The Army’s modular force transformation, which has been referred to as the largest Army reorganization in 50 years, encompasses the Army’s total force—active Army, Army National Guard, and U.S. Army Reserve—and directly affects not only the Army’s combat units, but related support and command and control. Restructuring these units is a major undertaking because it requires more than just the movement of personnel or equipment from one unit to another. The Army’s new units are designed, equipped, and staffed differently than the units they replace, therefore successful implementation of this initiative will require many changes, such as new equipment and facilities; a different mix of skills and occupational specialties among Army personnel; and significant changes to training and doctrine. The foundation of the modular force is the creation of brigade combat teams—brigade-size units that will have a common organizational design and will increase the pool of available units for deployment. The Army believes a brigade-based force will make it more agile and deployable and better able to meet combatant commander requirements. Not only does the Army expect to produce more combat brigades after its restructuring, it believes the brigades will be capable of independent action by the introduction of key enablers, such as enhanced military intelligence capability and communications, and by embedding various combat support units in the brigade itself instead of at a higher echelon of command. The Army’s objective is for each new modularized brigade combat team, which will include about 3,000 to 4,000 personnel, to have at least the same combat capability as a brigade under the current division- based force, which ranged from 3,000 to 5,000 personnel. Since there will be more combat brigades in the force, the Army believes its overall combat capability will be increased as a result of the restructuring, providing added value to combatant commanders. Although somewhat smaller in size, the new modular brigades are expected to be as capable as the Army’s existing brigades because they will have different equipment, such as advanced communications and surveillance equipment, and a different mix of personnel and support assets. The Army’s organizational designs for the brigade combat teams have been tested by its Training and Doctrine Command’s Analysis Center at Fort Leavenworth against a variety of scenarios, and the Army has found the new designs to be as effective as the existing brigades in modeling and simulation. By 2011, the Army plans to have reconfigured its total force—to include active and reserve components, and headquarters, combat, and support units—into the modular design. The plan includes expanding the existing 33 brigades in the active component division structure into 43 modular, standardized brigade combat teams by fiscal year 2006. Table 1 shows the Army’s schedule for transforming to the modular design. Supporting DOD’s goals for transformation while undertaking current operations is a complex undertaking. In addition to the sheer magnitude of force structure changes the Army is implementing, the Army’s transformation to a modular force is occurring as the Army is rotating over 160,000 troops annually into combat theaters to fight the Global War on Terrorism. As an indication of the progress already made, the Army reports it has built 5 new brigade combat teams, converted 16 brigade combat teams, and created 16 modular support brigades. In addition, the Army reports it has made “rebalancing” decisions affecting over 100,000 military positions in order to make the best use of its available personnel. This involves creating more units of the types needed most and eliminating from the force units of lesser priority. Legislation has increased the Army’s end strength in part to support the modular reorganization. In the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, the Army was authorized an end strength of 502,400 soldiers—a 20,000 soldier increase of the fiscal year 2004 end strength of 482,400. The 2005 act also authorized the Secretary of Defense to increase the Army’s end strength as high as 512,400 during fiscal years 2005 through 2009 to support the operational mission of the Army in Iraq and Afghanistan and to achieve transformational reorganization objectives of the Army. Since the summer of 2004, the Army’s cost estimate for transforming its force through fiscal year 2011 increased from $28 billion to $48 billion in its spring 2005 estimate. While this latest estimate addressed some of the shortcomings of the initial estimate, and includes lessons learned developed from operations in Iraq, this estimate excludes some known costs and includes uncertainties that may increase the cost estimate further. The Army did not include personnel costs, which we estimate to total $23 billion over the same time frame, and also did not include $4.5 billion in construction costs the Army plans to achieve through efficiencies. When added to the most recent estimate, the total known costs increase from $48 billion to $75.5 billion. Uncertainties in the estimate could cause costs to increase higher. Pending decisions about the number and design of modular units, and uncertainties surrounding equipment, personnel, and facilities