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Defense's Fiscal Year 2011 Budget Request for Corrosion Prevention and 
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GAO-10-607R: 

United States Government Accountability Office: 
Washington, DC 20548: 

April 15, 2010: 

Congressional Committees: 

Subject: Defense Management: Observations on the Department of 
Defense's Fiscal Year 2011 Budget Request for Corrosion Prevention and 
Control: 

This report formally transmits the attached briefing (see enclosure 1) 
in response to section 2228(e) of title 10 of the United States Code. 
The statute requires the Comptroller General to provide an analysis of 
the Department of Defense's budget submission for corrosion prevention 
and control, as well as an analysis of the corrosion report 
accompanying defense budget materials, and provide the results to the 
congressional defense committees within 60 days after submission of 
the Department of Defense budget. On April 2, 2010, we provided the 
briefing to your committees' offices to satisfy the mandate to provide 
analysis and the 60-day reporting requirement. The Related GAO 
Products section at the end of the report lists additional GAO 
publications on these issues. 

We are sending copies of this report to the appropriate congressional 
committees. We are also sending copies to the Secretary of Defense; 
the Deputy Secretary of Defense; the Under Secretary of Defense 
(Comptroller); the Under Secretary of Defense (Acquisition, Technology 
and Logistics); the Secretaries of the Army, Navy, and Air Force; and 
the Commandant of the Marine Corps. This report will also be available 
at no charge on our Web site at [hyperlink, http://www.gao.gov]. 
Should you or your staffs have any questions concerning this report, 
please contact me at (202) 512-8246 or edwardsj@gao.gov. Contact 
points for our Offices of Congressional Relations and Public Affairs 
may be found on the last page of this report. Key contributors to this 
report were Ann Borseth, Assistant Director; Janine Cantin; and Foster 
Kerrison. 

Signed by: 

Jack E. Edwards: 
Director, Defense Capabilities and Management: 

List of Committees: 

The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate: 

The Honorable Daniel Inouye:
Chairman:
The Honorable Thad Cochran:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate: 

The Honorable Ike Skelton:
Chairman:
The Honorable Howard P. "Buck" McKeon:
Ranking Member:
Committee on Armed Services:
House of Representatives: 

The Honorable Norman D. Dicks:
Chairman:
The Honorable C. W. Bill Young:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives: 

[End of section] 

Enclosure 1: 

Observations on DOD's Fiscal Year 2011 Budget Request for Corrosion 
Prevention and Control: 

Briefing for Congressional Committees: 
April 2, 2010: 

Background: 

Corrosion can have negative effects on military equipment and 
infrastructure in terms of cost, readiness, and safety. 

* The Department of Defense (DOD), in its July 2009 report, DOD Annual 
Cost of Corrosion, estimated that corrosion costs the military 
Services over $22 billion a year. 

* GAO has previously reported that corrosion negatively affects 
military readiness by taking critical systems out of action, and has 
also impacted safety resulting in fatal accidents due to the 
degradation of equipment.[Footnote 1] 

* Corrosion affects all military assets and is defined as the 
unintended destruction or deterioration of a material due to 
interaction with the environment. It includes such varied forms as 
rusting; pitting; galvanic reaction; calcium or other mineral buildup; 
degradation due to ultraviolet light exposure; and mold, mildew, or 
other organic decay. 

Congress, concerned with the high cost of corrosion and its negative 
effects, enacted legislation that created an Office of Corrosion 
Policy and Oversight within the Office of the Under Secretary of 
Defense for Acquisition, Technology, and Logistics (OUSD(AT&L)), 
responsible for the prevention and mitigation of corrosion of military 
equipment and infrastructure.[Footnote 2] 

According to Corrosion Office officials, to target funding toward 
corrosion prevention and control (CPC), DOD established, in fiscal 
year (FY) 2006, 

* a separate funding CPC program element for Research, Development, 
Test & Evaluation, and, 

* a separate corrosion line item within an existing program element 
for Operation & Maintenance funds. 

