Bosnia: Cost Estimating Has Improved but Operational Changes Will Affect Current Estimates

Published by the Government Accountability Office on 1997-07-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                   United States General Accounting Office

GAO                Report to Congressional Committees

July 1997
                   Cost Estimating Has
                   Improved, but
                   Operational Changes
                   Will Affect Current

                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   National Security and
                   International Affairs Division


                   July 28, 1997

                   Congressional Committees

                   The Department of Defense (DOD) has about 10,500 troops deployed to
                   Bosnia and Herzegovina (hereafter referred to as Bosnia) and surrounding
                   countries as of July 1997 to assist in implementing the Dayton Peace
                   Agreement. U.S. forces are part of a multilateral coalition under North
                   Atlantic Treaty Organization (NATO) command called the Stabilization
                   Force, a follow-on mission to the original NATO Implementation Force. DOD
                   estimates that the incremental costs of its participation in these NATO
                   coalition forces will be about $6.5 billion for fiscal years 1996-98.1 We
                   previously reported on DOD’s estimated costs for U.S. participation in the
                   Implementation Force and the reasons why costs were higher than
                   originally estimated.2 Because of Congress’ continued interest in this
                   matter, we (1) reviewed DOD’s process for estimating the costs of
                   contingency operations to determine whether the process has been
                   improved since our prior reviews and (2) determined the basis for the
                   fiscal years 1997-98 cost estimates and the impact operational changes
                   could have on these estimates. Because of your expressed interest in and
                   responsibilities to oversee the costs of these operations, we are addressing
                   the report to you.

                   DOD has improved its process for estimating costs of contingency
Results in Brief   operations by requiring that cost estimates be a part of the
                   decision-making process in undertaking any new operation or changing an
                   ongoing one. It also created a high-level committee to review cost
                   estimates. Quarterly reviews of estimates for ongoing operations allow
                   DOD to react to changes in costs.

                   DOD based its cost estimates for Bosnia operations for fiscal years 1997
                   and 1998 on its fiscal year 1996 experience and operational decisions
                   known at the time. DOD appears to have used a logical process to develop
                   these estimates. However, operational changes have had and continue to
                   have significant impacts on the costs. NATO’s decision to extend the
                   operation beyond December 1996 increased the fiscal year 1997 cost

                    In this report, “incremental costs” means those costs that would not have been incurred if not for the
                   operation. This same definition is contained in 10 U.S.C. 127a, as amended by the National Defense
                   Authorization Act for Fiscal Year 1996.
                    Bosnia: Costs Are Exceeding DOD’s Estimate (GAO/NSIAD-96-204BR, July 25, 1996) and Bosnia:
                   Costs Are Uncertain but Seem Likely to Exceed DOD’s Estimate (GAO/NSIAD-96-120BR, Mar. 14,

                   Page 1                                                                    GAO/NSIAD-97-183 Bosnia

             estimate by over $1.8 billion. Recent operational decisions will increase
             the cost estimate for fiscal year 1998. Other decisions, such as changes in
             the size and composition of the force and the timing of withdrawal, could
             further increase the cost estimate for fiscal year 1998.

             The Dayton Peace Agreement, signed on December 14, 1995, was designed
Background   to end 4 years of conflict in the former Yugoslavia. In part, the agreement
             involved the deployment of a NATO-led coalition force to Bosnia to
             implement the peace plan. The Implementation Force was to enforce the
             cessation of hostilities and provide a secure environment so that other
             parts of the peace plan could take place.

             Although the Implementation Force’s mission ended in December 1996,
             NATO authorized a new force and mission for an 18-month period to end in
             June 1998. The Stabilization Force recognizes the need for a continued
             international military force to deter renewed hostilities and stabilize and
             consolidate peace in Bosnia. As with the Implementation Force, the
             United States is the major force provider, and Americans occupy the key
             military positions that control the operation. As of July 6, 1997,
             approximately 10,500 U.S. active and reserve personnel were deployed to
             4 countries in support of the Stabilization Force. Of this total number,
             7,900 military personnel were deployed to Bosnia, 500 to Croatia, and
             2,100 to Hungary and Italy. We recently issued a report on the progress in
             achieving the goals of the Dayton Peace Agreement and testified before
             the Senate Subcommittee on European Affairs, Committee on Foreign
             Relations on this.3

             DOD’s incremental costs for fiscal year 1996 for operations in and around
             Bosnia totaled about $2.5 billion for both operation and maintenance and
             military personnel costs. To pay for fiscal year 1996 costs, Congress
             approved DOD’s transfer of about $2.3 billion from other previously
             appropriated sources. The services absorbed the difference within their
             operation and maintenance accounts.

