Facilities
paragraphs: Although many facilities are in good condition, service officials stated that  underfunding of sustainment requirements over many years has resulted in  some deteriorated facilities. Deteriorated facilities will likely experience  reduced service lives, which, in turn, will lead to more costly  recapitalization requirements in the future. Army officials noted that when  sustainment funding is inadequate, planned projects are delayed, which  sometimes causes further deterioration, such as damage to interior walls  and floors from leaking roofs. Navy and Air Force officials also stated that  inadequate facility sustainment funding has resulted in deteriorated  facilities, reduced mission capabilities, and lower quality of life for  installation personnel. Navy officials stated that in some instances  installation aircraft runways have been closed because sustainment funds  were not available to perform needed repairs.
At the eight installations we visited, facility sustainment requirements  were not fully funded every year during fiscal years 2005, 2006, and 2007.  At some, but not all, of the installations, local officials stated that  sustainment funding had not been available to accomplish all needed work  and, as a result, many installation facilities were in a deteriorated  condition. For example, officials at Fort Sam Houston stated that the  foundation of a warehouse facility had shifted, which caused cracks in the  walls, warped door frames, and leaking pipes (see fig. 2). Repairs had not  been completed because adequate sustainment funds were unavailable.  Fort Sam Houston officials also noted that several barracks buildings,  which were still in use, had deteriorated because of inadequate funding.  For example, porch surfaces were crumbling, paint was peeling, and  windows needed repair (see fig. 3).
Officials at Oceana Naval Air Station stated that many facility roof  structures at the installation had exceeded their service lives and some  were leaking, causing damage to interior building components. The  officials noted that the roof of a weapons and radar training building at an  Oceana Naval Air Station annex had standing water and leaked, which  caused problems inside the building (see fig. 4). Local officials stated that  the roof repair would cost about $2.3 million and had been deferred  because of inadequate sustainment funding. Oceana officials also stated  that needed repairs to several aircraft hangar doors at the installation had  been deferred due to inadequate sustainment funding (see fig. 5). Because  hangar door motors did not work, employees used a tow tractor to open  and close the doors, which resulted in additional damage to the doors. The  officials also stated that an employee had been injured by a hangar door  because the door’s safety device did not work.
At Randolph Air Force Base, officials stated that although an aircraft  maintenance hangar needed substantial window repairs or replacement to  prevent safety violations, funds were not available to accomplish the  work. The officials noted that the facility’s window frames were corroded,  which allowed rain water to enter the building. The windows were located  directly above electrical panels and water ran over the panels when it  rained, creating a safety hazard (see fig. 6). On occasion, water in the  building had caused aircraft maintenance operations to temporarily shut  down. The officials told us that the facility had already received one safety  violation and another one could permanently shut down the facility.  Randolph Air Force Base officials also stated that some aircraft runways  and aprons had deteriorated due to inadequate sustainment funding. The  officials said the concrete on some runways and aprons was old and prone  to cracking, which could cause concrete pieces to break off, creating a  foreign object hazard to aircraft engines (see fig. 7). The officials  explained that some holes had been patched as a temporary fix, but that  the patches tended to crack and pop out. The officials stated that projects  costing about $56 million were needed to complete all needed runway and  apron repairs.
section_title: Military Services Achieved More Success in Attaining Recapitalization Goals
paragraphs: In comparison to facility sustainment goals, the military services have  achieved more success in attaining DOD recapitalization goals. Although  DOD has not used a standardized model to determine facilities  recapitalization funding requirements, for several years the department  has used a metric that measures the number of years that would be  required to replace the facility inventory on the basis of the annual funding  provided for restoration and modernization. According to February 2006  testimony, DOD’s recapitalization rate in fiscal year 2001 was 192 years, a  rate that DOD considered inadequate in view of DOD’s current goal of   67 years and similar private sector industries, which replace their facilities  every 50 years, on average.
Since fiscal year 2001, DOD’s recapitalization rate has improved and, as  shown in table 3, the military services have met or bettered the 67 year  benchmark in many instances. For example, the Army bettered the goal in  fiscal years 2005, 2006, and 2007, the Navy bettered the goal in fiscal years  2006 and 2007, and the Air Force bettered the goal in fiscal year 2005.
According to DOD officials, one reason for greater success in meeting  recapitalization goals is that additional restoration and modernization  funds were provided from programs outside of the normal funding  process. For example, the officials stated that many installations have  received additional recapitalization funding as the result of decisions  related to the implementation of base realignment and closure  recommendations, the global basing strategy, and the Army’s restructuring  initiative.
Although the military services met recapitalization goals in some years, the  adequacy of restoration and modernization funding remains an issue,  particularly in view of existing backlogs of needed restoration and  modernization work. Army officials stated that Army restoration and  modernization needs were not fully funded in fiscal years 2005 and 2006,  and at the end of fiscal year 2007 the Army reported a backlog of  restoration and modernization needs of about $20.4 billion. Navy officials  stated that the Navy’s restoration and modernization backlog grew from  about $13.3 billion in fiscal year 2005 to about $27.6 billion at the end of  fiscal year 2007, an increase of 108 percent. Air Force officials stated that  restoration and modernization requirements had not been adequately  funded and that the Air Force had a restoration and modernization  backlog of about $9.3 billion at the end of fiscal year 2007. Marine Corps  officials stated that the Marine Corps had a restoration and modernization  backlog of about $1 billion at the end of fiscal year 2007. Without adequate  restoration and modernization funding, facilities cannot be restored,  improved, or modernized in accordance with military needs and  expectations.