Since FY06, the CPC program element and line item have been managed by 
the Corrosion Policy and Oversight Office (Corrosion Office) within 
OUSD(AT&L). 

DOD's CPC funding goes towards projects proposed by the Services and 
other DOD-wide activities that are aimed at preventing and mitigating 
corrosion. The Services contribute complementary funding for each 
approved project. 

* Projects are specific corrosion prevention and mitigation efforts 
with the objective of developing and testing new technologies. 

* Activities encompass efforts, such as training and cost studies, 
that enhance and institutionalize corrosion prevention and mitigation 
efforts within the department. 

Beginning with DOD's budget for FY09, legislation[Footnote 3] has 
required the Secretary of Defense to annually submit, with defense 
budget materials, a supplemental corrosion funding report that 
includes: 

* funding requirements for DOD's long-term CPC strategy, 

* estimated return on investment (ROI) from implementing this strategy, 

* funds requested compared to funding requirements, and; 

* an explanation if requirements are not fully funded. 

Engagement Objectives: 

As required by 10 U.S.C. § 2228, GAO is to analyze annually DOD's CPC 
budget submission and related funding report. 

* For FY11, these documents were submitted on Feb. 1, 2010, and Feb. 
17, 2010, respectively. 

Our objectives were to: 

1. identify DOD's process for developing its CPC budget submission. 

2. determine the extent to which DOD's FY11 budget request for CPC met 
total estimated requirements as stated in DOD's FY11 Corrosion Funding 
Report. 

3. calculate the potential cost avoidance for DOD's estimated funded 
and unfunded CPC requirements as stated in DOD's FY11 Corrosion 
Funding Report. 

Scope and Methodology: 

Scope: 

* We examined DOD's FY11 CPC budget submission and related budget 
materials, including DOD's corrosion report, for the CPC program 
element and line item managed by the Corrosion Office. 

* We did not include a review of related information on Service-
provided CPC funding, but instead reviewed the funding managed by 
OUSD(AT&L) and the related report from the Corrosion Office. 

Methodology: 

* We obtained and analyzed DOD CPC budget and requirements data,
as well as DOD's corrosion strategy and other pertinent documents. 

* We calculated the potential cost avoidance by projecting DOD's 
estimated ROI based on historical averages for unfunded projects to 
the unfunded requirements identified in DOD's FY11 corrosion report. 

* We interviewed officials at the Corrosion Office, as well as Service 
corrosion officials. 

As in prior years, we did not independently validate DOD's CPC 
estimated requirements or the estimated ROI. Instead, we relied on 
data provided by the Corrosion Office after assessing the general 
reliability of the data by cross-checking with other data sets and 
interviewing the officials responsible for data collection. We found 
the data to be sufficient and reliable for the purposes of this report. 

We conducted this performance audit from January through April 2010 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. 

Summary: 

To develop its CPC budget, the Corrosion Office adjusts the amount of 
the estimated Service CPC projects by a historical project acceptance 
rate and adds an estimated amount for DOD-wide CPC activities. This 
total is then adjusted to reflect departmental priorities and included 
in the annual budget submission. 

In its corrosion funding report, the Corrosion Office estimated that 
CPC requirements for FY11 totaled $47.0 million, but the FY11 budget 
request identified $12.0 million for CPC, including $8.8 million for 
projects and $3.2 million for activities. Therefore, DOD's estimated 
unfunded requirements were about $35.0 million. However, due to 
historical discrepancies between estimated and actual project costs, 
the unfunded requirements could be overstated. 

Using DOD's estimated ROI, if the amounts identified in the FY11 
funding report are funded, the potential cost avoidance would be $418 
million. By applying DOD's estimated ROI for unfunded projects to the 
unfunded requirements identified in the corrosion funding report, DOD 
may be missing an opportunity for additional cost avoidance totaling 
$1.4 billion by not funding all of its estimated requirements. 

