[Senate Hearing 107-718]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-718
 
                DEPARTMENT OF DEFENSE ACQUISITION POLICY

=======================================================================

                                HEARING

                               before the

            SUBCOMMITTEE ON READINESS AND MANAGEMENT SUPPORT

                                 of the

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 27, 2002

                               __________

         Printed for the use of the Committee on Armed Services


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                      COMMITTEE ON ARMED SERVICES

                     CARL LEVIN, Michigan, Chairman

EDWARD M. KENNEDY, Massachusetts     JOHN WARNER, Virginia
ROBERT C. BYRD, West Virginia        STROM THURMOND, South Carolina
JOSEPH I. LIEBERMAN, Connecticut     JOHN McCAIN, Arizona
MAX CLELAND, Georgia                 BOB SMITH, New Hampshire
MARY L. LANDRIEU, Louisiana          JAMES M. INHOFE, Oklahoma
JACK REED, Rhode Island              RICK SANTORUM, Pennsylvania
DANIEL K. AKAKA, Hawaii              PAT ROBERTS, Kansas
BILL NELSON, Florida                 WAYNE ALLARD, Colorado
E. BENJAMIN NELSON, Nebraska         TIM HUTCHINSON, Arkansas
JEAN CARNAHAN, Missouri              JEFF SESSIONS, Alabama
MARK DAYTON, Minnesota               SUSAN COLLINS, Maine
JEFF BINGAMAN, New Mexico            JIM BUNNING, Kentucky

                     David S. Lyles, Staff Director

               Judy A. Ansley, Republican Staff Director

                                 ______

            Subcommittee on Readiness and Management Support

                   DANIEL K. AKAKA, Hawaii, Chairman

ROBERT C. BYRD, West Virginia        JAMES M. INHOFE, Oklahoma
MAX CLELAND, Georgia                 STROM THURMOND, South Carolina
MARY L. LANDRIEU, Louisiana          JOHN McCAIN, Arizona
E. BENJAMIN NELSON, Nebraska         RICK SANTORUM, Pennsylvania
MARK DAYTON, Minnesota               PAT ROBERTS, Kansas
JEFF BINGAMAN, New Mexico            JIM BUNNING, Kentucky


                                  (ii)

  
?



                            C O N T E N T S

                               __________

                    CHRONOLOGICAL LIST OF WITNESSES

                Department of Defense Acquisition Policy

                           February 27, 2002

                                                                   Page

Wynne, Hon. Michael W., Principal Deputy Under Secretary of 
  Defense (Acquisition, Technology, and Logistics), Department of 
  Defense; Accompanied by Deidre A. Lee, Director, Defense 
  Procurement, DOD...............................................     2
Styles, Hon. Angela B., Administrator, Office of Federal 
  Procurement Policy, Office of Management and Budget............     9

                                 (iii)


                DEPARTMENT OF DEFENSE ACQUISITION POLICY

                              ----------                              


                      WEDNESDAY, FEBRUARY 27, 2002

                           U.S. Senate,    
                  Subcommittee on Readiness
                            and Management Support,
                               Committee on Armed Services,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:15 a.m. in 
room SR-222, Russell Senate Office Building, Senator Daniel K. 
Akaka (chairman of the subcommittee) presiding.
    Committee members present: Senators Akaka, Levin, E. 
Benjamin Nelson, and Inhofe.
    Committee staff member present: David S. Lyles, staff 
director.
    Majority staff members present: Kenneth M. Crosswait, 
professional staff member; Creighton Greene, professional staff 
member; and Peter K. Levine, general counsel.
    Minority staff members present: Brian R. Green, 
professional staff member; William C. Greenwalt, professional 
staff member; and Thomas L. MacKenzie, professional staff 
member.
    Staff assistants present: Dara R. Alpert and Daniel K. 
Goldsmith.
    Committee members' assistants present: Davelyn Noelani 
Kalipi, assistant to Senator Akaka; Brady King, assistant to 
Senator Dayton; and John A. Bonsell, assistant to Senator 
Inhofe.

     OPENING STATEMENT OF SENATOR DANIEL K. AKAKA, CHAIRMAN

    Senator Akaka. The hearing will come to order. I want to 
welcome our guests this morning and thank them very much for 
being here as our witnesses.
    The Subcommittee on Readiness and Management Support meets 
this morning to discuss acquisition policy and its issues 
affecting the Department of Defense (DOD). Over the last 
decade, Congress has worked closely with the Department of 
Defense to streamline our acquisition system and make it more 
responsive to the requirements of today's commercial 
environment. We have made some headway there. As a result, the 
Department of Defense is able to access rapidly advancing 
commercial technology products and services with a speed that 
we could not have hoped to achieve as recently as 10 years ago.
    We have reason to be proud of these achievements, but at 
the same time we are faced with new challenges. Over the last 
several years, we have identified significant shortcomings in 
the Department's management of its $53 billion in services 
contracts. The General Accounting Office (GAO) and the DOD 
Inspector General have also identified systemic problems in the 
Department's contracting for information technology and in the 
pricing of sole source contracts. Finally, the new 
administration has concluded that the acquisition cycle is 
simply too long and must be shortened.
    We need to work together to address all of these problems. 
At the same time, we need to learn some of the lessons of the 
past and avoid the kind of procurement abuses, like the spare 
parts scandals that plagued the Department in the 1980s, that 
accompanied previous rapid increases in the defense budget.
    The key to achieving all of these objectives is the 
acquisition work force, the core of professionals upon whom we 
rely to make decisions every day that affect how hundreds of 
millions of Federal dollars are spent. Over the last decade, 
the acquisition work force has been drastically downsized, from 
460,000 in fiscal year 1990 to 230,000 in fiscal year 1999. 
This downsizing has also resulted in the dramatic aging of the 
acquisition work force, which means that we can expect to lose 
many of our most experienced personnel over the next few years 
with fewer and fewer professionals available to replace them. 
This is an issue that merits our close attention.
    I look forward to hearing from our witnesses on these 
important issues. We have excellent statements from each of the 
witnesses testifying this morning, and I want to express the 
subcommittee's appreciation for their work. We also have 
received statements for the record submitted by the GAO and the 
military services. Those statements will also be inserted in 
our hearing record.
    Thank you. At this point, I want to show appreciation to 
our staff here for their efforts in what they have done to 
prepare this hearing.
    I would then like to call on Secretary Michael Wynne for 
his testimony.

  STATEMENT OF HON. MICHAEL W. WYNNE, PRINCIPAL DEPUTY UNDER 
SECRETARY OF DEFENSE (ACQUISITION, TECHNOLOGY, AND LOGISTICS), 
DEPARTMENT OF DEFENSE; ACCOMPANIED BY DEIDRE A. LEE, DIRECTOR, 
                    DEFENSE PROCUREMENT, DOD