Officials at some of the installations we visited also stated that inadequate  funding for restoration and modernization needs was a concern. For  example, officials at Fort Sam Houston stated that the installation’s  backlog of restoration and modernization requirements grew from about  $341 million in fiscal year 2005 to about $456 million in fiscal year 2007, an  increase of about $115 million (34 percent). At Langley Air Force Base,  officials stated that the installation’s backlog of restoration and  modernization requirements grew from about $24 million in fiscal year  2005 to about $46 million in fiscal year 2007, an increase of about   $22 million (92 percent).
section_title: DOD Has Not Taken Actions to Address Deferred Facility Sustainment Requirements
paragraphs: DOD has not taken actions to estimate and address the military’s deferred  facility sustainment requirements. Deferred facility sustainment  requirements—specifically unfunded facility sustainment needs that carry  over from one year to the next—can eventually result in damaged  facilities, shortened facility service lives, and increased future costs for  facility restoration. However, because DOD has not provided guidance  that clearly defines deferred sustainment requirements, directs the  services to consistently measure and track deferred sustainment needs, or  establishes a goal to address these needs, the military services do not have  consistent estimates of their deferred sustainment requirements or plans  to deal with these needs. As a result, DOD lacks a complete picture of its  facility sustainment funding needs and DOD’s current plans and goals to  address facility sustainment requirements do not include all sustainment  requirements. In addition, without consistent estimates, the military  services’ annual financial statements have not included the cumulative  amount of deferred facility sustainment requirements as required by  Federal Financial Accounting Standards in order to provide full disclosure  of facility conditions.
subsections: section_title: DOD Has Not Provided Adequate Guidance on Deferred Sustainment Requirements
paragraphs: The military services do not have consistent estimates of their deferred  sustainment requirements or plans to deal with these needs because DOD  has not provided adequate guidance on deferred sustainment  requirements. Although DOD guidance provides a clear definition of work  classified as facility sustainment and DOD’s facilities sustainment model  provides a framework for estimating and addressing annual facility  sustainment funding requirements, DOD has not provided a clear  definition of work that should be classified as deferred facility sustainment  or issued guidance for estimating and addressing deferred sustainment  funding requirements. According to DOD officials, deferred sustainment  has not been emphasized because the goal has been for the military  services to fully fund their annual sustainment requirements. If the annual  sustainment requirements were fully funded each year, then facilities  could be optimally maintained and needed sustainment work would not be  deferred, so deferred sustainment requirements would not exist. However,  this has not been the case. As shown in table 4, the military services did  not fund over $3.5 billion of their annual sustainment requirements in  fiscal years 2005 through 2007. According to DOD, needed sustainment  work that is not performed—specifically unfunded facility sustainment  needs that carry over from one year to the next—will eventually result in  damaged facilities, shortened facility service lives, and increased future  costs for facility restoration.
section_title: Services Do Not Have Consistent Estimates of Deferred Sustainment Needs and Preparing These Estimates Can Be Difficult
paragraphs: Without guidance that places emphasis on deferred facility sustainment  needs, the military services and the installations we visited did not have  consistent estimates of their deferred sustainment needs, and DOD  officials noted that preparing these estimates is difficult for several  reasons. Although each service knew the amount of its annual sustainment  requirements that was not funded, they did not know the amounts of their  deferred sustainment requirements and each service expressed a different  view of the issue. For example, Army officials stated that although the  Army does not have information documenting its cumulative deferred  sustainment requirements, deferred sustainment needs were being  addressed with the Army’s current funding of its annual sustainment,  restoration, and modernization programs. However, the Army did not fund  over $735 million of its annual sustainment requirements in fiscal year  2007 and budgeted funds to pay for only 89 percent of the Army’s fiscal  year 2008 sustainment requirements. Meanwhile, Navy officials stated that  it did not need to estimate deferred sustainment needs because  sustainment work that is deferred becomes a restoration and  modernization requirement. However, according to DOD definitions,  deferred sustainment does not become a restoration requirement until it  results in damaging a facility, and it could take several years before  deferred sustainment work actually damages a facility to the point that it  must undergo restoration. In contrast, officials from the Air Force stated  that deferred sustainment requirements should be estimated and added to  the annual sustainment requirements in order to see the total sustainment  funding requirement, even though the cost to fund the total requirement  would be too high to be fully funded considering other Air Force budget  priorities. Finally, Marine Corps officials stated that, based on periodic  facility inspections, it has an estimate of total facility needs that includes  all deferred sustainment, restoration, and modernization requirements.  However, this estimate does not distinguish the deferred sustainment  requirement from the restoration and modernization requirement, which  means that the Marine Corps does not know its actual deferred  sustainment requirement. The Marine Corps also stated that funding over  100 percent of the annual sustainment requirement, as it did in fiscal year  2007, would be required to reduce the size of the deferred sustainment  requirement.
At some of the installations we visited, officials noted that deferred  sustainment requirements needed to be adequately estimated and  addressed if facilities are to be sustained at an optimum level. For  example, officials at Langley Air Force Base stated that because the  facilities sustainment model only estimated the annual sustainment  requirement and did not address deferred sustainment, deferred facility  sustainment needs at many installations would not be met even if the  installations were funded at the amounts estimated by the model. The  officials also stated that deferred sustainment requirements needed to be  specifically recognized and a plan developed to address these  requirements. At Camp Lejeune, officials noted that the facilities  sustainment model was based on facility life-cycle costs and the model’s  annual funding estimates were based on the assumption that facilities  were fully sustained in the past and were in good condition. However, the  officials stated that this is not the case at many installations because years  of inadequate funding had resulted in a backlog of deferred sustainment  requirements. Fort Sam Houston officials stated that although a backlog of  deferred sustainment needs existed, it was difficult to quantify the size of  the backlog because the installation lacked the personnel required to fully  inspect all installation facilities and catalogue all of the needed  sustainment work and projects. Similarly, Randolph Air Force Base  officials stated that all deferred sustainment needs at the installation had  not been identified partly because there was little confidence that the  work would be funded even if the effort were expended to document the  requirement.