             In anticipation that operations would end in December 1996, DOD
             requested $542 million in operation and maintenance and military
             personnel funding for Bosnia operations as part of its fiscal year 1997
             budget. Of the $1.3 billion Congress appropriated for contingency
             operations for fiscal year 1997, DOD budgeted $677 million for operations in

              Bosnia Peace Operation: Progress Toward Achieving the Dayton Agreement’s Goals
             (GAO/NSIAD-97-132, May 5, 1997) and Bosnia Peace Operation: Progress Toward the Dayton
             Agreement’s Goals—An Update (GAO/T-NSIAD-97-216, July 17, 1997).

             Page 2                                                              GAO/NSIAD-97-183 Bosnia

                      Bosnia. Subsequently, NATO extended operations, and DOD submitted a
                      funding request for over $2 billion for contingency operations, which
                      included over $1.8 billion more for fiscal year 1997 Bosnia operations.
                      Congress has since appropriated about $1.8 billion for contingency
                      operations, of which DOD plans to use about $1.2 billion for Bosnia. DOD’s
                      fiscal year 1998 budget request includes almost $1.5 billion for Bosnia

                      DOD has recognized deficiencies in its process for developing cost
                      estimates for large-scale peacekeeping and other major contingency
                      operations. While DOD believes the current process worked fairly well for
                      operations in Somalia and Haiti, it believes that the process failed to
                      provide reasonable estimates for Bosnia. In our past reports, we have
                      reported that operational changes and unexpected events can have a
                      significant impact on the cost estimates for contingency operations.

                      Cost growth in the ongoing Bosnia operation focused the attention of
DOD Has Improved      senior DOD leadership on the need to improve management of contingency
the Process for       operation costs. Therefore, the Comptroller has taken steps to improve the
Estimating Costs of   process for developing and reviewing cost estimates. Also, the newly
                      created Overseas Contingency Operations Transfer Fund, which provides
Contingency           funding to DOD rather than directly to the individual military services,
Operations            allows DOD to manage the funding of contingency operations among the
                      military services more effectively and with some flexibility.

                      In January 1997, the Principal Deputy Comptroller established a
                      contingency operations cost estimating team for joint operations. The
                      team, which consists of a logistics and a financial management expert
                      from each of the services and the Joint Staff, is expected to meet when
                      senior management requires a preliminary cost estimate for a major
                      contingency operation. In addition, the Chairman of the Joint Chiefs of
                      Staff directed that the joint staff develop a cost estimate to accompany
                      every deployment order for new operations or changes to ongoing
                      operations so that the official approving the order would be aware of the

                      In January 1997, the Comptroller also established a steering committee to
                      review contingency operation cost estimates. This committee is chaired by
                      the Principal Deputy Comptroller and includes senior representatives from
                      the Office of the Under Secretary of Defense (Policy), the Joint Staff, and
                      the military services. The committee’s purpose is to (1) oversee the

                      Page 3                                                GAO/NSIAD-97-183 Bosnia

                        implementation of changes in the way DOD develops, assesses,
                        communicates, and reacts to cost requirements associated with large-scale
                        peacekeeping and other major contingency operations and (2) provide
                        ongoing reviews and assessments of all contingency operation cost
                        estimates to support DOD decision processes and aid senior leaders in
                        tracking and controlling costs more effectively.

                        In January 1997, the Comptroller directed that the military services, the
                        Special Operations Command, and the defense agencies report quarterly
                        on the most current estimate of their contingency costs. The Comptroller
                        is to provide this quarterly update to the Senior Readiness Oversight
                        Council, which makes recommendations to the Secretary of Defense on
                        readiness matters. The Council can then track and control contingency
                        costs more effectively to avoid situations such as that which occurred in
                        the fall of 1994, when the readiness of several units fell due to cash flow
                        problems resulting from the need to finance contingency operations.

                        In the DOD Appropriations Act of 1997 (P.L. 104-208), Congress established
                        the Overseas Contingency Operations Transfer Fund to pay for ongoing
                        contingency operations. Congress appropriates money to the Fund. As an
                        operation unfolds during the year, DOD can transfer money directly from
                        the Fund to the military services’ operation and maintenance accounts.
                        DOD is required to show the amounts transferred and the requirements
                        funded in a quarterly report to the defense subcommittees of the House
                        and Senate Appropriations Committees. According to an official from the
                        Office of the Under Secretary of Defense (Comptroller), the Fund allows
                        DOD to exercise flexibility in paying for operations in a timely and direct

                        DOD  applied the actual cost data from the first year of the Bosnia operation
A Logical Process Was   to anticipated operational conditions to develop revised cost estimates for
Used to Develop Cost    fiscal year 1997 and estimates for fiscal year 1998. DOD revised the original
Estimates for Fiscal    fiscal year 1997 estimate based on operational changes made after the
                        beginning of the fiscal year. The cost estimate that supported the funding
Years 1997 and 1998     request included in the President’s fiscal year 1998 budget was based on a
                        specific U.S. force size and drawdown plan. NATO has not yet agreed to this

                         NATO has agreed to review the mission at the 6- and 12-month marks. NATO intends to reduce force
                        levels, at an unspecified date, to a deterrence-sized force, commensurate with the security situation, to
                        facilitate NATO’s departure from Bosnia in June 1998. The first review was held on June 26-27, 1997.