Objective 1: Process for Developing CPC Budget--Overview: 

The Corrosion Office uses a multi-step process to develop the CPC 
budget. This process starts with the Services estimating their CPC 
project requirements. The Corrosion Office then adjusts these Service-
provided preliminary project estimates by a historical acceptance rate 
for CPC projects and adds an estimated amount for Corrosion Office-
funded, DOD-wide activities. This total is revised by OUSD(AT&L), 
based on funding priorities, to determine the estimated funding 
request for the budget. 

Objective 1: Process for Developing CPC Budget-—Estimating 
Requirements: 

In developing its FY11 CPC budget and the information for the related 
corrosion report, the Corrosion Office: 

* asked the Services in September 2009 to estimate the total number of 
projects that would need funding in FY11 and the cost of these 
projects, which totaled $64.4 million; 

* assumed, based on historical trends, that about 63 percent of the 
total cost of the Services' projects would be accepted for funding; 

* adjusted the $64.4 million project cost estimate by the 63 percent 
to determine the total estimated requirements for CPC projects, which 
produced an estimate of $40.6 million for FY11; 

* estimated an additional $6.4 million for other non-project-related 
corrosion activities funded by the Corrosion Office, based on 
activities identified as necessary to execute the Corrosion Prevention 
and Mitigation Strategic Plan; and; 

* added the $40.6 million and the $6.4 million for a total estimated 
CPC requirement of $47.0 million. 

Objective 1: Process for Developing CPC Budget-—Developing a Budget 
Estimate: 

According to Corrosion Office officials, they submitted a request for 
FY11 of $25 million to OUSD(AT&L), which is less than the $47 million 
identified requirement. Corrosion Office officials believe that an 
annual budget of approximately $25 million would have been sufficient 
to meet most of the essential CPC projects and activities. 

According to these officials, OUSD(AT&L) denied part of the $25 
million request as acceptable offsets within OUSD(AT&L) could not be 
identified. 

* According to DOD's corrosion funding report, global commitments, 
constrained budgets, and competing requirements preclude full funding 
of CPC requirements. 

* Officials from the Office of the Under Secretary of Defense
(Comptroller) previously told us that program offices may consider ROI 
benefits in developing budget submissions; however, requirements for 
systems and Services, rather than ROI, drive funding levels in DOD's 
annual budget request. 

The final amount requested in the FY11 budget for CPC was $12.0 
million, which Corrosion Office officials told us was determined by 
OUSD(AT&L) and is a slight increase to DOD's 6-year budget projections. 

Objective 2: Extent the CPC Budget Met Estimated CPC Requirements—-
Overview: 

In its corrosion funding report, the Corrosion Office estimated that 
CPC requirements for FY11 total $47.0 million, but the FY11 budget 
request identified $12.0 million[Footnote 4] for CPC, including $8.8 
million for projects and $3.2 million for activities. Therefore, DOD's 
estimated unfunded requirements are about $35.0 million. However, 
because of the method DOD uses to calculate the total estimated 
requirements, the unfunded requirements could be overstated. 

Objective 2: Extent the CPC Budget Met Estimated CPC Requirements—-
Funding Accepted Projects: 

While the Services submitted their preliminary project estimates for 
FY11 in fall 2009, they will submit their actual project plans in 
summer 2010. This later submission will include detailed funding 
requests for each project. 

At that time, Corrosion Office officials will convene a panel of 
experts from OUSD(AT&L), the Joint Staff, and the Defense Acquisition 
University to review the project plans and decide which of those 
projects will actually be funded. The review includes: 

* determining which projects are acceptable based on criteria (such as 
ROI, mission criticality, or whether the project has a joint aspect) 
the Services address in their project submissions; and; 

* ranking acceptable projects based on how well they meet the criteria. 

Objective 2: Extent the CPC Budget Met Estimated CPC Requirements—-
Unfunded Requirements: 

As stated earlier, the Corrosion Office estimated that unfunded 
corrosion requirements total $35.0 million for FY11. However, this 
unfunded corrosion requirement could be overstated. 

* In FY09 and FY10, the Services' preliminary estimates for project 
funding submitted in the tall were significantly higher than the 
amounts requested in actual project plans submitted for r6view in the 
summer. (See table 1.) Some examples follow. 