Although Federal Real Property Council guidance requires federal  activities to know the repair needs of their facilities, DOD officials  indicated that for several reasons, determining deferred facility  sustainment needs is not an easy task. First, DOD officials noted that all  unfunded annual sustainment requirements do not become deferred  requirements. To illustrate, if a facility has an annual inspection  requirement and the inspection is not performed, the inspection cost  would not become a deferred sustainment requirement because two  annual inspections would not be required in the following year and the  facilities sustainment model would include the annual inspection cost in  the subsequent year’s funding estimate. However, if a facility were  scheduled for a roof replacement and roof was not replaced, the cost of  the replacement would become a deferred requirement because it would  still be needed and the cost would not be included in the subsequent year’s  funding estimate.
Second, DOD officials also noted that the facilities sustainment model  estimates the average annual sustainment funding requirements for each  facility category but does not identify the actual sustainment work that  each installation facility needs. The officials noted that a model might be  developed that could provide reliable estimates of deferred sustainment  requirements. However, according to the officials, actual facility  sustainment needs can only be determined through facility inspections in  which actual conditions are determined, needed repair and maintenance  work is documented, and costs to complete this work are estimated. A  comparison of an installation’s actual facility sustainment needs with the  installation’s annual sustainment funding would provide an estimate of the  installation’s deferred sustainment requirement. Of the military services,  only the Marine Corps systematically inspected its facilities and  documented needed repairs and improvements so that actual deferred  facility needs were known. However, because the documentation did not  distinguish facility sustainment needs from restoration and modernization  needs, the Marine Corps did not know its actual deferred sustainment  funding requirements. The Army used a facility inspection method that  provided an estimate of facility funding needs based on facility condition  assessments. However, the method did not document each facility’s actual  needed sustainment, restoration, and modernization projects. The Navy  stopped performing facility condition inspections after fiscal year 2005  because of the high cost of the inspections. Although the Navy plans to  implement a model beginning in fiscal year 2008 designed to estimate  facility conditions and funding needs, the model will not document each  facility’s actual needed sustainment, restoration, and modernization  projects. Air Force officials stated that its facilities are inspected as funds  permit and facility deficiencies, work requests, and projects are  documented. However, the officials stated that the list of needed work was  not considered all inclusive and did not categorize needed work as  sustainment, restoration, or modernization.
Third, as noted previously, estimating deferred sustainment requirements  can be further complicated by DOD’s definition of facility restoration and  the associated decisions on when deferred sustainment requirements  become restoration requirements. Specifically, DOD defines restoration as  including repair and replacement work to restore facilities damaged by  inadequate sustainment, excessive age, disaster, accident, or other causes.  Marine Corps officials noted that it can be difficult to determine when  deferred sustainment work actually damages a facility and thus should be  reclassified from a sustainment funding requirement to a restoration  funding requirement.
section_title: Lack of Clear Guidance Impedes Reliable Financial Reporting of Deferred Sustainment Costs
paragraphs: The military services’ financial reporting of deferred facility maintenance  information is not consistent with federal financial reporting requirements  due to a lack of clear DOD reporting guidance. We found that prior to  fiscal year 2007, the services’ financial statements excluded required  information concerning deferred facility sustainment requirements and  included information concerning deferred facility modernization  requirements. Including deferred facility modernization requirements is  not consistent with federal financial reporting requirements because these  requirements pertain to activities intended to expand or upgrade facility  capacity. Although DOD issued revised guidance in September 2007 in part  to address these issues, the guidance did not provide sufficient details to  ensure that future financial reporting of deferred maintenance would be  consistent with reporting requirements. Unreliable deferred maintenance  information, could further jeopardize DOD’s ability to adequately provide  for its facility sustainment needs and result in continued facility  deterioration and increased future recapitalization costs.
Federal financial accounting standards require that federal entities that  own property, plant, and equipment include information in their financial  statements disclosures related to the condition and the estimated deferred  maintenance costs of these assets. The accounting standards define  maintenance as the act of keeping fixed assets in acceptable condition,  including preventive maintenance, normal repairs, replacement of parts  and structural components, and other activities needed to preserve the  asset so that it continues to provide acceptable services and achieves its  expected life. The distinction between maintenance and deferred  maintenance is that deferred maintenance is maintenance that was not  performed when it should have been or was scheduled to be and which,  therefore, was put off or delayed for a future period. By definition, both  maintenance and deferred maintenance exclude activities aimed at  expanding the capacity of an asset or otherwise upgrading it to serve  needs different from, or significantly greater than, those originally  intended. In other words, expenditures to modernize or upgrade property,  plant, and equipment should not be reported as maintenance costs.
According to DOD officials, prior to fiscal year 2007, the military services’  financial statement reports included disclosures pertaining to only to the  annual amount of their sustainment requirements, as determined by the  facilities sustainment model, which was not funded. In addition, the  military services' financial statement disclosures for deferred maintenance  also included information on the cumulative deferred restoration and  modernization requirements as a component of the reported deferred  maintenance amounts. Reporting deferred modernization requirement  amounts is not consistent with reporting standards because modernization  includes facility work to implement new or higher facility standards,  accommodate new functions, or replace building components that have  exceeded their useful life, typically about 50 years. However, DOD  guidance did not clearly instruct the military services to exclude deferred  modernization requirement amounts from the amounts they reported for  deferred maintenance. Thus, the reporting of deferred modernization  requirements as part of deferred facility maintenance in the financial  statements results in misleading deferred maintenance disclosures and is  not consistent with what is called for by federal accounting standards.
