DOD’s Deferred Building Maintenance— Topline Threat or Modernization Opportunity

Like any budget-constrained institution, the Department of Defense has a tremendous backlog of deferred maintenance on its infrastructure and in late August the Congressional Budget Office (CBO) issued a report entitled the Deferred Maintenance Backlog for the Military Services’ Buildings. CBO estimates the Department’s backlog total to be approximately $50 billion. Because the data CBO analyzed was generally collected prior to the creation of the Space Force, the Space Force infrastructure was included in the Air Force analysis. The CBO report focuses on a subset of DOD’s infrastructure – its buildings – and does not include structures such as piers, pipelines, seawalls, roads, or storage tanks. The report analyzes the age, condition, and resulting capacities of buildings to support the user’s missions.

Chart I shows highlights from CBO’s analysis. First, the Army has a large inventory and that means the replacement value is higher than the other services. Second, The Army and Navy have the oldest buildings (average age of 47 years). Third, buildings have a planned useful life, based in part on construction techniques. Fourth, more than 40% of Air Force and Army buildings have exceeded their expected lifespan. And of course, older buildings require more maintenance.

Chart I. Source: Congressional Budget Office

In evaluating the 20 military bases with the highest deferred maintenance costs, the Army had 8, the Navy 7, the Marine Corps 3, and the Air Force 2. CBO found that the Air Force’s buildings were in the best condition and that the Air Force, with 25% of the total number of bases had just two on the top-twenty deferred maintenance list (Chart II below).

Chart II. Source: Congressional Budget Office

TWO SPENDING BILLS, TWO FUNDING STREAMS

The military construction budget is funded from an appropriation bill that is separate from the regular Department of Defense bill. The Military Construction Veterans Affairs (MILCON VA) bill has been north of $15 billion over the last three budget cycles and this is an enormous jump from where it was just a decade ago ($8 billion). For FY25, the Senate appropriators increased funding above the President’s request of $15.6 billion to $16.6 billion whereas the House appropriations bill is less than the President’s request at $15.2 billion because the House had other defense priorities within the FRA caps.

Separate from funding from the military construction accounts, the Facilities, Sustainment, Restoration, and Modernization (FSRM) accounts in the Operation and Maintenance (O&M) title in the main Defense Appropriations bill fund minor construction, routine maintenance, and repairs. These accounts tend to be bill payers during funding shortfalls caused by operational surges, budget caps, continuing resolutions, and unforeseen changes in the price of commodities. The cumulative year-over-year decisions to defer maintenance and repair results in the $50 billion backlog CBO identifies. Congress generally recognizes the importance of the FSRM accounts to their constituencies and, as Chart III shows, tends to be more generous than the White House request.

Chart III. Source: House and Senate Appropriations

A MARKET OPPORTUNITY

We view the backlog of deferred maintenance as a market opportunity for federal technology contractors to promote and install modern capabilities as these buildings are remodeled, reconditioned, and replaced. If the average age of these structures is between 34 and 47 years, they are ripe for technologies that promote efficiencies, upgrade communications infrastructures, and manage future operating costs. A $50 billion backlog won’t be worked down overnight. It took years to accumulate, and it will take years to address. But the need for modernized secure IT infrastructure may drive some spending in buildings that aren’t ready for replacement but haven’t kept up with user demands. Examples of recent solicitations for FSRM contracts include:

• September 6 (closes October 8). Facility Investment Services for NAVSTA Newport Complex Area, facilities, and installed equipment and systems at Naval Station Newport, Newport Rhode Island.
• Updated September 11 (closes September 24). Maintenance and Repair of Manufacturing Equipment and Systems used in Explosive and Non-Explosive Operational Environments
• Updated September 17 (closes October 4) EAGLE Fort McCoy, WI – W519TC-23-R-0119