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Defense Infrastructure: Action Needed to Increase the Reliability of Construction Cost Estimates

GAO-18-101 Published: Mar 27, 2018. Publicly Released: Mar 27, 2018.
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Highlights

What GAO Found

During fiscal years 2005 through 2016, Congress appropriated about $66 billion in military construction funds (MILCON) to the active duty Army, Navy, and Air Force (referred to as the active component) for projects. As of September 30, 2016, the active component had obligated all but about $5.1 billion and expended all but about $11 billion of those funds. Of the $5.1 billion remaining unobligated, about $4.6 billion was still available to be obligated because MILCON appropriations are generally available for new obligations for 5 years. According to Department of Defense (DOD) officials, available but unobligated amounts no longer needed may be either taken back by Congress or reprogrammed to other MILCON projects that the active component identifies as needing additional funding.

During fiscal years 2010 through 2016, the active component reprogrammed about $1.6 billion in MILCON appropriations to fund emergency projects, projects that were authorized but did not receive specific appropriations, and projects needing additional funding. Of this amount, the Army reprogrammed about $789 million; the Navy, about $535 million; and the Air Force, about $295 million.

DOD's guidance does not fully incorporate the steps needed for developing reliable estimates and the estimates for three projects that GAO reviewed were not reliable. Specifically, two of the three high-value projects GAO examined experienced a more than 30-percent increase from the initial cost estimates submitted to Congress. GAO determined that DOD cost estimators did not follow all the best practices associated with the four characteristics—comprehensive, well-documented, accurate, and credible—of a reliable estimate for these projects. GAO's Cost Estimating and Assessment Guide identifies 12 steps that, if used, are more likely to result in reliable and valid cost estimates. However, as shown below, DOD's construction guidance—the Unified Facilities Criteria—does not include all of these steps. Until DOD incorporates these steps, DOD and congressional decision-makers may not have reliable estimates to inform their decisions regarding appropriations and the oversight of projects.

GAO Assessment of DOD's Unified Facilities Criteria

Step

Assessment

Step

Assessment

1 Define estimate's purpose

Partially met

7 Develop the point estimate and compare with an independent estimate

Substantially met

2 Develop the estimating plan

Partially met

8 Conduct a sensitivity analysis

Minimally met

3 Define the program characteristics

Substantially met

9 Conduct a risk analysis

Partially met

4 Determine the estimating structure

Partially met

10 Document the estimate

Partially met

5 Identify ground rules and assumptions

Minimally met

11 Present estimate to management

Not met

6 Obtain the data

Partially met

12 Update the estimate

Partially met

Source: GAO analysis of Department of Defense (DOD) data and documentation. | GAO-18-101

Why GAO Did This Study

Between fiscal years 2005 and 2016, Congress annually appropriated between $2.5 to $9.6 billion in MILCON funding for the active component of the U.S. military to use for projects worldwide. Reliable project construction cost estimates are of great importance, since those estimates drive these appropriations.

House Report 114-537 accompanying a proposed bill authorizing national defense activities for fiscal year 2017 included a provision for GAO to report on DOD's MILCON cost estimating. This report examines the extent to which (1) the active component obligated and expended the MILCON appropriations received during fiscal years 2005-2016, (2) the active component reprogrammed MILCON appropriations during fiscal years 2010 through 2016, and (3) DOD's MILCON cost estimates are reliable for selected projects and DOD's guidance for developing estimates fully incorporates the steps needed for developing reliable estimates. GAO analyzed the active components' MILCON execution data and reviewed DOD's guidance for cost estimating and compared it with the best practices identified in GAO's Cost Estimating and Assessment Guide .

Recommendations

GAO recommends that DOD ensure that its cost estimating guidance fully incorporate the steps needed for developing reliable cost estimates. DOD partially concurred with GAO's recommendation and stated that it will issue revised cost guidance in fiscal year 2019 that more fully incorporates those steps that would benefit the military construction program.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Defense The Secretary of Defense should ensure that the Assistant Secretary of Defense for Energy, Installations, and the Environment work with DOD's construction agents, military departments, and other offices to improve DOD's MILCON cost estimating guidance (i.e., DOD's Unified Facilities Criteria) by fully incorporating all the steps needed for developing high-quality reliable cost estimates. (Recommendation 1)
Closed – Implemented
DOD partially concurred with our March 2018 recommendation to improve its cost estimating guidance by fully incorporating all 12 steps needed for developing high-quality, reliable estimates. DOD stated that it did not believe that it is suitable to fully apply all 12 steps to any construction project due to characteristics of the military construction program that DOD believes differ from those of major system or weapon acquisition programs. However, DOD also stated that it concurred with the intent and general applicability of the twelve steps to military construction and that DOD cost estimating guidance lacks specificity in several of these areas. DOD acknowledged that expanding its cost guidance to more fully incorporate these steps would benefit the military construction program, and told us that it is planning to address this by revising its cost guidance. In April 2020, DOD updated its guidance, establishing uniform guidance to describe methods, procedures, and formats for the preparation of construction cost estimates and construction contract modification estimates. However, those changes did not fully incorporate all the steps that we believed were needed for developing high-quality reliable cost estimates, such as a listing of common elements (like program management) in an estimating structure or a procedure for conducting a sensitivity analysis. In Spring 2022, DOD provided an updated Unified Facilities Criteria (UFC) Handbook: Construction Cost Estimating, UFC 3-740-05REV, dated May 5, 2021, which substantially or fully incorporates all 12 steps in the GAO Cost Estimating Guide. The actions taken by DOD meet the intent of our recommendation.

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Topics

Appropriated fundsActual costsBest practicesConstructionConstruction costsCost estimatesData reliabilityDefense infrastructureEngineeringEngineersMilitary constructionMilitary departments