DOD officials further stated that while in the process of updating DOD  financial regulations in 2007, DOD recognized that the financial statements  should include the cumulative, not just the annual, deferred sustainment  amounts. To address this issue beginning with the fiscal year 2007  financial statements, an official in the Office of the Secretary of Defense  (Comptroller) stated that the military services were directed to begin  reporting deferred maintenance amounts that include cumulative deferred  sustainment requirements. However, because the military services did not  have estimates of their deferred sustainment requirements, DOD officials  stated that the military services were directed to estimate their total  deferred maintenance needs based on each service’s facility quality  ratings. Facility quality ratings, prepared for each real property inventory  asset, reflect each facility’s condition at a specific point in time and the  estimated cost to correct existing deficiencies to bring the facility to a fully  serviceable operating condition.
Although DOD decided to use the facility quality ratings for estimating and  reporting deferred maintenance, DOD’s guidance for determining the  quality ratings specifically excluded consideration of sustainment  requirements and specifically included all restoration and modernization  requirements, except for construction of new facility capacity. To  address this issue, DOD issued new guidance on September 5, 2007. The  new guidance directed the military services to begin including sustainment  requirements in the facility quality ratings and to exclude restoration and  modernization requirements that were related to facility conversion and  construction of new facility capacity. However, the guidance did not  provide details to the military services on how to do implement these  changes and permitted each service to decide on a method, as long as the  service validated the accuracy of the method used.
Although the military services attempted to implement the new guidance  in reporting deferred maintenance information in their fiscal year 2007  financial statements, the reported information was still inconsistent and  incomplete. First, because the new guidance did not provide details on  how to implement the changes, each service used its own methods. Yet,  according to a May 2006 report commissioned by DOD to provide an  independent verification and validation of the services’ facility quality  ratings, the services used inconsistent methods to determine facility  conditions, which resulted in inconsistent estimates of needed  maintenance costs. Second, with the new guidance being issued on  September 5, 2007, the military services had little time to make any  adjustments to their facility quality ratings prior to preparation of their  fiscal year 2007 financial statements, which were due in November 2007.  According to Navy officials, Navy facility quality ratings had not been  updated since 2005 because the Navy stopped performing facility  inspections. Third, when reporting deferred facility maintenance amounts  in its fiscal year 2007 financial statement, the Air Force included a note  stating that the use of facility quality ratings as a basis for calculating  deferred maintenance did not seem prudent because the quality of the  information used to determine the ratings was questionable. Without  guidance providing for consistent methods for measuring deferred  sustainment requirements and determining which portion of the deferred  restoration and modernization requirements to include in the financial  statements, the military services’ financial reporting of deferred  maintenance information may continue to be inconsistent with financial  reporting requirements, which could further jeopardize DOD’s ability to  adequately provide for its facility sustainment needs and result in  continued facility deterioration and increased future recapitalization costs.
section_title: DOD’s Progress in Developing an Installation Services Model Has Been Slow
paragraphs: DOD’s progress in developing a model for estimating installation services  funding requirements has been slow because DOD has been unable to  overcome long-standing inconsistencies among the military services’  definitions of support service functions and other obstacles that prevent  such a model from being ready for use. In an effort to ensure consistent  delivery of adequate installation services among DOD components and  provide the Congress with a clearer basis for making funding decisions,  DOD began in 2004 to develop an analytically sound model for determining  installation services funding requirements. However, progress has been  slow and it is unclear whether DOD’s target for completing this work will  be met. Without a DOD-wide model, the military services have used  various methods to estimate their support services requirements subject to  their own definition of the types and levels of services deemed necessary.  On the basis of these estimates, Army, Navy, and Air Force officials have  raised concerns about the adequacy of support services funding from  fiscal years 2005 through 2007, stating that this funding was less than the  amounts needed to provide services at the levels desired and resulted in  some installations providing reduced services, which caused the quality of  life of DOD personnel in some instances to be negatively affected.
subsections: section_title: Efforts to Develop an Installation Services Model Began in 2004
paragraphs: DOD’s efforts to develop a model for estimating installation services  funding requirements began in 2004, when the Office of the Deputy Under  Secretary of Defense for Installations and Environment designated the  improvement of installation services management as a priority. According  to officials from this office, DOD’s and the military services’ ability to  forecast installation services requirements and funding needs had been  hindered by the lack of a common terminology across the military services  and the lack of common definitions had caused differing expectations for  service support when multiple military services were collocated on a  single installation. The 2004 Defense Installations Strategic Plan  articulated the need to define common standards and performance metrics  for managing installation support and established goals to implement  DOD-wide support service standards and to develop an analytical model  based on common benchmarks to accurately forecast installation services  funding requirements. The plan noted that installation services included a  large collection of diverse functions and that work towards a model would  first focus on services related to real property—work that subsequently  resulted in DOD’s facilities operation model—and then on all other  installation services—work now directed at developing the installation  services model.
Also in 2004, in an effort to promote joint installation management, DOD  established a working group to develop policy and create a strategic  framework for delivery of installation services. The framework was to  include the establishment of common definitions, tiered performance  standards, and performance measures to assist in managing support  services resources and help ensure the common delivery of applicable  support services across all military installations. To support this effort,  service standards teams, composed of members from each military  service, were formed and charged with developing common output-level  standards, which include common definitions, performance standards,  metrics, and unit cost estimates for each installation support service. The  common output-level standards would also provide a key component  needed to develop an installation services model.
Service standards teams were formed to develop common definitions and  standards for 29 different support services. The initial goal was for the  teams to complete their work by February 2006. According to DOD  officials, from the beginning the teams had difficulty completing their  work and obtaining agreement from all military services on the common  definitions and standards. By December 2007, the military services had  accepted the common definitions and service standards for only 2 of the  29 support services addressed by the service standards teams, and the  target date for completing the work had slipped to March 2008. DOD’s  2007 Defense Installation Strategic Plan set a goal to establish common  standards and metrics for installation services and complete the model by  the end of 2008.
section_title: Several Factors Have Hampered Progress in Developing an Installation Services Model
paragraphs: According to DOD officials, several factors have hampered progress  towards completing the common output-level standards and developing  the installation services model. For example, each military service has its  own long-standing policies and practices on how tasks and subtasks for  each installation service are grouped, performed, managed, and funded.  Also, differences in the military services’ policies, practices, and traditions  have resulted in service differences in (1) the value of and emphasis  placed on the various support services, (2) views on whether service  programs should be managed and funded centrally or not, and (3) support  service requirements based on installation location and demographic  characteristics. For example, remote installations might provide some  services that are normally provided by local communities in more  populated areas, and installations with a high percentage of young, single  personnel might provide some services not provided at installations with  different demographics.