    Mr. Wynne. Senator, it is great to see you again, and I 
appreciate the opportunity to appear before the subcommittee. 
Senator Akaka, I was extremely pleased to hear you speak in 
defense of the acquisition work force, as we have in the 
audience some senior members of that work force. With your 
permission, I would like to introduce them en masse. They are 
the members of the class of the Executive Contracting Class No. 
301, which is taught on behalf of the Defense Acquisition 
University by the Navy. With your permission, I will have them 
all stand up and be recognized.
    Senator Akaka. Please do.
    Mr. Wynne. I do not want you to think I packed the audience 
here, but it is a real opportunity for them to see in action, 
from your level and ours, how this thing works.
    Senator Akaka. On behalf of myself, the subcommittee, and 
the Senate, let me thank you for your valuable service and all 
you have done for the country. I want you to know that part of 
my responsibility has to do with the Federal work force, so I 
am glad to see you here. Hopefully, there are folks that will 
come after you that can do as well as you have done.
    Mr. Wynne. Thank you, Mr. Chairman, for that forbearance. I 
will now start my more formal but still impromptu remarks.
    Senator Akaka. Thank you.
    Mr. Wynne. Mr. Chairman and members of the subcommittee, 
thank you for inviting me here to talk to you about acquisition 
reform. I am pleased to discuss many of the initiatives under 
way in the Department as we move our focus from reform to 
excellence. The key to our progress has been a strong 
partnership with Congress, especially this committee. We are 
partners with Congress in this enterprise and we cannot succeed 
without your continuing vision and leadership.
    The passage of temporary emergency procurement authority in 
this year's authorization act is a great example of that 
support, enabling us to immediately improve our response to the 
war on terrorism. The Department is moving from reform to 
excellence by focusing on key areas: changing the environment; 
reducing the cycle time, as you mentioned; improving processes, 
including greater use of competition; linking human resources 
to requirements; and monitoring progress with metrics.
    These focus areas directly support the President's 
management agenda and support Secretary Rumsfeld's as well as 
Under Secretary Aldridge's goals to transform the military and 
the acquisition process. Transforming the military is about 
more than building new high tech weapons. It is about 
transforming the Department that serves them.
    A major objective for DOD is to change our environment to 
conduct government on a more business-like basis. To accomplish 
this, we have streamlined the Defense Acquisition Board to 
include the service secretaries. We created the Business 
Initiative Council to improve business operations of the 
Department. This council, consisting of the service 
secretaries, the Vice Chairman of the Joint Chiefs of Staff, 
and chaired by the Under Secretary for Acquisition, Technology, 
and Logistics, is working to make changes in business processes 
that will either achieve savings or at least avoid costs as the 
future rolls on.
    We are implementing policies to reduce cycle time to get 
capability to our warfighter faster. By using evolutionary 
acquisition and spiral development, we will produce and deploy 
systems based on mature technologies. The first increment of 
capability will meet many, but not all, of the system's desired 
operational requirements. Subsequent blocks will incorporate 
new technologies that have matured as each block of capability 
is fielded. Global Hawk, used with great success in 
Afghanistan, is an initial capability of spiral development 
that will have increasing capability as technology improves.
    Evolutionary acquisition and spiral development will enable 
us to maximize benefits from increased science and technology 
funding by providing available transformational technologies to 
the warfighter much faster. A perfect example of this is the 
broad agency announcement that we released in October that was 
open to the public for submission of ideas on combatting 
terrorism. It is an indication that the Department realizes 
that we might need innovative ideas from external sources as 
well as our own. We have received over 12,500 responses. 
Frankly, the expectation was in the hundreds, so we were 
overwhelmed.
    While we are still evaluating many of these, a few have 
progressed to the proposal stage. Thus far, we have requested 
white papers from over 200 entries. These range, by the way, 
from U.S. large and small businesses to universities and 
entities in Canada, Hungary, and across the world. It was an 
amazing response.
    We look forward to working with you in this exciting area 
of technology transition. We need to work jointly on a way 
ahead. Last year, our budget request of $25 million for the 
quick reaction program was cut by Congress. This funding would 
have brought promising technologies rapidly forward, a feat 
that is very difficult in our 3-year planning and budgeting 
horizon.
    One of the processes we are improving is the acquisition of 
services. We are working to establish a policy to ensure 
adequate oversight of the acquisition of services that will 
also be responsive to section 801 of the National Defense 
Authorization Act for Fiscal Year 2002. We established 
Department goals for the use of performance-based service 
acquisitions. To help achieve those goals, we issued a DOD 
guidebook with approximately 100 templates for performance-
based service acquisitions. We are participating in an inter-
agency working group to develop a government-wide guidebook.
    We have web-based training available, and our Defense 
Acquisition University training courses have also been updated 
to address performance-based service acquisitions.
    Finally, and most critically, is the area of managing and 
training our people. We are addressing the problems associated 
with the downsizing and aging of the acquisition, technology, 
and logistics work force. Approximately 50 percent of our work 
force is eligible to retire by 2005. Thus, this becomes a very 
key priority for us.
    As a result, we have a number of initiatives ongoing, 
including: conducting human capital strategic planning; 
increasing participation in the acquisition workforce 
demonstration project, which is a broadbanding and a 
contribution-based compensation system; and developing a 
marketing, recruitment, hiring, and retention program.
    The cornerstone of our efforts is the human capital 
strategic planning. We conducted a first round last year, will 
conduct a second round this year, and intend to 
institutionalize our human capital strategic planning process. 
We are managing our work force, including downsizing, and our 
human capital strategic planning process is the most critical 
tool needed to plan the future work force. Congressionally-
mandated draconian cuts are not what we need just now as we 
face aging workforce retirements.
    Workforce planning and training is essential to ensure that 
we have the right skill mix and capabilities to meet tomorrow's 
changing missions. Because we have an increasing training 
demand throughout the country, we are transforming the Defense 
Acquisition University to accelerate implementation of our 
acquisition initiatives by using restructured classroom 
training that utilizes case-based critical thinking exercises 
and more web-based training to extend our reach more 
efficiently and effectively.
    Our redefined acquisition technology and logistics work 
force has resulted in a 30 percent increase in training 
requirements. Because the Defense Acquisition University is the 
vital link to ensuring that we have a trained and ready work 
force, I was surprised when Congress cut their funding at a 
time when our training requirements are in fact increasing. It 
is critical that we fund the Defense Acquisition University to 
ensure that we have consistent training needed to have a top 
performing acquisition, technology, and logistics work force. I 
appreciate your support for their vital mission.
    We recognize we have more challenges ahead and are seeking 
your help. The Department is frequently hampered by a demanding 
set of statutory requirements, which restricts our flexibility, 
and thus, our ability to adapt to changing circumstances. I ask 
the subcommittee to support the President's freedom to manage 
initiatives so that we would be better able to efficiently and 
effectively execute the programs you entrust us with.
    An example of this is our limited authority for 
reprogramming. Another is with respect to reports to Congress. 
We can appreciate Congress' oversight role and the need for 
information, but we believe reports should come with a sunset 
provision so that the value of a continuing report will be 
periodically reviewed and continued or cancelled.
    An area we would like to work with you where we can see 
real benefit is in stabilizing funding for some of our 
acquisition programs. We would like to resurrect something 
similar to the 1980s milestone authorization language. Congress 
would authorize funding allocations consistent with program 
milestones, which would allow programs to have more funding 
stability, and thus benefit from lower costs due to the 
extended planning, reducted administrative burden, and 
substantial continuity of performance.
    To accomplish this, milestone-to-milestone budgeting would 
be established on selected programs in agreement with Congress. 
This means the program managers and acquisition executives 
would establish long-term budgets to cover work between systems 
development, demonstration, and commitment to production based 
on the program baselines. In order for this to work, the 
Department and Congress must both commit at all levels to 
protect these budgets, provided that the program is meeting its 
goals.
    Another proposal that we have been working on is a 
government and DOD industry assignment program. Government and 
industry can learn much from each other, but clearly the 
private sector, particularly commercial industry, is the place 
to learn about worldwide best practices and business process 
expertise. Tapping into this expertise would be very valuable 
to the Department as we continue to transform.
    While the Department has a few programs to send outstanding 
DOD personnel to industry, we do not have a program to bring 
industry into the DOD so that they may have an appreciation for 
the problems that we face. Currently, an industry person would 
have to sever his ties with his company in order to accept any 
DOD assignment, which is simply not going to happen. We would 
ensure that there would be no conflict of interest in these 
assignments. We will continue to work with other agencies to 
address their concerns related to conflict of interest or 
ethics, but your support would be very beneficial to encourage 
this exchange.
    In closing, I want to express how honored I am to work with 
the hardworking, patriotic, and dedicated members of the 
Department of Defense. The Department's response to the events 
of September 11 is a tribute to the people in the Department, 
as well as a tribute to the dedicated members of Congress. I am 
truly proud to be a member of this administration's Department 
of Defense. I appreciate the support provided by Congress and 
look forward to working with this subcommittee, in particular, 
to realize our goals and best satisfy our security needs in the 
future.
    I know this subcommittee has been both a leader and partner 
in many defense acquisition initiatives, and I appreciate your 
interest in continuing to improve defense management.
    I want to introduce Ms. Deidre Lee, who has accompanied me 
here. She is prepared to take questions, as I am. Thank you 
very much.
    [The prepared statement of Mr. Wynne follows:]

              Prepared Statement by Hon. Michael W. Wynne

    Mr. Chairman and members of the subcommittee, thank you for 
inviting me here today to talk with you about acquisition reform. We 
have many initiatives underway in the Department and our focus has 
moved from ``reform'' to ``excellence.'' We are continuing on the path 
of acquisition excellence that Congress charted with the enactment of 
the Federal Acquisition Streamlining Act and the Federal Acquisition 
Reform Act. A key to our progress has been our strong partnership with 
Congress. We value the support we receive from Congress--most recently 
with the passage of temporary emergency procurement authority in the 
Fiscal Year 2002 National Defense Authorization Act--a great example of 
Congress enabling us to immediately improve our response to the war on 
terrorism.
    The Department is moving from reform to excellence by focusing on 
changing the environment, reducing cycle time, improving processes 
including greater use of competition, linking human resources to 
requirements, and monitoring progress with metrics. These focus areas 
directly support the President's management agenda, which identified 
five Government-wide initiatives and support Secretary Rumsfeld's goal 
to transform the military. For example, consistent with the President's 
management agenda that identified strategic management of human capital 
as a goal, we are in the process of human capital strategic planning. 
Workforce planning and training is essential to ensure that we have the 
right skill mix and capabilities to meet tomorrow's changing missions. 
Because the Defense Acquisition University is the vital link to 
ensuring that we have a trained and highly qualified workforce, 
adequately funding DAU is critical, particularly given training 
requirements have increased by 30 percent and will grow with new people 
entering the workforce.
    While changes are required to transform the way the military wages 
war, so to must our business processes be transformed. The military can 
better reach their full potential by making the business side equally 
as agile, lean, and focused. When Mr. Pete Aldridge, the Under 
Secretary for Acquisition, Technology, and Logistics, appeared before 
Congress during his confirmation hearing, he outlined five goals for 
the Department necessary to transform the business side of the 
Department of Defense. In my confirmation hearing, I stated my 
commitment to accomplish these goals. These goals are structured to 
provide a complete framework to move the Department from reform to 
excellence. We have numerous initiatives aligned to support attainment 
of these goals. We have already achieved successes to date. For example 
to:

         Achieve credibility and effectiveness in the 
        acquisition and logistic support process. We are reducing cycle 
        times in weapons systems with the use of evolutionary 
        acquisition/spiral development. We are committed to 
        transitioning technology to our warfighters. Advanced Concept 
        Technology Demonstrations (ACTDs) have clearly accelerated the 
        technology transition;
         Revitalize the quality and morale of the DOD 
        acquisition, technology, and logistics workforce. We are 
        transforming the Defense Acquisition University by moving from 
        purely classroom training to more web-based learning modules, 
        by emphasizing critical thinking skills and case-based 
        reasoning, and by moving from a training model to a performance 
        support model for the University. We are on our second phase of 
        human capital strategic planning to assess mid and long term 
        needs regarding the size, shape and skill mix of the 21st 
        century workforce;
         Improve the health of the defense industrial base. We 
        are looking at better ways to finance and incentivize 
        contractors. We restored the rate of progress payments for 
        large businesses to 80 percent. We are revising our profit 
        policy to provide incentives for contractor cost efficiencies 
        and investments in independent research and development, and to 
        reduce incentives for contractors to ``make'' rather than 
        ``buy.'' We are also encouraging the use of performance-based 
        payments as a better way to link financing payments to 
        performance;
         Rationalize the weapon systems and infrastructure with 
        the defense strategy. With the help of Congress, we will have a 
        new round of base closure and realignment in 2005. The 
        Quadrennial Defense Review (QDR) and defense plans both provide 
        information on shaping our future force structure using a 
        capabilities-based approach. This strategy is still evolving as 
        we learn from current operations in Afghanistan and better 
        understand the impact of homeland defense on our organization; 
        and
         Initiate high leverage technologies to create the 
        warfighting capabilities of the future. We are aligning our S&T 
        investments with desired capabilities as stated in the QDR, 
        with increased emphasis on joint, transformational, and 
        combating terrorism technologies. The fiscal year 2003 budget 
        funds faster growth in science and technology with about $1 
        billion over last year's request. Our S&T investment is 
        increasing year after year as the overall defense budget 
        baseline increases and we are continuing to pursue our goal of 
        3 percent of the total obligation authority for S&T.