costs, may require the Army to request additional funding beyond $75.5 billion or accept reduced capabilities among some or all of its units. Without a clearer picture of the Army’s resource requirements, DOD will have difficulty weighing competing funding priorities, and the Secretary of Defense and Congress will not have information they need to evaluate funding requests. The Army’s current cost estimate for the modular force transformation is $48 billion, a 71 percent increase from its initial rough order of magnitude estimate of $28 billion made in the summer of 2004. There were several weaknesses in the initial $28 billion estimate. Because the modular force designs had not been finalized, earlier estimates reflected costs based mainly on the existing division-based design. Further, in constructing the active component portion of the estimate the Army (1) assumed the costs of adding 15 light infantry, division-based brigades but did not include costs of restructuring the existing combat brigades in the force structure; (2) did not include restructuring of command and support units; and (3) made no allowances for permanent construction to house and support these units, funding instead temporary facilities reflecting the Army’s assumption that end strength increases would be temporary as well. In March 2005, the Army increased its estimate for transforming to a modular force to $48 billion from fiscal year 2005 through 2011. According to Army officials, this most recent estimate addressed shortcomings of the initial estimate in that it included funding to (1) both create new units and restructure existing ones, (2) build permanent facilities to house and sustain the new force structure, and (3) used the modular design where available as the basis for estimating costs. Moreover, officials told us that the modular design had been updated to reflect lessons learned about equipping and employing the force from ongoing operations in Iraq. This estimate, however, did not include personnel costs and some construction costs. The Army reported that increases in end strength above the appropriated end strength of 482,400 soldiers were assumed to cost $3 billion per year, but were not tallied as part of the estimate. According to Army officials, these personnel costs were excluded because officials from the Office of Management and Budget and in the Office of the Secretary of Defense provided guidance that modular transformation was largely equipment related, and thus the Army should not include such costs. Further, Army officials cited the difficulty in segregating end strength cost increases due to modularity versus those due to ongoing operations. For example, units preparing for deployment to Operation Iraqi Freedom are being reorganized into a modular organization prior to deployment. While we acknowledge that it may be difficult to clearly state whether end strength increases associated with a deploying unit were due to modular transformation or operational requirements, we believe including these costs in their entirety is appropriate because (1) the Army has stated it requires an increase in end strength to accommodate the modular force, (2) it assumes that its tempo of operations will continue at the same pace through 2011, and (3) excluding personnel costs would significantly understate the cost of the modular force. The Army’s $3 billion estimate multiplied over the 7-year period from 2005 through 2011 and including estimates for inflation totals $23 billion, based on GAO’s calculations. In addition to these personnel costs, the Army did not include an additional $4.5 billion in efficiencies it planned to apply to construction costs related to the modular force. This assumption is discussed in more detail in the next section. Adding these known costs for construction and personnel to the Army’s official estimate brings the total potential known costs to $75.5 billion. According to Army data and our projection of personnel costs, equipment accounts for 54 percent of the costs, personnel for 30 percent, military construction and facilities for 8 percent, and sustainment and training for 8 percent as well. These figures along with the annual totals are presented in table 2. While the Army’s latest cost estimate addressed several of the shortfalls in its initial rough order of magnitude estimate, uncertainties in its latest estimate are likely to cause costs to increase. We identified the following factors that could affect equipment, personnel, and facilities costs. The Army’s Campaign Plan calls for a decision by fiscal year 2006 on whether to create five additional modular brigade combat teams—a decision that could affect the size and composition of the modular force as well as its cost. Adding five brigades would provide additional capability to execute the defense strategy but would require additional restructuring of people and equipment. If the Secretary of Defense decides to add five brigade combat teams to the current plan, the cost for modularity will increase significantly. For example, each modular brigade combat team under the current design would require 3,300 to 3,700 soldiers, for a potential total of up to 18,500 soldiers. It is not clear whether the Army would have to add this entire amount to its end strength, however.