As one example of an installation support service that is managed  differently among the military services, DOD cited differences in the  management of chaplain services. According to DOD officials, the Navy, in  accordance with its policy, donates all funds collected during on-base  religious services to charities. The other military services, in accordance  with their policies, use funds collected during on-base religious services to  directly support the chaplain program, such as paying for program  expenses. Thus, in order to reach a common definition and service  standard for the chaplain program, this difference among the military  services must be resolved.
Office of the Deputy Under Secretary of Defense for Installations and  Environment officials, who were overseeing the development of the  model, stated that resolving the differences in support service definitions  and service standards remains a key obstacle to completing an installation  services model that can reliably estimate the funds required to provide  services at appropriate levels across all installations. The officials also  noted that other obstacles exist and must be overcome before a model is  completed. For example, because each of the installation services is  unique, a separate model will be required for each service. Thus, the  installation services model will be a collection of many separately  developed, service-specific models. According to the officials, a few  service standards teams believe the services they studied will be difficult  to model. Further, it may also be difficult to identify adequate information  sources for estimating the standard costs for some installation services,  such as for mission-based services, including airfield and port operations,  and regulatory services, including environmental services. The problem is  that historical metrics and costs for some services are not readily available  within DOD, and private sector data sources may not be suitable for  services that are performed differently by the private sector and DOD.  Given these obstacles and the slow pace of prior progress in developing  the common definitions and standards, it is unclear whether the 2008  target in DOD’s plan will be met. In addition, the plan did not establish a  milestone for when the model will be implemented for use in estimating  the military’s installation services funding requirements. Until DOD  formally establishes a milestone for when the installation services model  will be implemented and provides adequate senior-level oversight to  ensure that the milestone is met, DOD may not have the necessary impetus  to resolve these obstacles so that development of the model can be  completed.
section_title: Adequacy of Installation Services Funding Has Been a Concern
paragraphs: The adequacy of funding for installation services has been a concern for  the military services. Without a DOD-wide model, each military service has  developed methods to estimate its installation services requirements and  funding needs subject to its own definition of the types and levels of  services it deems necessary. Appendix II provides a brief description of  the methods used by each military service to estimate installation services  funding requirements. On the basis of these estimates and other  information, Army, Navy, and Air Force officials stated that installation  services funding for fiscal years 2005 through 2007 was less than the  amounts needed to provide services at the levels desired. For example,  according to Army officials, installation services and facility operations  services—collectively classified as base operations support in the Army’s  budget—were funded at about 80 percent, 82 percent, and 87 percent of  requirements in fiscal years 2005, 2006, and 2007, respectively. Of the  military services, only the Marine Corps stated that its installation services  and facility operations services were adequately funded during these fiscal  years.
Although it was beyond the scope of our review to assess the impacts that  resulted from less than full funding of installation services, we did ask the  military services for their views. Army officials stated that, because of  inadequate funding levels, installation services were reduced and provided  at lower than optimum levels at some installations, which reduced the  support provided to military personnel. Navy officials stated that effects of  inadequate funding included (1) reduced operating hours at some  installation entrance gates, which slowed base access; (2) reduced law  enforcement patrols, pier security, and surveillance detection, which  increased security risks; (3) cutbacks in facility cleaning contracts, which  caused mold and mildew growth, which could potentially create health  issues; (4) closure of some installation swimming pools and automobile  hobby shops, which affected personnel quality of life; and (5) scaled back  special events, which reduced the connection between some bases and the  local communities. Air Force officials stated that inadequate installation  services funding resulted in reduced in-house and contractual support for  day-to-day operations at some installations in areas such as installation  security, transportation, and supply. In addition, the quality of life for  service members was affected at some installations by the closure of  dining and fitness facilities and decreased library hours and other  contractual services supporting base personnel.
Officials at some of the installations we visited also commented that  because of inadequate funding, some installation services and facility  operations services were reduced causing negative effects on the quality of  life of installation personnel. At Fort Eustis, for example, officials  estimated that custodial services were funded at about 25 percent of the  amount needed to meet normal requirements. The officials stated that  custodial services no longer provided for cleaning carpets or windows and  only provided for cleaning restrooms once a week. At Langley Air Force  Base, officials stated that, although essential services were being provided,  funding shortages had caused the installation to reduce custodial and  ground maintenance services and close one dining facility.
section_title: Conclusions
paragraphs: Although the facilities sustainment model provides a consistent and  reasonable framework for preparing estimates of DOD’s annual facility  sustainment funding requirements, accuracy and supportability issues with  two of the model’s key inputs—the inventory quantity and the sustainment  cost factor associated with each of DOD’s 448 facility categories—have  affected the reliability of the model’s estimates. In particular, the military  services had not complied with DOD guidance that requires verification of  real property inventory records and consequently the inventory records  contained inaccuracies and discrepancies, information documenting the  basis for each sustainment cost factor was not readily available, and the  fiscal year 2009 method for calculating sustainment cost factors that are  not based on independent data sources can reduce the accuracy of these  factors. Until DOD takes additional steps to improve the accuracy and  supportability of its inventory quantity and sustainment cost factor inputs  to the facilities sustainment model, the model’s estimates of annual facility  sustainment funding requirements will not be as reliable as possible,  which could jeopardize DOD’s ability to adequately provide for its facility  sustainment needs.