    We recognize we have more challenges ahead, specifically, in 
implementing legislation regarding contracts for services, 
implementation of spiral development, and other techniques to shorten 
the weapon system development life-cycle and minimizing the impact of 
continued downsizing of the acquisition workforce.
    First, because of the magnitude we spend on services, we are 
developing a strategic approach to acquiring them. We are establishing 
a policy to ensure adequate oversight of acquisition of services that 
is responsive to section 801 of the National Defense Authorization Act 
for Fiscal Year 2002. Pursuant to law, we established Department goals 
for the use of performance based service acquisitions. To help achieve 
these goals we issued a DOD guidebook and are participating in an 
interagency working group to develop a government-wide guidebook. These 
efforts to increase performance based contracting are being 
incorporated into our training courses. In February 2002, we issued 
guidance to ensure all contractors are given a fair opportunity to 
compete for multiples award contracts for services and are developing 
regulations to implement section 803. Increased competition on these 
procurements must be accomplished in an efficient and effective way.
    Second, we are implementing policies to reduce systems acquisition 
cycle time by using evolutionary acquisition/spiral development. Spiral 
development allows us to get capability to our warfighters faster and 
at less cost by producing and deploying systems based on mature 
technologies. When deployed, the first increment of capability (or 
block) will meet many, but not all, of the system's desired operational 
requirements. Subsequent blocks will incorporate new technologies that 
have matured as each block of capability is fielded. The series of 
blocks represent the ``spirals'' of increasing capability to the 
warfighter. Global Hawk, an unmanned aerial vehicle that has been the 
eyes for the soldiers in Afghanistan, will have increasing capability 
as technology becomes available. The Joint Strike Fighter is another 
good example, as its performance will increase as technology is 
matured.
    We have numerous other process improvements underway, including: 
mandating the use of cost-as-an-independent variable for cost and 
performance trade-offs; requiring more realistic program cost 
estimating and ensuring jointness and interoperability; fostering 
technology transition; improving the health and competitiveness of 
defense industry by integrating business practices across functional 
lines in areas such an interoperability where integration is occurring 
across traditionally stove-piped functions of engineering, contracting, 
etc; creating coalition and international partnering through export 
control reform and globalization; working e-business to make it a 
reality; and reducing the logistics footprint. We recently established 
the Missile Defense Agency (MDA) to take advantage of a streamlined, 
tailored acquisition approach. We wanted to give the MDA the most 
visibility and prestige for collaborative efforts within the services. 
We emphasize this with the Senior Executive Council, made up of the 
service secretaries and chaired by the Deputy Secretary of Defense, 
acting as the Board of Directors overseeing the MDA.
    Third, we are addressing the problems associated with the 
downsizing and aging of the DOD-wide acquisition, technology, and 
logistics workforce. This is critical because we are faced with 50 
percent of our workforce being eligible to retire by 2005. While we are 
sensitive to retaining and attracting people with the appropriate 
skills, this doesn't mean there are not pockets of overstaffing, as 
well as understaffing, within the Defense Department that are part of 
our planning efforts.
    We first identified this problem to Congress in October 2000 with 
our Acquisition Workforce 2005 Task Force Final Report. There are a 
number of initiatives ongoing, including conducting human capital 
strategic planning; increasing participation in the acquisition 
workforce demonstration project; implementing a contribution-based 
compensation system with streamlined classification and hiring 
attributes; and developing a marketing, recruitment, hiring, and 
retention program. The cornerstone of our efforts is the human capital 
strategic planning and management. We conducted a first round of 
strategic planning last year, are doing a second round this year, and 
intend to institutionalize the process. The process provides a way to 
develop plans that tie human capital and mission outcomes together, 
build the business case for personnel requirements, and identify 
barriers and gaps for appropriate action.
    We are also transforming the DAU and the course curriculum that 
will accelerate implementation of our acquisition initiatives through 
improved classroom training and increased web-based training. Placing 
additional emphasis on DAU is crucial to accelerating implementation of 
Department's initiatives. A redefined acquisition, technology, and 
logistics workforce has resulted in a 30 percent increase in training 
requirements. It is critical that we maintain funding for DAU to ensure 
training and education of the workforce as retirements increase. DAU is 
the model for many countries and agencies. For example, Australia is 
developing a similar university, and the Office of Federal Procurement 
Policy is encouraging civilian agencies to take advantage of DAU's 
offerings.
    Transforming the military is about more than building new high tech 
weapons, it is about transforming not only our armed forces, but also 
the Department that serves them. A major objective for DOD is to change 
our environment to conduct government more business-like. To accomplish 
this, we have streamlined the Defense Acquisition Board to include the 
service secretaries. This eliminated layers of oversight by involving 
the secretaries directly. Additionally, we created the Business 
Initiative Council to improve business operations of the Department. 
This council, consisting of the service secretaries, the Vice Chairman 
of the Joint Chiefs of Staff, and chaired by the Under Secretary for 
Acquisition, Technology, and Logistics, works collaboratively to make 
changes in business processes that save money. Preparing for the future 
will require us to think differently, and therefore, act differently.
    We will continue to look for ways to improve our processes. In 
December, we released a Broad Agency Announcement that was open to the 
public for submission of ideas on combating terrorism. We purposely 
kept this unclassified because our industrial base is extremely 
talented and we wanted to attract the best ideas available throughout 
the entire industry. The Department received over 12,500 responses, and 
while we are still evaluating many of these ideas, a few have 
progressed to the proposal stage. An area where we can use your help is 
in transitioning some of these great ideas and other technologies to 
the warfighter. Last year, Congress cut $25 million that was budgeted 
for the Quick Reaction Program. This program would have brought 
promising technologies rapidly forward. We need to work together to 
develop an approach that includes funding and an understanding of 
``faith in funding''--the recognition that not all technologies will, 
nor should they, be transitioned to acquisition. ACTD programs are a 
great example, but we need to do more to structure a way forward in 
technology transition.
    Another area where we could use help from Congress is in 
streamlining reports to Congress. We can appreciate Congress' 
Constitutional oversight role and the need for information, but we 
believe reports should come with a sunset provision so that the value 
of continuing a report will be periodically assessed. I look forward to 
working with you to identify other areas where we could use help.
    In closing, I want to express how honored I am to work with the 
hardworking, patriotic, and dedicated members of the Department of 
Defense. The events of September 11 reaffirmed the importance of what 
we do. I appreciate the support provided by Congress and look forward 
to working with this committee to realize our goals and best satisfy 
our security needs in the future.
    Thank you for the opportunity to provide this statement for the 
record.

    Senator Akaka. Thank you very much. We welcome Ms. Lee to 
the subcommittee's hearing.
    Ms. Lee. Good to see you, sir.
    Senator Akaka. At this time I would like to call for 
testimony from the Honorable Angela Styles, Administrator of 
the Office of Federal Procurement Policy.

 STATEMENT OF HON. ANGELA B. STYLES, ADMINISTRATOR, OFFICE OF 
  FEDERAL PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET

    Ms. Styles. Thank you, Chairman Akaka. I appreciate your 
invitation to be here today, your interest in Federal 
procurement, and the opportunity to discuss these issues with 
you today.
    In many respects, I think we have reached a crossroads. 
Working hand-in-hand with Congress over the past 10 years, the 
Federal procurement community has made significant and I 
believe much needed changes to the way the Federal Government 
buys goods and services. Our departments and agencies have been 
armed with a wide variety of contracting tools that allow for 
the purchase of much-needed goods and services in a fraction of 
the time it took a decade ago.
    The value of these tools could not have been more evident 
than in the hours, days, and months following the September 11 
terrorist attacks. The Department of Defense, and the Air Force 
in particular, proved without question that they had learned to 
effectively use the available contracting flexibilities to 
address urgent needs. Just as an example, the Pentagon 
renovation program had a contract in place for a major portion 
of reconstruction and recovery just 4 days after September 11 
and contracts in place for the remainder on September 18.
    At the same time, our ongoing fight against terrorism and 
the paramount duty of the Federal Government to secure the 
safety of the American people may present some new unforeseen 
challenges for our procurement system. In this regard, I was 
pleased to see that the temporary emergency procurement 
authorities that Congress provided the DOD were appropriately 
tailored to focus on activities most directly involved in 
fighting terrorism, while keeping our overall framework of 
competition intact.
    By taking similar considerations into account, the Federal 
emergency procurement flexibility bills currently pending 
before Congress can provide appropriate authorities to all 
agencies in our united fight against terrorism, while ensuring 
effective investment of taxpayers' dollars in the long run. I 
look forward to continued productive discussion on these bills.
    I must caution, however, that the tools of operational 
efficiency cannot be viewed in isolation. Good results require 
a balanced approach. Operational efficiency alone is not a 
formula for sound acquisition. Operational efficiency does not 
ensure value, quality, or cost effective performance. The basic 
building blocks for acquisition cannot be forgotten: sound 
planning, consistent use of competition, well-structured 
contracts, and solid contract management.
    We must foster an environment that values competition, 
fairness, integrity, and transparency. Adherence to these 
values and the policies that promote them will garner the 
public's confidence and help encourage robust participation in 
procurement by contractors both large and small.
    Regrettably, we cannot remind ourselves enough of the need 
to follow these acquisition basics. Hardly a month seems to 
pass when Congress, the GAO, or agency inspectors general are 
not citing the lax application of these basic functions as a 
major contributor to shortfalls in program performance. 
Insufficient attention to requirements development, failure to 
perform vigorous price analysis, inconsistent use of 
competition, weak negotiations, and poorly structured contracts 
with ineffective incentives continue to plague even the most 
streamlined and protest-proof of our acquisition tools and may 
be putting taxpayer dollars at risk.
    My concerns are particularly heightened when we discuss the 
use of multiple award task and delivery order contracts and use 
of the multiple award schedule program operated by the General 
Services Administration (GSA). Both of these tools involve 
indefinite quantity contracts that permit users to select 
suppliers and services from a range of prequalified contractors 
using streamlined source selection processes. These vehicles 
offer highly efficient access to the marketplace from an 
operational standpoint. However, some serious issues have 
arisen regarding the continued award of orders to preferred 
vendors. Despite regulations and explicit policy guidance, 
agencies have repeatedly failed to conduct even the minimal 
required competition.
    For this reason, I applaud your desire to see the increased 
use of competition in the placement of orders and I understand 
the concerns that led to the enactment of section 803 of the 
National Defense Authorization Act for Fiscal Year 2002. You 
will note in my written testimony a recitation of the many 
steps we are taking to ensure the proper use of these 
contracting vehicles, including enhanced guidance in the 
Federal Acquisition Regulation (FAR), a review of Government-
wide Acquisition Contracts (GWACs), and the creation of a web 
site on interagency contracting.
    I remain, however, troubled that these steps may not be 
sufficient. I look forward to continued work with this 
subcommittee to ensure that we reach a proper balance between 
operational efficiency and competition, integrity, and 
transparency in the expenditure of taxpayer dollars for the use 
of these vehicles.
    This concludes my prepared remarks and I am happy to answer 
any questions you may have.
    [The prepared statement of Ms. Styles follows:]

              Prepared Statement by Hon. Angela B. Styles

    Chairman Akaka, Senator Inhofe, and members of the subcommittee, I 
appreciate the opportunity to appear before you to discuss challenges 
facing the Federal procurement community and some of the 
administration's plans to address them. While my discussion will take a 
government-wide focus (consistent with the mission of the Office of 
Federal Procurement Policy (OFPP)), it is intended to take into careful 
consideration the activities of the Department of Defense.
    As this subcommittee knows, the President has called upon agencies 
to become market-based and results-oriented, rather than process 
driven. If we take away just one message from the President's 
Management Agenda and his Fiscal Year 2003 Budget, it is that results 
are what matter in the end. To use the President's own words: ``We are 
not here to mark time, but to make progress to achieve results, and to 
leave a record of excellence.''
    The President's message presents an important challenge--and 
opportunity--for agency procurement personnel. As the creators and 
guardians of the vehicles that most directly influence how effective 
contractors will be in helping to carry out the business of government, 
procurement personnel play a critical role in a performance-based 
environment. This role becomes even more vital at a time when the 
demands of national security assert a heavy claim on our Nation's 
resources.
    This morning, I would like to begin by describing for the 
subcommittee the general challenge facing the Federal procurement 
community, as I see it. Then, I would like to highlight some of the 
steps we are, or will be taking, so that procurement offices are 
effectively positioned to meet the President's goal to achieve results. 
Finally, I would like to comment briefly on a couple of procurement-
related legislative initiatives.

                    MANAGING THE PROCUREMENT PROCESS

    Thanks in significant part to Congress, our current procurement 
process provides agencies with a variety of contracting tools that can 
help them deliver many goods and services in far less time than it took 
just a decade ago. These tools include: purchase cards, the Multiple 
Award Schedules (MAS) contracts, multiple award task and delivery order 
contracts (which permit streamlined source selection processes for 
placing repetitive orders with pre-qualified contractors), and 
streamlined processes for conducting competitive negotiations for buys 
on the open market.
    While the operational efficiency made possible by these tools is 
understandably attractive to program offices, our ability to achieve 
good overall results also requires that acquisition processes take a 
balanced approach among all of the basic building blocks of 
acquisition: sound planning, consistent use of competition, well 
structured contracts designed to produce cost-effective quality 
performance from contractors, and solid contract management. All of 
these activities must occur in an environment that fosters fairness, 
integrity, and transparency. Adherence to these values, and policies 
that promote them, will garner the public's confidence and help to 
encourage robust participation in Federal procurement by contractors 
small and large.
    Regrettably, we cannot remind ourselves enough of the need to 
follow the acquisition basics. Hardly a month seems to pass where 
Congress, the General Accounting Office (GAO), or agency inspectors 
general aren't citing to lax application of these basic functions as a 
major contributor to shortfalls in program performance. Insufficient 
attention to requirements development, failure to perform vigorous 
price analyses, inconsistent use of competition, weak negotiations, and 
poorly structured contracts with ineffective incentives continue to 
plague even the most streamlined and protest proof of our acquisition 
tools and may be putting taxpayer dollars at risk.
    To improve performance, agencies must recognize that acquisitions 
are the shared responsibility of a variety of disciplines, including 
program, technical, contracting, financial, logistics, and legal 
personnel. These disciplines must work together so the respective 
expertise that each offers is better integrated in agency decision 
making. In particular, program offices must be willing to commit 
sufficient attention to acquisition planning and contract management. 
They must understand that no amount of training on the part of 
procurement personnel and no degree of operational expediency afforded 
by contracting tools can serve as a substitute for these activities.
    For their part, agency procurement officials must not allow 
pressures for expediency to divert attention away from the application 
of fundamental contracting principles that lie at the heart of any 
successful acquisition process, no matter the agency or the 
requirement. Far from the mechanical or administrative-laden label that 
some might like to assign to the contracting function, procurement 
personnel remain vital to ensuring the proper stewardship of the $220 
billion in goods and services the Federal Government buys each year. 
These people are the key component of our acquisition workforce and are 
looked upon to ensure sound application of the varied contracting tools 
now available.
    For this reason, my office is taking steps--albeit first steps--to 
underscore the importance of acquisition basics. In doing so, it is my 
hope that the tools and concepts that have grown out of acquisition 
reform are used, or are refined as may be necessary, to consistently 
produce the good results that their architects promised. In light of 
the subcommittee's particular interest in service contracting and 
inter-agency acquisition, I would like to briefly discuss the steps we 
are taking in these areas in particular.

Improving Use of Indefinite-Quantity Contracts and Inter-agency 
        Contracting
    As this subcommittee has observed, there has been an increased use 
of inter-agency contracting by DOD and other agencies in recent years. 
Much of this activity is tied to greater agency use of multiple award 
task and delivery order contracts and expansion of the MAS Program 
operated by the General Services Administration (GSA). Both of these 
tools involve indefinite-quantity contracts that permit users to select 
supplies and services from a range of pre-qualified contractors using 
streamlined source selection processes. These vehicles offer highly 
efficient access to the marketplace from an operational standpoint. 
But, as this subcommittee knows from two GAO reports that were 
conducted on its behalf within the last 2 years, DOD has been acquiring 
hundreds of millions of dollars in services without taking basic steps 
to ensure best value. These conclusions were generally echoed by the 
DOD Inspector General last fall, who found that more than 70 percent of 
task orders under multiple award task order contracts were awarded on a 
sole-source or directed-source basis, the vast majority of which were 
improperly supported. While these reports focused on DOD, the problem 
is government-wide.
    As I recently told the House Armed Services Subcommittee on 
Military Procurement, I do not believe that tools of efficiency are 
doomed to failure. At the same time, their effectiveness hinges on 
proper use. To this end, we are currently pursuing the following 
initiatives:
    a. Enhanced guidance in the Federal Acquisition Regulation on 
multiple award task and delivery order contracts. A soon-to-be final 
rule that OFPP developed with the FAR drafters will, among other 
things:

         draw greater attention to the acquisition planning 
        requirements of the Clinger-Cohen Act and encourage more 
        deliberation by agency acquisition planners before orders are 
        placed;
         improve the structuring of orders by, among other 
        things, reminding agencies that individual orders must clearly 
        describe all services to be performed or supplies to be 
        delivered so that the full cost or price for performance of the 
        work can be established when the order is placed;
         strengthen the quality of competition (i.e., the 
        ``fair opportunity'' consideration that small and large 
        contract holders are given when they vie for orders) by 
        facilitating better information exchange between agency 
        customers and contract holders; and
         reinforce agency responsibility to document the basis 
        for exceptions (including the rationale for any tradeoffs among 
        cost or price and non-cost considerations in making the award 
        decision).