                        Page 4                                                                     GAO/NSIAD-97-183 Bosnia

The original fiscal year 1997 cost estimate for the operation was about
$600 million. The estimate included funding for continued operations
through December 1996, redeployment of U.S. troops and reserve
component deactivation, and reconstitution of equipment used in the
operation. At the time the fiscal year 1997 budget was submitted in
March 1996, DOD had preliminary cost data to use in developing the fiscal
year 1997 estimate; however, the data were not extensive, given that the
operation had begun in December 1995.

In November 1996, NATO decided that the original mission would end as
scheduled and that a follow-on force would stay until June 1998. At that
point, DOD and the military services had several months of actual cost data
with which to develop an estimate for the rest of fiscal year 1997. The cost
of the logistics contract for sustaining the troops was stable at about
$20 million a month. An 8,500-troop strength and force structure were
planned through the end of the fiscal year, and actual data on operating
tempos, such as average tank miles used, could be used to calculate the
estimate. DOD also included in its estimate the costs of rotating the troops
at some point during the fiscal year.

Given the information available, DOD increased the cost estimate by over
$1.8 billion for a total estimate of about $2.5 billion for the fiscal year. In
March 1997, DOD requested the $1.8-billion increase as part of a
supplemental funding request to Congress. However, as new information
became available, DOD reduced the request for Bosnia operations by about
$160 million. This reduced request reflects a decrease in estimates of
$20 million for military personnel costs. According to an Army official, it
also reflects a savings of $140 million from the extension of the logistics
support contractor in Bosnia, reevaluation of support requirements, and
implementation of better management controls over the logistics contract.
Based on actual cost data available through the end of April 1997, it
appears that the total actual costs for fiscal year 1997 might be less than
the estimate.

The almost $1.5-billion estimate for fiscal year 1998 was based on a
planned strength of about 5,000 troops in Bosnia on October 1, 1997, and
withdrawal of them by June 1998. The force structure and operating tempo
were planned through the end of June 1998. The estimate also included the
costs for a deliberate, land-based withdrawal; deactivation of reserve
component troops; and reconstitution of equipment. As with the fiscal
year 1997 estimate, DOD had several months of actual cost data to use in
developing the estimate.

Page 5                                                  GAO/NSIAD-97-183 Bosnia

                         The decision to extend the operation from December 1996 to June 1998
Operational Changes      required DOD to increase the fiscal year 1997 cost estimate and create a
Continue to Have         fiscal year 1998 cost estimate. Recent operational decisions and the
Significant Impacts on   pending decision on a new time frame for the drawdown to 5,000 troops
                         will increase the cost estimate for fiscal year 1998 by a maximum of about
Costs                    $161 million. Other future decisions could further increase the cost
                         estimate for fiscal year 1998.

                         NATO recently announced that it has authorized an increase to the force
                         level that will be required to enforce the peace agreement during the
                         municipal elections. NATO anticipated these elections would be held in the
                         spring of 1997, but they have now been rescheduled for
                         mid-September 1997. To accomplish this increase, U.S. European
                         Command officials have approved a plan that would retain the troops now
                         in the area and accelerate deployment of troops planned to replace the
                         current force so that both forces would overlap before, during, and after
                         the election to handle any problems that may arise.

                         The fiscal year 1997 cost estimate was developed with the assumption that
                         the troop rotation would occur at the end of fiscal year 1997. If the change
                         is approved, rotational costs would instead be incurred in fiscal year 1998;
                         however, higher sustainment costs incurred for the higher troop strength
                         during fiscal year 1997 would offset the savings from the delayed rotation.
                         The estimate also assumed that a 5,000-troop level would be in place by
                         October 1, 1997, which DOD is still anticipating. However, the date for the
                         drawdown has not yet been set. Overall, DOD estimates that fiscal year
                         1998 costs could increase by a maximum of about $161 million from the
                         buildup surrounding the elections and a worst-case scenario of
                         maintaining an 8,500-troop strength through June 1998.