Furthermore, because the military services do not have consistent  estimates of their deferred facility sustainment requirements, DOD lacks a  complete picture of its facility sustainment funding needs. Thus, current  plans and goals to address sustainment needs do not include all  sustainment requirements, which could further jeopardize DOD’s ability to  adequately sustain its facilities and result in continued facility  deterioration and increased future restoration costs. In addition, largely  because of lack of clear guidance, the military services’ financial reporting  of deferred facility maintenance information has been inconsistent with  financial reporting requirements intended to provide full disclosure of  facility conditions. Until DOD provides guidance that clearly defines  deferred sustainment requirements, directs the services to consistently  measure and track deferred sustainment needs, establishes a goal to  address these needs, and ensures that the military services’ financial  reporting of deferred facility maintenance is consistent with financial  reporting requirements, the services will not have consistent estimates of  their total facility sustainment requirements, will be unable to develop  plans to address these needs, and may continue to report deferred  maintenance information that is inconsistent with financial reporting  requirements.
DOD has yet to overcome long-standing inconsistencies among the  military services’ definitions of support service functions, as well as other  obstacles, to complete a model for estimating installation services funding  requirements. Until a reliable model is implemented, DOD cannot know its  installation services funding requirements with confidence, set installation  services funding and performance benchmarks, measure the military  services’ progress in providing installation services, or provide the  Congress with a clear, consistent basis for making related funding  decisions. DOD has a goal to establish common standards and metrics for  installation services by the end of 2008. However, until DOD formally  establishes a milestone for when the installation services model will be  implemented and provides adequate senior-level oversight to ensure that  the milestone is met, DOD may not have the necessary impetus to  complete the model as quickly as possible.
section_title: Recommendations for Executive Action
paragraphs: To improve the support provided for DOD’s facilities and installation  services, we recommend that the Secretary of Defense direct the Deputy  Under Secretary of Defense (Installations and Environment) to take the  following five actions in order to increase the reliability of the facilities  sustainment model, address deferred facility sustainment funding  requirements, and advance progress towards implementing the installation  services model:    Monitor and ensure compliance with guidance requiring verification of  real property inventory records.
Maintain documentation regarding the basis for the sustainment cost  factors used by the model to include the calculations used to determine  each factor as well as the reasons for any changes from year to year.
Revert to the previously used ratio analysis method to calculate the  values of those sustainment cost factors that are not based on  independent data sources.
Issue guidance to the military services that (1) provides a clear  definition of deferred facility sustainment requirements and explains  when deferred facility sustainment becomes a facility restoration  requirement, (2) directs the military services to consistently measure  and track deferred sustainment needs, (3) establishes a goal to address  deferred facility sustainment needs, and (4) ensures that the military  services’ financial reporting and disclosure information regarding  deferred facility maintenance is consistent with financial reporting  requirements.
Establish a milestone for implementing the installation services model  for use in estimating DOD’s installation services funding requirements  and provide adequate senior-level oversight to ensure that the  milestone is met.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, DOD concurred with four  recommendations, partially concurred with one recommendation, and  stated that it had already initiated several of the recommended actions.  However, DOD’s comments and stated actions did not fully address some  of our recommendations. While DOD’s actions represent positive first  steps, we believe that DOD needs to take additional steps to fully address  the issues discussed in this report. Specifically, in addition to the steps  that DOD stated it has taken or plans to take, we continue to believe that  DOD needs to take further steps to monitor and ensure compliance with  inventory verification guidance, provide a clear definition of deferred  facility sustainment requirements, direct the military services to  consistently measure and track deferred sustainment needs, ensure that  the military services’ financial reporting and disclosure information  regarding deferred facility maintenance is consistent with financial  reporting requirements, and provide adequate senior-level oversight to  ensure that an installation services model is implemented as soon as  possible.
DOD concurred with our recommendation to monitor and ensure  compliance with guidance requiring verification of real property inventory  records. DOD stated that it added a data element to its real property  inventory records that will record the most recent date that each facility  was inspected. DOD stated that this data, which it expects will be available  by fiscal year 2009, will provide a means of identifying the verification  dates and taking action to update them as required. However, as noted in  this report, data are already available showing facility inspection dates and  the data show that the military services have not complied with  verification requirements. Our recommendation is that DOD ensure  compliance with the guidance in order to help ensure inventory accuracy  and it is not clear that DOD’s action of adding a data element to its  inventory records will improve compliance. We continue to believe that  additional steps are needed to monitor and ensure compliance with  guidance requiring verification of real property inventory records.
DOD concurred with our recommendation that it maintain documentation  regarding the basis for the sustainment cost factors used by the model to  include the calculations used to determine each factor as well as the  reasons for any changes from year to year. DOD stated that it has  maintained documentation for sustainment cost factors since the  inception of the facilities sustainment model. However, as noted in this  report and as we discussed with DOD officials during our review, the  documentation did not always show the basis for the sustainment cost  factors, the calculations used to determine each factor, or the reasons for  any changes from year to year and that is the basis for our  recommendation. DOD also stated that it has revised its documentation  standards to improve the level of detail and accessibility. If fully  implemented, DOD’s action should result in an improved audit trail  documenting the basis for each factor’s value.
DOD concurred with our recommendation that it revert to the previously  used ratio analysis method to calculate the values of those sustainment  cost factors that are not based on independent data sources. DOD stated  that it will adopt the GAO-preferred method to inflate the small number of  sustainment cost factors generated by ratios beginning in fiscal year 2009.  As noted in this report, the “GAO-preferred” method is the method that  can result in greater accuracy of the sustainment cost factor values. Also,  regarding the “small” number of sustainment cost factors generated by  ratios, as noted in this report, DOD has used a ratio analysis to estimate  the sustainment cost factors for approximately one-third of DOD’s 448  facility categories.