    Guidance will also appear in the DOD FAR Supplement (DFARS) to 
reinforce usage of the fair opportunity process for the acquisition of 
services over $100,000. The DFARS coverage is part of the 
implementation of section 803 of the National Defense Authorization Act 
for Fiscal Year 2002.
    b. Strengthened regulatory guidance for MAS contracts. Recognizing 
the critical role competition plays in improving the performance of our 
contractors, I applaud your desire to see increased use of competition 
in the placement of orders under MAS contracts and understand the 
concerns that led to enactment of section 803. In this regard, we are 
actively working with representatives of DOD toward the publication of 
a rule in the DFARS that will focus on significantly improving the 
application of competition in the purchase of services in excess of 
$100,000 under MAS contracts.
    The DFARS effort notwithstanding, more needs to be done to improve 
the acquisition of services by all MAS customers. For this reason, we 
are working closely with the regulatory drafters on more comprehensive 
changes to the FAR. A FAR rule is well under development to clarify the 
use of statements of work, reinforce pricing considerations, and ensure 
award decisions are documented. The rule will also address competition, 
but will not initially apply the provisions of section 803. This will 
provide us (including GSA as manager of the MAS Program) with an 
opportunity to evaluate the impact of the DFARS rule and its 
suitability for possible government-wide application.
    c. Review of government-wide acquisition contracts. As the 
subcommittee is aware, the Clinger-Cohen Act authorizes the Office of 
Management and Budget (OMB) to designate one or more heads of executive 
agencies as executive agent for ``government-wide acquisition 
contracts'' for information technology (IT), known as ``GWACs.'' OMB 
authorizes executive agents to establish these contracts for use on a 
non-mandatory basis by agencies across government. Today, five agencies 
serve as executive agents to award and administer specified GWACs 
pursuant to designations that OMB granted at the end of the last 
administration. These executive agents are: (1) GSA, (2) the Department 
of Transportation, (3) the Department of Commerce, (4) the National 
Aeronautics and Space Administration (NASA), and (5) the National 
Institutes of Health (NIH). These agencies operate a total of 15 GWACs 
(9 are operated by GSA, 3 by NIH and one by each of the three other 
agencies).
    I recently asked the executive agents to provide OMB with 
information regarding their management activities (e.g., practices used 
to ensure a clear understanding of roles and responsibilities between 
customer agencies and executive agents, respectively; steps taken to 
address customer misapplications). I hope this information, along with 
data addressing customer activity (e.g., use of the fair opportunity 
process, order structuring, awards to small businesses) will help OMB 
to gain a better understanding of whether these vehicles are helping to 
facilitate sound acquisition practices in support of agency programs.
    d. Creation of a web site on inter-agency contracting. Earlier this 
month, the FAR drafters published a proposed rule in the Federal 
Register that would require agencies who award contracts for inter-
agency use (i.e., servicing agencies) to make basic information about 
their contacts accessible through a central web site that will serve as 
an online source of information on these vehicles. Admittedly, the need 
for this type of on-line resource is long overdue. In addition to the 
15 GWACs that I mentioned a moment ago, there are many more so-called 
``multi-agency contracts.'' These contracts are established by one 
agency for use by multiple (or perhaps all) government agencies to 
obtain supplies and services. Unlike GWACs, multi-agency contracts are 
not limited to IT. In addition, administrators of these vehicles are 
not designated by OMB. However, they must operate their contracts 
consistent with the Economy Act, which lays the foundation for inter-
agency acquisitions.
    Because of limitations in our Federal Procurement Data System 
(FPDS), we have been unable to easily identify the number of multi-
agency contracts or the type of activity that is occurring under them. 
The web site is one step toward providing the type of insight that 
might help us to better ensure that these vehicles (and any others 
intended for use by multiple agencies) are established and operated in 
the best strategic interest of the taxpayer. As I see it, the potential 
benefit of an online resource is two-fold.
    First, the web site should help customers during acquisition 
planning and market research to more easily identify whether there may 
be a suitable existing Federal contract that can satisfy their needs. 
For example, where a GWAC or multi-agency contract has a heavy small 
business presence, ordering through one of these vehicles may 
facilitate access to small business expertise.
    I appreciate that there is already considerable information on the 
web, much of it provided by servicing agencies. The goal is not to 
duplicate vast amounts of information, nor to generate needless burden 
on the agencies. In fact, I should emphasize that the web site will not 
be an all-encompassing source for market research. It is just one data 
point to assist agency customers in deciding whether an existing 
contract or open market purchase is the more suitable option. 
Accordingly, the focus will be on helping to more quickly acquaint 
potential customers about possible options through organized and faster 
access to basic information about these vehicles.
    Information will likely include: (a) a description of the contract 
scope by supply, service, or industrial classification code, (b) 
identification of agencies that may place orders, (c) a list of 
administrative fees, (d) applicable socio-economic information, and (e) 
points of contact for follow-up. Of particular importance, I hope the 
web site will become yet another mechanism that servicing agencies may 
use to reinforce for their customers the keys to effectively 
structuring, competing, and pricing orders. It should also familiarize 
customers with the management structures that servicing agencies have 
put in place to facilitate effective ordering.
    Second, the web site should help senior agency managers to get a 
better picture of the number of inter-agency contracts that their 
agencies are operating. Of course, the web site will not be a 
substitute for the type of dedicated management oversight envisioned by 
section 801 of the National Defense Authorization Act for Fiscal Year 
2002; but, it will help to support appropriate management review 
efforts--such as the conduct of a ``spending analysis.''
    Our office will be working with GSA, DOD, and other agencies to 
ensure the web site, which is presently under construction, is 
operational in time for the publication of a final rule after public 
comments have been considered. Over the longer term, we are 
transforming the FPDS from a data-collection system into a management 
information tool (to be known as the Federal Acquisition Management 
Information System). Our goal is to take better advantage of current 
technological capability to provide timely, relevant, and reliable 
information addressing all of our acquisition processes and contracting 
tools to support critical agency business decision-making on a much 
broader scale.
Using Performance-Based Service Contracting (PBSC)
    In recent years, there has been much talk about PBSC--a tool for 
helping agencies to shape their contracts around desired mission-
related outcomes as opposed to how work is performed. Interest in this 
concept is understandable. Who can oppose a concept that can foster the 
creativity and initiative of the private sector to help agencies 
achieve better acquisition solutions to meet their needs? Yet, I think 
most, if not all, would agree that PBSC is underutilized. In part, I 
believe the problem centers on a lack of clarity within agencies 
regarding the definition of what constitutes a performance-based 
service contract.
    To help energize and refocus our PBSC efforts, I am taking the 
following steps. First, I am forming an inter-agency group to resolve 
disagreements among the agencies regarding performance-based 
contracting requirements. I anticipate, as one output of this effort, 
improved guidance regarding the scope and nature of PBSC. There must be 
a common understanding of the definition upon which to build experience 
and track progress.
    Second, I plan to support government-wide expansion of the PBSC 
pilot that Congress established for DOD last year. Under the current 
pilot, DOD may treat acquisitions for services of $5 million or less as 
commercial items if the purchases are performance-based and certain 
other conditions are met. Expansion of this pilot to civilian agencies 
should help to incentivize greater use of PBSC. I am pleased that 
numerous agencies are already actively pursuing pilot programs to gain 
experience with the PBSC concept.
    Clearly, there is work to be done. I hope these steps will help to 
improve understanding within our acquisition workforce that is needed 
to generate greater use of PBSC.

                       LEGISLATIVE CONSIDERATIONS

    Mr. Chairman, in the letter of invitation for today's hearing, you 
sought the administration's views on potential legislative initiatives. 
To date, no substantive evidence has come to my attention that points 
to the need for broad-sweeping legislative changes.
    At the same time, I appreciate that, in today's environment, it is 
especially important that we continually review our statutory and 
regulatory framework to ensure our taxpayer dollars are being spent 
wisely. In this regard, I would like to comment briefly on our war 
against terrorism and ongoing efforts to take effective advantage of 
the commercial marketplace.
Fighting the War on Terrorism
    Like you, I have been listening carefully to hear if there are any 
significant contracting difficulties agencies have faced since 
September 11. I am pleased that, thus far, agencies generally have been 
able to take effective advantage of existing tools. For example, the 
Pentagon renovation program had a contract in place for a major portion 
of reconstruction and recovery, just 4 days after the September 11 
attack, and contracts in place for the remainder of reconstruction and 
recovery by September 18. GSA reported that it successfully used 
existing contracting processes to acquire tens of thousands of items to 
support the New York and Pentagon relief efforts--with purchases 
ranging from protective suits and respirators to computers and 
vehicles. These efforts illustrate that, if we apply good contracting 
practices, the tools that already have been made available to us should 
enable us to obtain efficient, timely, and cost-effective quality 
performance from contractors.
    At the same time, our ongoing fight against terrorism and the 
paramount duty of the Federal Government to secure the safety of the 
American people may present some new unforeseen challenges for our 
procurement system. In this regard, I was pleased to see that the 
temporary emergency procurement authorities that Congress provided to 
DOD were appropriately tailored to focus on activities most directly 
involved in fighting terrorism while keeping our overall framework of 
competition intact. By taking similar considerations into account, the 
Federal Emergency Procurement Flexibility bills currently pending 
before Congress can provide appropriate authorities to all agencies in 
our united fight against terrorism while ensuring effective investment 
of taxpayer dollars in the long run. I look forward to continued 
productive discussions on these bills.