                         Other pending decisions could increase the cost estimate for fiscal year
                         1998. For example, the parties to the Dayton Peace Agreement were
                         unable to agree on which of Bosnia’s ethnic groups would control the
                         strategically important area in and around the city of Brcko. This area is
                         vitally important to two of Bosnia’s three major ethnic groups. The
                         agreement called for an arbitration tribunal to decide this issue by
                         December 14, 1996. After a 2-month extension, the tribunal decided that a
                         designated supervisor would establish an interim administration for the
                         Brcko area. This administration started on April 11, 1997, and is to operate
                         for at least 1 year. However, if requested, the tribunal may make a further
                         decision on the status of the area by March 15, 1998. According to
                         observers, awarding control of the area to either of the two ethnic groups

                         Page 6                                                GAO/NSIAD-97-183 Bosnia

              could lead to civil unrest and possible renewal of the conflict. According
              to U.S. Army Europe and U.S. European Command officials, if this conflict
              restarted, it could prevent the planned reduction from 8,500 to
              5,000 troops and lead to higher sustainment costs.

              In another example, redeployment plans currently call for a deliberate,
              land-based withdrawal of troops and equipment to the staging base in
              Hungary. To accomplish this withdrawal, decisions need to be made early
              enough to schedule bridge crossings and rail transportation, instead of the
              more expensive airlift that was used extensively during the original
              deployment. If decisions leading to the redeployment are delayed, and the
              June 1998 time frame for withdrawal from Bosnia is firmly enforced, the
              withdrawal would require a greater reliance on airlift, which would
              increase the cost for redeployment.

              The redeployment plans also call for the use of U.S. troops, instead of the
              logistics contractor, to tear down the base camps and clean up and
              dispose of excess material. If the contractor is used for these tasks,
              however, the fiscal year 1998 costs might increase, since there is no
              amount currently included in the estimate for the contractor to perform
              these tasks. According to an Army official, the Army is currently studying
              this issue to see whether it is more cost-effective to use the contractor to
              perform these tasks.

              Although there are no indications that these circumstances will occur, the
              current security situation could change, requiring further changes to the
              operational plans. For example, as we reported in May 1997, some State
              and Defense Department officials believed, based on current conditions,
              some type of international military force will likely be required after the
              Stabilization Force’s mission ends. If there is a follow-on force and the
              U.S. participates, plans will change and cost estimates will increase.
              However, according to an official from the Office of the Under Secretary
              of Defense (Comptroller), it would also be reasonable to expect that other
              operational changes during the year could lead to savings.

              To determine whether DOD’s process for estimating costs of contingency
Scope and     operations has improved, we reviewed documents and discussed changes
Methodology   in policy and procedures with officials at the Office of the Under Secretary
              of Defense (Comptroller) and the military services.

              Page 7                                                 GAO/NSIAD-97-183 Bosnia

To determine how DOD and the military services developed their fiscal
years 1997 and 1998 budget estimates and what impact operational
changes could have on these estimates, we discussed the assumptions
used with Comptroller and service officials. We reviewed DOD’s
appropriations for fiscal year 1997, the President’s fiscal year 1998 budget,
and DOD’s fiscal year 1997 request for supplemental funding for military
operations. We also held discussions and reviewed data at the Air Mobility
Command; the U.S. European Command; U.S. Army Europe; 21st Theater
Army Area Command; U.S. Air Forces, Europe; the Air Force’s Air Combat
Command; and the Navy’s Commander in Chief, Atlantic Fleet.

We performed our review from February to June 1997 in accordance with
generally accepted government auditing standards. We reviewed the
information in this report with DOD officials and made changes where
appropriate. DOD officials generally concurred with our findings.

We are providing copies of this report to appropriate Senate and House
Committees; the Secretaries of Defense, the Air Force, the Army, and the
Navy; and the Director, Office of Management and Budget. Copies will also
be made available to others on request.

If you have any questions about this report, please contact me at
(202) 512-3504. Major contributors to this report are Robert Pelletier,
Ann Borseth, and John Wiethop.

Richard Davis
Director, National Security

Page 8                                                 GAO/NSIAD-97-183 Bosnia

           List of Congressional Committees

           The Honorable Strom Thurmond
           The Honorable Carl Levin
           Ranking Minority Member
           Committee on Armed Services
           United States Senate

           The Honorable Ted Stevens
           The Honorable Daniel K. Inouye
           Ranking Minority Member
           Subcommittee on Defense
           Committee on Appropriations
           United States Senate

           The Honorable Floyd Spence
           The Honorable Ronald Dellums
           Ranking Minority Member
           Committee on National Security
           House of Representatives

           The Honorable C. W. Bill Young
           The Honorable John P. Murtha
           Ranking Minority Member
           Subcommittee on National Security
           Committee on Appropriations
           House of Representatives

(701108)   Page 9                              GAO/NSIAD-97-183 Bosnia
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