- In FY09, the estimated cost of accepted projects was $28.5 million 
and the estimated budgeted amount was $10.7 million, creating an 
estimated unfunded requirement of $17.8 million. 

- However, in FY09, the actual cost of these projects was $13.7 
million and the actual amount budgeted was $9.8 million, leaving an 
actual unfunded requirement or $3.9 million. 

- FY10 showed similar differences between estimated and actual amounts. 

If the preliminary estimates for project funding continue to 
significantly differ from actual project plans, DOD may not be in a 
position to accurately report unfunded requirements in its annual 
budget reports to Congress. 

Objective 2: Extent the CPC Budget Met Estimated CPC Requirements-—
Estimated v. Actual: 

Table 1: CPC Project Funding (FY09 through FY11): 

Fiscal year: 2009; 
Cost of all submitted projects, Estimated[B]: $47.6 million; 
Cost of all submitted projects, Actual: $18.4 million; 
Cost of accepted projects (requirements), Estimated: $28.5 million; 
Cost of accepted projects (requirements), Actual: $13.7 million; 
Amount budgeted, Estimated: $10.7 million; 
Amount budgeted, Actual: $9.8 million; 
Unfunded requirement[A], Estimated: $17.8 million; 
Unfunded requirement[A], Actual: $3.9 million. 

Fiscal year: 2010; 
Cost of all submitted projects, Estimated[B]: $35.8 million; 
Cost of all submitted projects, Actual: $21.5 million; 
Cost of accepted projects (requirements), Estimated: $21.5 million; 
Cost of accepted projects (requirements), Actual: $16.1 million; 
Amount budgeted, Estimated: $9.5 million; 
Amount budgeted, Actual: $7.3 million; 
Unfunded requirement[A], Estimated: $12.0 million; 
Unfunded requirement[A], Actual: $8.8 million. 

Fiscal year: 2011; 
Cost of all submitted projects, Estimated[B]: $64.4 million; 
Cost of all submitted projects, Actual: N/A; 
Cost of accepted projects (requirements), Estimated: $40.6 million; 
Cost of accepted projects (requirements), Actual: N/A; 
Amount budgeted, Estimated: $8.7 million; 
Amount budgeted, Actual: N/A; 
Unfunded requirement[A], Estimated: $31.8 million; 
Unfunded requirement[A], Actual: N/A. 

Source: GAO analysis of DOD data. 

[A] Unfunded requirements are projects that are accepted but not 
funded and represent the difference between the "requirements" column 
and the "Amount budgeted" column 

[B] The preliminary estimates for FY09 through FY11 were developed for 
DOD's reports to Congress, pursuant to 10 USC § 2228(e). FY09 was the 
first year that the Corrosion Office estimated CPC requirements. 

[End of table] 

Objective 3: Potential Cost Avoidance and CPC Requirements—-Overview: 

If DOD's estimated ROIs for projects and activities are accurate: 

* the $12.0 million identified in the FY11 budget request, if 
approved, would result in a potential cost avoidance of approximately 
$418 million; 

* and, if all estimated unfunded requirements of $35.0 million 
identified in the FY11 corrosion funding report were funded, the 
potential total cost avoidance would be approximately $1.4 billion. 

Objective 3: Potential Cost Avoidance and CPC Requirements-—ROI 
Estimation Process: 

As part of the project selection process, the Corrosion Office 
requires that an ROI cost-benefit analysis be submitted with project 
plans. 

* The Services estimate ROI as the ratio of the present value of 
benefits to the present value of the project's total cost based on 
funding requested from DOD and the Service's contribution. 

* Corrosion Office guidance uses a 7 percent annual discount rate by 
default to estimate the present value of benefits and costs. According 
to Corrosion Office officials, this is a conservative estimate to 
avoid overstating the ROI. 

* Submitted ROI analyses and estimated project savings vary by 
individual project and may span many years. 

Corrosion Office officials informed us that the Project Point of 
Contact in each Service estimates the ROI, and the Military Department 
Corrosion Executive approves the analyses submitted to DOD. However, 
the Military Department Corrosion Executives said that while they have 
not yet taken on this responsibility, they plan to do so in the future. 