Buying Commercial Items and Using Commercial Practices
    Concern has been expressed within the procurement community that 
agencies are not doing enough to take advantage of the commercial 
marketplace and commercial practices. Some of those expressing this 
concern believe that better use of agency resources will result if 
statutory changes are made to expand the universe of what are currently 
recognized as commercial items and the contract types used to acquire 
them.
    I agree that there is always room for improvement in our use of FAR 
Part 12, which creates a preference for the acquisition of commercial 
items and lays a foundation for taking advantage of customary 
commercial practices. At the same time, I am not currently convinced 
that statutory changes regarding the definition of commercial item or 
authorized contract types are either necessary or appropriate. Let me 
elaborate;
    Use of commercial items: As Administrator, I am committed to 
ensuring effective reliance on the products and services of the 
commercial marketplace. Government access to commercial technologies 
remains a successful formula for driving quality up and costs down.
    Clearly, opportunities exist for improvement: For example, stating 
requirements in performance-based terms will expand the field of 
commercial offerors and solutions that can meet our needs--thus 
enhancing competition and opportunities for better prices.
    In addition, certain government-unique barriers still limit our 
access to the marketplace, in part because we have failed to take full 
advantage of the access that Congress has provided. In particular, it 
has been more than 6 years since the enactment of the Clinger-Cohen 
Act; yet, little has been done to take advantage of the authority 
afforded us to eliminate barriers that limit buyers' access to 
commercial off-the-shelf items (COTS). Waiver of government-unique 
requirements whose continued application is not in the best interest of 
the government will free our workforce from constraints that 
unnecessarily may be thwarting their access to readily available 
products that effectively and efficiently can meet the government's 
requirements. Towards this end, the FAR regulatory councils will soon 
publish an advance notice of proposed rulemaking to begin the 
regulatory process for finally implementing this authority.
    Broadening the definition of commercial item: While proponents of 
statutory change may suggest otherwise, the framework Congress gave us 
for buying commercial items is broad and accommodating. Among other 
things, the definition encompasses products that have been offered for 
sale to the general public but not yet sold; products that have been 
sold, but not in substantial quantities; products requiring 
modifications customary in the marketplace or minor modifications 
unique to the government; and services offered and sold competitively 
in substantial quantities in the commercial marketplace based on 
established catalog or market prices for specific tasks performed under 
standard commercial terms and conditions.
    It is important to keep in mind that the definition, while broad, 
is bound for a reason. In my opinion, the current limits recognize that 
certain conditions must exist in order for agencies to make effective 
use of commercial practices and adequately ensure that resulting 
purchases are in the best interest of the government, in terms of 
price, performance, and other considerations. While we certainly cannot 
afford to avoid risk, we cannot afford to ignore it either.
    Fundamentally, we can never escape the fact that the government is 
not a private entity, does not report to shareholders, and does not 
have a profit incentive. While the government can adopt ``commercial-
like'' practices, it can never act as a commercial company.
    Thus, before we seriously endeavor to augment an already broad 
framework--either by expanding the statutory definition or by 
statutorily endorsing use of labor-hour and time-and-materials 
contracts--we must challenge ourselves to demonstrate that the tools 
which would serve as a surrogate for the safeguards provided today will 
adequately protect the public fisc. For services, for example, this 
means, among other things, finding meaningful safeguards in 
circumstances where competition may be lacking and pricing does not 
have the benefit of having been shaped through substantial sales in the 
marketplace. It also means identifying safeguards for labor-hour and 
time-and-materials (flexibly priced) contracts where there is no 
positive profit incentive to the contractor for cost control or labor 
efficiency because payment is based upon reimbursement for time and 
effort expended (i.e., best efforts) rather than being tied to a 
completed and delivered product or service for which there is a 
contract specified firm-fixed price (i.e., tangible results).
    In short, I hope those that advocate broadening the definition of 
commercial item or authorizing use of labor-hour and time-and-materials 
contracts accept my challenge to identify appropriate safeguards, so 
that our policies relating to the commercial marketplace, however 
amended, are effective and consistent with taxpayer interests.
                               
                             CONCLUSION

    In this era of accountable government, the expectations of our 
citizens will rest heavily on the shoulders of our procurement process 
and its ability to maximize the return on taxpayer investment. Meeting 
this challenge will take work. In my opinion, past reforms have yielded 
uneven results. Changes have enabled agencies to satisfy many of their 
needs more expeditiously. Unfortunately, these changes have not, as of 
yet, been as effective in helping us meet other important goals--namely 
better prices and quality.
    Program offices across government, from those that serve the needs 
of our war fighters to those that support the government's efforts to 
promote educational excellence for our students, must ultimately depend 
on our procurement personnel to draft and negotiate the sound contracts 
that form the underpinning for successful performance. Working 
together, we must get back to our tried and proven acquisition basics. 
Only in this way will we ensure that the resources entrusted to the 
Federal Government are well managed and wisely used.
    I look forward to working with this subcommittee in making sure our 
procurement system is up to the important task of meeting the pressing 
needs of our Nation. This concludes my prepared remarks. I am happy to 
answer any questions you might have.

    Senator Akaka. Thank you very much for your statements. 
Before I begin with my questions, I want to thank Secretary 
Wynne again for having Class 301 attend this hearing. 
Presently, Senator Voinovich, myself, and others are crafting 
legislation that would develop this area for our workforce. Not 
only in your departments and sections, but in other places of 
the Federal Government, there will be huge retiring forces and 
we need to compensate for this, and we are working on it. So 
thank you very much for mentioning that.
    Secretary Wynne, both Secretary Rumsfeld and Under 
Secretary Aldridge have indicated that they believe that there 
is a compelling need to streamline the acquisition process to 
reduce the fielding times for new weapons systems and 
capabilities. We know that you and others have started what is 
called a spiral development process and that this can help 
solve this problem.
    Secretary Wynne, do you believe that DOD Directive 5000 
adequately addresses spiral development, or is some kind of 
supplemental guidance needed to assist program managers in 
designing spiral acquisition strategies?
    Mr. Wynne. Spiral development, I think, is a real attempt 
to answer the compelling need to shorten up our acquisition 
cycles. It is a delicate balance between pushing technology 
risk and having sufficient technologies for the warfighter. It 
works a lot better on long cycle development programs, where I 
have categories of technology that are long cycle, short cycle, 
and shortest cycle. I can produce, for example, with regards to 
the Joint Strike Fighter, a safety of flight envelope that 
meets the test criteria for safety of flight. I can then 
progress to the communications standards and crew comfort that 
would allow a shorter cycle development. Finally, a shortest 
cycle development, which is the weapons systems and 
applications of sensors. In that way, the warfighter will get 
the benefit of the technology cycles, which we always worry 
about essentially speeding ahead of our weapons systems 
development.
    For a shorter cycle acquisition, it really portends that 
the initial fielding would satisfy the needs, but not the 
wants, of our warfighters. It is a very delicate balance of 
protecting the requirements that the warfighter desires, while 
still meeting the wants or laying in the ground work for the 
wants on a later basis.
    This has a characteristic similar to preplanned product 
improvements. What it really does, though, is focus the 
attention of the acquisition program managers on the technology 
cycles so that they do not embed a technology cycle too early 
in the development program.
    As to the risk side, we try to address technology 
maturation along the way during the introduction to production 
and through the Defense Acquisition Board cycles. We believe we 
are adequately protecting against gaining too much technical 
risk in trade for a reduced cycle time. However, we find that 
during the Advanced Concept Technology Demonstrations (ACTDs) 
when we push technology, we can fit some things on a much 
shorter cycle, so long as we do not intend to lay it on the 
entire force. Putting things into the entire force does require 
a lot more planning and a lot more technology evolution.
    Senator Akaka. Some point to the testing process as an area 
that should be scrutinized in this effort to reduce cycle 
times. However, the increasing complexity and interaction of 
complex systems would tend to argue for achieving high 
confidence during testing that these systems will work as 
advertised.
    Mr. Secretary, would you agree that the principle of ``fly 
before you buy'' applies to spirally developed systems, and 
that we cannot afford to short-circuit testing requirements?
    Mr. Wynne. Testing requirements, of course, are an 
operations, testing, and evaluation (OT&E) responsibility for 
operational tests. However, we do have developmental test and 
evaluation (DT&E) within the acquisition, technology, and 
logistics (AT&L) function and I can address that. Simulation 
has come so far that for many of the capabilities that we 
desire in our weapons systems and simulation capability can 
well replace the requirements for extensive tests.
    Testing is not inexpensive, and as we get farther along in 
our maturity we find that many times simulation can essentially 
replace tests.
    As to the requirement that we ``fly before we buy,'' before 
we deliver products to the warfighter we clearly want to make 
sure that they operate as advertised so we are not satisfied 
with total simulation. That is why we ensure adequate OT&E 
prior to testing by the Office of the Director, Operational 
Test and Evaluation, and I think they are doing a fine job in 
specifying with us the tests that are necessary prior to going 
to the warfighter.
    In regards to the previous question, I think DOD Directive 
5000 is very flexible and we have allowed that flexibility for 
creativity for our program managers. I think it fits very 
nicely. The requirement for a supplement? I do not think they 
need more instructions on how to do their job, but we are very 
consistent with how we want them to do their job and I think 
that is expressed.
    Senator Akaka. Would you, Mr. Secretary, recommend that the 
Department proceed with an acquisition program in the absence 
of a determination by the operational test agencies that a 
system is effective and suitable for combat?
    Mr. Wynne. What I will say here, especially since I have an 
example that the Predator was declared unsuitable following its 
fielding in Afghanistan, is that this was on the basis of 
operational issues that have since been resolved. Sometimes 
there are differences between test requirements and 
applications. When we can limit the application to a specific 
engagement strategy, I do not feel like it is necessary that we 
undergo extensive tests.
    In fact, many times you can get better by doing iterative 
fielding and then testing. The reason is because the 
development cycle is in the hands of the user. The user's 
comments are often much more profound than the engineering 
comments. I think there are a variety of ways to do it, but I 
will say that before I would roll out something to the entirety 
of the Army, Navy, Air Force, or Marines. I think it would be 
appropriate to go through a full operational test and 
evaluation. But for many items that we are using currently in 
the engagement, a tailored approach is probably sufficient.
    Senator Akaka. Thank you for that.
    The Nunn-McCurdy amendment of 1982 required the Department 
to notify Congress and begin a review of programs that 
experience significant cost growth. The Navy Area Program 
cancellation last year was the first time since the early 1990s 
that the Nunn-McCurdy rules have ever led to a program being 
cancelled. The press has indicated the Pentagon intends to use 
the Nunn-McCurdy rules more aggressively.
    Mr. Secretary, is the Department planning to use the Nunn-
McCurdy legislation more aggressively, and can we expect to see 
more program cancellations on this basis? Does the current 
reporting system provide you the information you need to reach 
these kinds of decisions?
    Mr. Wynne. As an aside, I saw Dave McCurdy at our American 
Institution of Aeronautics and Astronautics (AIAA) Defense 
Excellence Conference. He was pleased and surprised at the same 
time to finally see Nunn-McCurdy not just breached and moved 
on, but actually employed in assisting with the management, 
which is what they had intended.
    But what Nunn-McCurdy requires is a certification by the 
Secretary of a number of things: number 1, whether the program 
is essential to national security; number 2, whether the new 
cost estimates are reasonable; number 3, whether the management 
structure is adequate to manage control unit costs; and number 
4, whether there are alternatives to the program that will 
provide equal or greater military capability at less cost.
    In the case of Navy Area Program, we could not certify that 
the management could bring that program home to the revised 
baseline. We further wondered and speculated on whether there 
was an analysis of alternatives. In conjunction with the new 
Missile Defense Agency leadership, we concluded that there were 
analyses of alternatives that had better technologies that were 
on the horizon. Therefore, it was a candidate for the Nunn-
McCurdy application and Secretary Aldridge refused to certify.
    On his refusal to certify, Nunn-McCurdy then requires that 
program funds be withheld and the program be appropriately 
terminated. That is the application and that is what we did. It 
sent, as you might imagine, a warning shot across the bow of a 
lot of programs. It is an application of the principle, ``do 
not hit my kid, hit the kid next to him.'' It just scares them 
to death, and that is exactly what has happened.
    I will tell you that in conjunction with the cancellation 
came a message that Secretary Aldridge is not willing to 
certify out-of-control programs. If you bring a program in that 
you cannot certify to its management, then there is going to be 
a real look into whether it still meets the mission that it was 
supposed to do and whether its mission cannot be accomplished 
by anyone else.
    Because we are off on a capabilities and effects-based 
acquisition program, it becomes somewhat critical that we 
actually have overlapping systems. The message to the 
acquisition community is that while we want aggressive program 
management, we also want to establish credibility with Congress 
that we can bring programs in, if we have a Nunn-McCurdy 
breach, on a revised baseline. That is the message.
    Senator Akaka. Thank you.
    Mr. Secretary, in the mid-1990s the Space Based Infrared 
System, High Component (SBIRS-High) satellite program was 
chosen to be a lead program for acquisition streamlining. In 
1996, the program manager for the SBIRS-High satellite program 
gave a briefing on how the program was implementing acquisition 
reform. The briefing discussed the Air Force's oversight goals 
for the program. These goals were: no independent readiness 
reviews; no computer software verification and validation; 
minimal independent engineering analysis; minimal Independent 
Integrated Product Teams (IIPTs) role, such as safety, 
reliability, parts material, etc.; and no detailed design 
approval for verification.
    The SBIRS-High program has experienced billions of dollars 
of cost growth and is 4 to 5 years behind its original 
schedule. As a result, the Department may cancel the entire 
program after spending $1 billion.
    Mr. Secretary, do you think that the decision to eliminate 
outside review, analysis, verification, validation, and 
approval has served the Department well in the case of the 
SBIRS-High program?
    Mr. Wynne. In the early 1990s they formed a process of 
management referred to as the Integrating Integrated Product 
Team, the overarching integrated product team (OIPT), to 
essentially bring assistance and support to program managers. 
While I was not in on the original decisionmaking for SBIRS-
High, it beats in the heart of every program manager to avoid 
anybody consulting him or directing him in any other way. I was 
surprised that the message was so distinctive.
    But the fact is that we do not condone that any more. With 
the OIPT process, we have independent reviews. SBIRS-High is 
coming in for an independent review. I will tell you that with 
the Space-Based Infrared System, we do not have a substitute 
for that military capability. Therefore, we are applying all 
sorts of management oversight techniques to assist them in 
bringing that program in. It has been assigned, I believe, to 
the Missile Defense Agency as they complete the research and 
development cycle, and we are providing further oversight and 
visibility within that structure.
    Senator Akaka. Mr. Secretary, how will you ensure that 
other DOD programs, which were part of the acquisition reform 
effort in the 1990s, are not experiencing similar as yet 
undetected problems?
    Mr. Wynne. That is very hard. I will tell you that, number 
one, you try to impose a management discipline through the IPT 
and overarching IPT process to inhibit those problems from 
getting too hard to manage.
    Second, I would advise that through this process we believe 
that we have exerted a little bit more positive control within 
the management structure. As you mentioned, the Nunn-McCurdy 
breach that occurred on the Navy Area Program has put a shot 
across the bow of these kind of programs to straighten-up and 
fly-right, because the Secretary is very hot on maintaining 
credibility with Congress.
    That does not mean that we are not going to have Nunn-
McCurdy breaches or advisories from the GAO or the Inspector 
General (IG) the programs that could have been managed better. 
But we are trying to exert as much positive control as we can, 
and as I mentioned, Secretary Aldridge is fairly clear that he 
is not going to certify programs that cannot convince him of 
their ability to manage to the revised baseline that we supply 
as a Nunn-McCurdy requirement.
    Senator Akaka. Thank you.
    At this time I would like to call on Senator Levin, the 
Chairman of the Senate Armed Services Committee, for any 
statement that he has to make.
    Senator Levin. First, let me thank Senator Nelson. I asked 
him if he might yield to me for just a few minutes for 
questions, Mr. Chairman. He was gracious enough, as always, to 
do it, and I appreciate that.
    I would ask that my statement be made part of the record.
    Senator Akaka. Without objection, it will be.
    [The prepared statement of Senator Levin follows:]