DOD concurred with our recommendation related to deferred facility  sustainment requirements stating that it had issued guidance in September  2007 that revised the definition of facility quality ratings to represent  deferred sustainment and restoration, revised its methodology for  estimating deferred maintenance in its financial reports by using the  facility quality ratings, and planned to develop program guidance with the  fiscal year 2011 budget process to establish goals to address deferred  sustainment requirements. As noted in this report, we were aware of the  September 2007 guidance. However, we made our recommendation  because our review found that the guidance did not provide a clear  definition of deferred facility sustainment requirements, details to the  military services on how to implement the revised quality rating guidance,  or sufficient details to ensure that future financial reporting of deferred  maintenance would be consistent with reporting requirements. We  continue to believe that additional guidance is needed to provide a clear  definition of deferred facility sustainment requirements, direct the military  services to consistently measure and track deferred sustainment needs,  and ensure that the military services’ financial reporting and disclosure  information regarding deferred facility maintenance is consistent with  financial reporting requirements.
DOD partially concurred with our recommendation to establish a  milestone for implementing the installation services model for use in  estimating DOD’s installation services funding requirements and provide  adequate senior-level oversight to ensure that the milestone is met. DOD  stated that it had established a milestone to implement an installation  services model in support of the fiscal year 2012 budget and had made  initial progress toward that goal. However, DOD stated that the  development process had revealed several obstacles that may require it to  reevaluate the goal for at least some installation service functions.  Although we believe that DOD’s action to establish an implementation goal  is a step in the right direction, we also recommended and continue to  believe that adequate senior-level oversight is needed to ensure that an  installation services model is implemented as soon as possible. DOD’s  comments did not explain to what extent it plans to do this.
DOD’s comments are reproduced in full in appendix III.
We are sending copies of this report to the Secretaries of Defense, the  Army, the Navy, and the Air Force; the Commandant of the Marine Corps;  and the Director, Office of Management and Budget. We will provide  copies of this report to others upon request. In addition, the report will be  available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions on the information discussed in this  report, please contact me on (202) 512-4523 or leporeb@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this report. GAO staff who made key  contributions to this report are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine the reliability of the annual funding estimates produced by  the facilities sustainment model, we reviewed the documentation  supporting the model’s analytic framework—including the model’s inputs,  calculations, and assumptions—to determine whether the model provides  a consistent and reasonable framework for estimating sustainment funding  requirements. In addition, we assessed the accuracy and supportability of  the model’s key inputs—the inventory quantity and the sustainment cost  factor. Regarding inventory quantity, we reviewed DOD regulations that  require periodic verification of the accuracy of real property inventory  information, determined the extent to which the military services had  complied with these regulations, and discussed with service officials the  reasons for noncompliance. During visits to eight military installations, we  compared the inventory information contained in selected installation real  property records with the inventory information used by the model and  asked local officials to explain discrepancies. We judgmentally selected  the records to include a variety of facility categories. At the installations  visited, we also determined compliance with the required procedures for  verifying real property inventory accuracy and, at one installation, we  reviewed the records that documented the compliance. In addition, we  analyzed the inventory quantities used by the model for each facility  category during fiscal years 2005 through 2008 to identify large  fluctuations from one year to the next and asked DOD and service  headquarters officials to explain some of the fluctuations. In cases where  the fluctuations were caused by an error, we determined the resulting  impact on the model’s sustainment cost estimate by recomputing  sustainment costs based on the correct inventory quantity. Although we  assessed the accuracy of selected real property inventory information,  which is discussed in this report, we did not assess the overall reliability of  DOD’s real property inventory records. Regarding sustainment cost  factors, we discussed the development of the factors with DOD officials,  reviewed the findings of a study designed to provide an independent  verification and validation of the sustainment cost factors used by the  model, and documented DOD’s response to the study’s recommendations.  In addition, we reviewed the documentation supporting the factors for  each facility category to determine whether the documentation provided a  clear basis for each factor’s value. Further, we analyzed the impact of a  revised method used by DOD to adjust factors for use in fiscal year 2009  by comparing the values of selected factors adjusted under the revised and  the previously used methods.
To determine DOD's progress in meeting funding goals for facility  sustainment and recapitalization, we reviewed DOD’s installation strategic  plans to identify DOD’s goals for facility sustainment and recapitalization.  We also reviewed DOD information showing the amounts budgeted for  facility sustainment, restoration, and modernization for fiscal years 2005  through 2008 and the amounts spent for fiscal years 2005 through 2007 and  compared these amounts to the corresponding goals. The amounts  budgeted and spent represented DOD official financial information and we  did not independently verify the amounts. In addition, we reviewed prior  DOD testimony on installation support funding goals and we discussed the  goals and DOD’s progress in meeting the goals with DOD and service  headquarters officials. To the extent that goals were not met, we asked  DOD and service officials to explain why and describe the associated  consequences on installation facilities. We also reviewed the restoration  and modernization backlog amounts reported by the military services. At  each of the installations visited, we asked local officials to describe the  impacts when sustainment and recapitalization funding goals were not  met. Further, we observed and took photographs of installation facilities  that were in a deteriorated condition because of a shortage of sustainment  funds.
To determine the extent to which DOD has addressed deferred facility  sustainment funding needs, we compared the military services’ annual  sustainment funding requirements with the amounts actually funded to  determine the annual unfunded sustainment requirements for fiscal years  2005 through 2007. We discussed the issue with DOD and military service  officials and reviewed DOD guidance and definitions related to facility  maintenance. We also reviewed prior DOD testimony on installation  support and DOD’s installation strategic plans for information on deferred  sustainment requirements. We asked officials in each military service  whether any difficulties or obstacles existed in developing estimates of  deferred sustainment needs, whether the service had estimated its  deferred sustainment funding requirements, and whether the service had  plans or goals to address deferred sustainment requirements. In addition,  we reviewed federal financial accounting requirements pertaining to the  reporting of deferred property maintenance and compared these  requirements to the information reported in the military services’ financial  statements. Further, we reviewed the military services’ efforts to respond  to September 2007 DOD guidance that was intended to improve the  military services’ reporting of deferred maintenance amounts.