Objective 3: Potential Cost Avoidance and CPC Requirements—-Estimated 
Potential Cost Avoidance: 

Based on the 6-year average estimated ROI, the Corrosion Office 
projects an ROI of 47:1 for all accepted (both funded and unfunded) 
FY11 projects and 2:1 for activities. 

If DOD's estimated ROIs for projects and activities are accurate, 

* the $12.0 million identified in the FY11 budget request, if 
approved, would result in a potential cost avoidance of approximately 
$418 million. 

Based on historical averages, the Corrosion Office estimates an ROI of
about 43:1 for accepted, but unfunded projects, and 2:1 for activities. 

* Using DOD's estimated ROI, the Corrosion Office's FY11 estimated 
unfunded requirements of $35.0 million, would result in a potential 
cost avoidance for these requirements (projects and activities) of 
$1.4 billion. 

Views of Agency Officials: 
To obtain agency views, we discussed a draft of the briefing with 
officials from the Corrosion Policy and Oversight Office and the 
Services. 

They concurred with the facts presented and provided some clarifying 
comments that we have incorporated as appropriate. 

[End of Briefing Slides] 

Related GAO Products: 

Defense Management: Observations on DOD's Fiscal Year 2010 Budget 
Request for Corrosion Prevention and Control. [hyperlink, 
http://www.gao.gov/products/GAO-09-732R]. Washington, D.C.: June 1, 
2009. 

Defense Management: Observations on DOD's Analysis of Options for 
Improving Corrosion Prevention and Control through Earlier Planning in 
the Requirements and Acquisition Processes. [hyperlink, 
http://www.gao.gov/products/GAO-09-694R]. Washington, D.C.: May 29, 
2009. 

Defense Management: Observations on DOD's FY 2009 Budget Request for 
Corrosion Prevention and Control. [hyperlink, 
http://www.gao.gov/products/GAO-08-663R]. Washington, D.C.: April 15, 
2008. 

Defense Management: High-Level Leadership Commitment and Actions Are 
Needed to Address Corrosion Issues. [hyperlink, 
http://www.gao.gov/products/GAO-07-618]. Washington, D.C.: April 30, 
2007. 

Defense Management: Additional Measures to Reduce Corrosion of 
Prepositioned Military Assets Could Achieve Cost Savings. [hyperlink, 
http://www.gao.gov/products/GAO-06-709]. Washington, D.C.: June 14, 
2006. 

Defense Management: Opportunities Exist to Improve Implementation of 
DOD's Long-Term Corrosion Strategy. [hyperlink, 
http://www.gao.gov/products/GAO-04-640]. Washington, D.C.: June 23, 
2004. 

Defense Management: Opportunities to Reduce Corrosion Costs and 
Increase Readiness. [hyperlink, 
http://www.gao.gov/products/GAO-03-753]. Washington, D.C.: July 7, 
2003. 

Defense Infrastructure: Changes in Funding Priorities and Strategic 
Planning Needed to Improve the Condition of Military Facilities. 
[hyperlink, http://www.gao.gov/products/GAO-03-274]. Washington, D.C.: 
February 19, 2003. 

[End of section] 

Footnotes: 

[1] GAO, Defense Management: High-Level Leadership Commitment and 
Actions Are Needed to Address Corrosion Issues, [hyperlink, 
http://www.gao.gov/products/GA0-07-618] (Washington, D.C.: Apr. 30, 
2007). 

[2] 10 USC § 2228. 

[3] 10 U.S.C. § 2228(e), added by the National Defense Authorization 
Act for Fiscal Year 2008, Pub. L. No. 110-181, § 371(d) (2008). 

[4] The Corrosion Office FY11 funding report identified $300,000 more 
(for a total of $12.3 million) than that requested in the FY11 budget. 
Based on discussion with Corrosion Office officials, we corrected the 
funding report data to reflect a reduction of $300,000 for corrosion 
activities. 

[End of section] 

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