                Prepared Statement by Senator Carl Levin

    Senator Akaka, thank you for holding this important hearing. 
Senator Glenn used to say that acquisition policy is ``the grunt work'' 
of government. Oversight in this area is not always easy, but it is 
important that we do it.
    Last year, we enacted some far reaching provisions that give the 
Department some of the tools it needs to manage its services contracts 
more wisely. These provisions should improve DOD's acquisition of 
services by:

         requiring the Department to establish, for the first 
        time, a management structure, a program review structure, and a 
        data collection system for services contracts;
         setting up a new mechanism to enforce competition 
        requirements in services contracts; and
         establishing ambitious goals for savings from improved 
        business practices, including performance-based services 
        contracting and strategic management of services contracts.

    Last year's bill also included a ground-breaking provision that 
would require Federal Prison Industries, for the first time, to compete 
for its contracts. Under this provision, DOD contracting officers, 
rather than FPI itself, will get to decide whether FPI products meet 
the Department's needs. If these DOD officials decide that FPI's 
products are not comparable to the best products available from the 
private sector in terms of price, quality, and time of delivery, they 
are required to purchase the product on a competitive basis. FPI would, 
of course, be permitted to submit his own offer.
    These provisions, when fully implemented, will result in 
substantial savings and higher quality products and services--a victory 
for the Department of Defense and the taxpayers. For this reasons, it 
is absolutely essential that they be fully implemented as quickly as 
possible.
    I look forward to the testimony of our witnesses.