To determine the status of DOD's efforts to develop a funding  requirements model for installation services, we obtained and reviewed  documentation on the history of the model’s development and interviewed  DOD officials concerning past progress on the model, the model’s status at  the end of calendar year 2007, and future plans for completing and  implementing the model. We also documented the timeline of DOD’s  efforts since DOD decided to develop the model and compared various  developmental milestones with actual progress. Further, we discussed  with DOD officials the factors that have affected progress in developing  the model and asked the officials to identify any remaining obstacles that  must be overcome before the model could be completed and used to  estimate DOD’s installation services funding requirements. In the absence  of a DOD-wide model, we also interviewed officials from each of the  military services and reviewed related information to document the  methods used by each military service to determine installation services  funding needs. Further, we asked service headquarters officials and  officials at the installations we visited to explain the consequences when  installation services funding was less than required.
We conducted this performance audit from May 2007 through April 2008,  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Current Methods Used by the Military Services to Estimate Installation Support Services Funding Requirements
paragraphs: The Army determines its installation services funding requirements  primarily through the Army’s base operations support requirements model.  This model uses Army-defined service standards and a costing  methodology that estimates costs for 95 different installation services  across Army installations based on cost pacing measures and data unique  to each support service. Examples of cost pacing measures include  population served, facility square footage, and number of transactions  required. According to the Army, the model’s process results in estimated  funding requirements for what each support service should cost based on  a predefined level of support. The Army adjusts the model’s funding  estimate to include costs for some services that are not modeled and  determines the amount of funding actually budgeted based upon the  availability of resources and Army priorities. Beginning with its fiscal year  2010 budget, the Army plans to use the facilities operation model to  estimate support services funding requirements for the facility-related  services included in that model.
The Navy determines its installation services funding requirements  primarily from the Navy’s base operating support model. This model  estimates the funding required for 18 Navy service support functions,  which represent about 67 percent of all Navy support services costs.  Funding estimates for 9 other service support functions are not modeled  but are determined primarily from prior-year costs for the required level of  support. For each of the 18 modeled service support functions, the model  estimates funding requirements for four separate standard levels of service  by multiplying a unit factor, such as square feet of a building, by a unit cost  factor for each of the four levels of service that could be provided.  According to the Navy, the unit costs used by the model are established in  several ways, including Navy historical costs and commercial estimating  manuals and data sources. Each year senior Navy leadership decides  which of the four levels of service will be provided for each service  support function at naval installations. On the basis of these decisions and  information from the model, the Navy determines its installation services  funding requirement. Beginning with its fiscal year 2010 budget, the Navy  plans to use the facilities operation model to estimate support services  funding requirements for the facility-related services included in that  model.
The Air Force used a prototype of the facilities operation model to  estimate its fiscal year 2008 funding requirements for the 10 facility-related  support services included in that model. Even though the model was not  yet at full operational capability, the Air Force decided that the model  provided a more realistic estimate of facility-related service funding  requirements than the Air Force’s previously used method, which was  based on historical costs. The Air Force plans to continue to use this  model. To estimate its funding requirements for several other installation  services that are not included in the model, including security forces,  airfield operations, installation administration, food services, and lodging,  the Air Force uses a cost projection formula. The formula primarily uses  the number of personnel assigned to each installation and the value of the  installation’s facilities as key inputs to determining its funding  requirements estimates. The Air Force does not use a model or formula for  some installation services, such as environmental conservation and  compliance, pollution prevention, unaccompanied personnel housing,  child development centers, and base communications and multimedia  activities. According to Air Force officials, the Air Force leadership makes  final decisions on the annual installation services budget based on Air  Force priorities and budget constraints.
The Marine Corps currently does not use a comprehensive model to  estimate funding requirements for installation services except for utility  costs. For utilities, Marine Corps officials stated that funding requirements  are based on a model that organizes and aggregates available consumption  and cost data by utility type and predicts future costs to support budgeting  and programming needs. For all other installation support service areas,  the Marine Corps estimates funding requirements primarily by direct  review of historical program execution and future needs. During its budget  development process, the Marine Corps makes final decisions on funding  levels based on needs, resources, and priorities. Beginning with its fiscal  year 2010 budget, the Marine Corps plans to use the facilities operation  model to estimate support services funding requirements for the facility- related services included in that model.
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the contact named above, Mark Little, Assistant  Director; Bonita Anderson; Harry Knobler; Mary Jo Lacasse; Josh  Margraf; and Gary Phillips made significant contributions to this  report.
section_title: Related GAO Products
paragraphs: Cost Assessment Guide: Best Practices for Estimating and Managing  Program Costs. Exposure Draft. GAO-07-1134SP. Washington, D.C.: July  2007.
High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January  2007.
Defense Infrastructure: Issues Need to Be Addressed in Managing and  Funding Base Operations and Facilities Support. GAO-05-556.  Washington, D.C.: June 15, 2005.
Military Training: Better Planning and Funding Priority Needed to  Improve Conditions of Military Training Ranges. GAO-05-534.  Washington, D.C.: June 10, 2005.
Defense Infrastructure: Changes in Funding Priorities and Management  Processes Needed to Improve Condition and Reduce Costs of Guard and  Reserve Facilities. GAO-03-516. Washington, D.C.: May 15, 2003.
Defense Infrastructure: Changes in Funding Priorities and Strategic  Planning Needed to Improve the Condition of Military Facilities. GAO- 03-274. Washington, D.C.: February 19, 2003.