    Senator Levin. Mr. Chairman, 2 years ago then-Under 
Secretary of Defense Gansler established an objective that 50 
percent of the Department's service acquisitions, measured in 
both dollars and actions, are to be performance-based by the 
year 2005. I understand that Secretary Aldridge has 
subsequently endorsed this goal.
    Ms. Styles, is there a similar government-wide goal?
    Ms. Styles. Last year, we set a 20 percent government-wide 
goal. However, it was set before I came into office, and once I 
got into office and started to look at the situation I realized 
that we had some problems at Office of Federal Procurement 
Policy (OFPP) with our definition of what a performance-based 
service contract is. Some people are confused when I say that 
because there is a definition in the statute and there is a 
definition in the Federal Acquisition Regulation. However, the 
definition in the Federal Acquisition Regulation has been 
interpreted differently by defense agencies, and what that 
meant to me was that, although we set a 20 percent goal, the 
goal is meaningless until we have a consistent definition among 
the agencies. So even if we said we were meeting a 20 percent 
goal set by OMB, it would not necessarily have meaning unless 
we all agreed what a performance-based service contract is.
    What I have done is taken some steps to establish an inter-
agency working group to come to agreement on the definition of 
performance-based service contracting, and then move forward 
with a best practices guide as well. In the interim, I realized 
that it was unrealistic to have a goal higher than 20 percent. 
We need to have goals that are realizable, and that we are 
ensured are being met as well before we start ratcheting up 
that goal. I think eventually we should meet a 50 percent goal, 
if not higher. But in the interim, I do not want to demoralize 
people or encourage them to identify something as a 
performance-based service contract that is not.
    Senator Levin. When will the definition be agreed upon? 
What is your deadline?
    Ms. Styles. We have not set a deadline yet. We are just in 
the beginning stages of putting together our group, but I 
imagine it will be a pretty short time frame.
    Senator Levin. Like a month?
    Ms. Styles. I would say 2 to 3 months, to be realistic.
    Senator Levin. Last September, the DOD IG reported that 
only 28 percent of the Department's purchases of services were 
competitive. The Inspector General recommended that the 
Department establish a goal of competing at least 75 percent of 
these orders. Secretary Wynne and Ms. Styles, when will you be 
implementing the requirement in section 803 of last year's DOD 
bill to establish a management approval process for sole source 
purchases in excess of specified thresholds so that we can get 
to that competitive approach?
    Ms. Styles. I would expect within the next several weeks. 
We have taken significant steps at the CAAC and the DARC. We 
have a working draft right now, and I expect that it should be 
approved in the very near future.
    Mr. Wynne. We are working on the same, to implement that as 
soon as we can, and we have a working group established to do 
that.
    Dee, would you like to comment on that?
    Ms. Lee. We are on the same group.
    Senator Levin. Thank you.
    I have just one additional question. Last year, our bill 
contained a provision, section 811, which ended the Federal 
Prison Industries mandatory source status on Department of 
Defense contracts and gave the Department the authority to 
purchase from the private sector on a competitive basis. It was 
a surprise to many of our colleagues that we did not allow the 
private sector to bid on government contracts. We ended that 
absurdity after a lengthy debate in the Senate and it was 
adopted as part of the final bill.
    This provision became effective on October 1, 2001. Ms. 
Styles and Ms. Lee, when will we get final regulations 
implementing section 811, and in the interim, are Department of 
Defense contracting officers being forced to purchase products 
from the Federal Prison Industries on a sole source basis, not 
allowing private contractors to bid, even though the law says 
that they do not have to? Two-part question. Ms. Styles?
    Ms. Styles. The Department of Defense submitted their 
proposed rule to OIRA earlier this week. That begins the 90-day 
OIRA clock. During that time period, OIRA is soliciting 
comments from the departments and agencies. It would be 
implemented as an interim rule, so they are looking at it 
cautiously, but I would anticipate that before the end of that 
90 days that the rule will be published.
    Senator Levin. Ms. Lee, do you have anything to add to 
that?
    Ms. Lee. That is the correct status, sir. Individuals would 
have to come forward with a waiver should they have something.
    Senator Levin. In the interim, until that rule is adopted, 
are people in the Department being forced to buy from Federal 
Prison Industries, even though the law says the private sector 
should be allowed to bid?
    Ms. Styles. That is an operational question, I believe.
    Ms. Lee. The current regulation as it stands instructs 
people to first go to Federal Prison Industries and buy 
specific products or get a waiver.
    Senator Levin. The law supersedes the regulation, and we 
would urge you to abide by the law effective October 1, 2001.
    Secretary Wynne?
    Mr. Wynne. Right. I would tell you, Senator Levin, that we 
are being very quick to respond to a waiver request. In the 
absence of the rule, that is the only process that we have 
available to us. However, the revised statute is made well 
aware to our contracting community, and so the concept of being 
forced to buy from Federal Prison Industries is not the issue. 
I think it is that we are simply waiting for the rule to be 
promulgated, but the contracting community is well aware and we 
are prepared to process waivers.
    Senator Levin. I would think that the waivers should be the 
rule until there is an interim rule. In other words, the law 
says they should be allowed to bid, so that supersedes any 
previously existing regulation. I would suggest that waivers be 
automatic until somehow or other there is a regulation which 
adopts some process. But we have a law, it is clear, and I just 
do not want to see it evaded in any way, either through delay 
or through misinterpretation.
    Mr. Wynne. I would tell you, Senator, we put flank speed on 
when the law was delivered to us and I know that our colleagues 
at the Office of Management and Budget did the same thing.
    Senator Levin. We thank you. I know that the Department 
supported this effort.
    Again, Senator Nelson, let me thank you for yielding.
    Senator Akaka. Senator Ben Nelson.
    Senator Ben Nelson. Thank you, Chairman Levin and Chairman 
Akaka.
    I would like to thank the panelists for being here today. I 
certainly think it is enlightening to have a better idea of 
what is happening in terms of acquisition process and assets. 
Obviously, a management improvement plan to try to pursue more 
competition and to deal with the percentage requirements of 
statutes is extremely important.
    What I would like to do, having just gotten back from 
Afghanistan, Pakistan, and Uzbekistan this weekend, is say that 
our troops are working hard. I feel that they respect the 
assets and support they have in terms of equipment, some of it 
new, some of it old, and some of it retrofitted. I did not hear 
any criticism of inadequacy in terms of what they have been 
given to fight with. I think that is an important statement to 
make.
    As we look at the budget that has been submitted and the 
request for additional funds, much of the purchasing that is 
contemplated in that budget would be for what I would call 
transformational type assets or transformational type programs. 
I am concerned about the amount I see in that budget for old 
items from the last war and the previous last war.
    Does the process that you have, in looking at acquisitions, 
raise sufficient questions about whether we need all of the old 
assets that are being required as part of this budget? Every 
news story has a different opinion about where we should be 
putting the money. I have my own view. I just do not happen to 
be in the news media.
    But as I look at it, I am concerned. Anything that we spend 
on old assets, which might require retrofitting at the very 
least in the future and that do not seem to be in line with the 
type of war that we are fighting today and most likely the type 
of war we are fighting tomorrow, is siphoning away resources. 
No matter how large the request, the resources to fulfil those 
requests are limited.
    As we look at the large budget, my question to you is, do 
we have in place a procedure or process that would permit the 
evaluation of the type, quality, and necessity of the assets 
that are being requested as part of the budget that has been 
submitted? For any or all of you.
    Secretary Wynne.
    Mr. Wynne. Senator, first of all, I would like to thank you 
for the compliment to our soldiers in the field and for noting 
that they are being adequately resourced. I think it is an 
imperative to make sure that we have provided them the 
wherewithal to engage and defeat whatever enemy.
    Senator Ben Nelson. I might suggest an upgrade in the tent 
that I slept in while I was over there. [Laughter.]
    Mr. Wynne. That is getting to facilities.
    Senator Ben Nelson. Yes.
    Mr. Wynne. But it is the purview of the Chairman of the 
Joint Chiefs to certify war-worthiness and I probably would be 
entering his area. I know there is a Joint Requirements 
Oversight Council (JROC) through which all program 
developments, even major modifications.
    I myself am a pretty big bug, if you will, on 
interoperability. I believe, and the studies show, that during 
the inter-war period, less than 10 percent of the forces of 
Japan and Germany were actually transformal. The Germans when 
they attacked actually still had horse-drawn artillery.
    There is great anecdotal evidence of a guy on horseback 
calling down a Joint Direct Attack Munition (JDAM) from a B-52 
and closing the engagement with an 1825 cavalry charge, which 
some would say means we ought to get some horses. But the fact 
is that this shows the utility, if you have interoperability, 
of the systems in the field.
    We have asked the Secretary of Defense to review legacy 
systems that are not interoperable and make sure they become 
interoperable by 2008 or be examined for elimination. That is 
going to bring some hard decision points forward.
    Senator Ben Nelson. Excuse me. What time frame would that 
be? Would that be before we have to finally decide on this 
budget?
    Mr. Wynne. We set a deadline of 2008 because right now we 
have a tremendous number of systems that are coming forward for 
interoperability enhancements. My charge to that is, do we want 
to make those interoperable or do we want to let them lay 
fallow? So my answer to your question, I suspect, is that we 
really do not have a deadline set in the year 2002 that might 
assist you. I think you should probably engage the members of 
the Joint Chiefs of Staff on that subject and they can give you 
a better feeling for it.
    Senator Ben Nelson. I am sure we will. Thank you.
    Senator Akaka. Thank you very much, Senator Nelson.
    Mr. Secretary, the DOD has reduced its acquisition work 
force approximately 50 percent from the end of the fiscal year 
1990 to the end of fiscal year 1999 while the workload has 
essentially remained constant, or even increased by some 
measures. In August 2000, then-Under Secretary of Defense for 
Acquisition, Technology, and Logistics, Dr. Jacques Gansler, 
wrote a memorandum stating: ``I recommend that the DOD not have 
any further mandated acquisition work force reductions as a 
goal after fiscal year 2001. By any terms, the DOD acquisition 
work force has been drastically reduced while at the same time 
the number of DOD procurement and contracting actions has 
increased. We have gone as far as we can in mandating 
acquisition work force reductions without causing significant 
adverse impacts on the DOD acquisition system.''
    Mr. Secretary and Ms. Lee, do you share Dr. Gansler's view 
on this issue, and can you tell us what assumptions this year's 
DOD budget makes with regard to the size of the acquisition 
work force?
    Mr. Wynne. To my knowledge, we make no change in the 
acquisition work force other than human capital planning. We 
have staged the Defense Acquisition University budget at levels 
that were historic. We have given them an increased mission. We 
recently took the first step toward meaningful strategic human 
capital management. The components conducted the first cycle of 
our human capital strategies plan in August of 2001, and we 
transmitted guidance to the components for the second cycle of 
human capital strategy planning in January 2002 to determine 
the right number of people with the right skills needed to meet 
the challenge of this new century.
    This information will be used to develop marketing, 
recruiting, hiring, and retention programs, because what we are 
faced with is the voluntaries. We do not want to be forced to 
take a draconian cut, because we will lose our skill base. We 
are concerned about losing that skill base in any event, which 
is why we are doing this human capital strategic planning.
    So while I will tell you that there are always locations 
where you can trim that have maybe run out of a program, by and 
large we feel that right now we are at a risky part of our 
process and we would appreciate the support of this 
subcommittee in avoiding any mandated reductions this year or 
next, frankly. I think by 2005 we will have a much better 
handle on what happened to us.
    Senator Akaka. Ms. Lee, do you have anything to add?
    Ms. Lee. I agree, we certainly are working a great deal 
with the Defense Acquisition University to try to make sure we 
have currency training and that the people we have feel like 
they are current and prepared with the new challenges that Ms. 
Styles mentioned. We are also working to make sure that we are 
ready when we begin to get new people in the work force, so 
that we can train them up quickly and then support them as they 
perform their jobs.
    Senator Akaka. Ms. Styles, as the administration continues 
to emphasize contracting out and competitive sourcing, the 
skills, training, and experience of the acquisition work force 
will be critical in effectively managing these contracts. In 
addition, the Federal Government will be faced with significant 
demographic challenges. As was mentioned, 50 percent of the 
acquisition work force will be eligible to retire in the next 5 
years.
    Ms. Styles, does our current acquisition work force have 
the quality and training to adapt to new acquisition reforms as 
well as to the increased workload and responsibility for 
managing privatization efforts?
    Ms. Styles. I think we always need to work on the training 
and the quality of our work force. Many have the current 
skills, but what I am looking for right now is a period of calm 
so we can make sure that the acquisition work force in place 
understands the flexibilities of the procurement system and 
knows how to use it. If we keep reforming and changing the 
system, no one is ever going to know how to effectively use it.
    In my statement I cite to the Department of Defense's 
performance after September 11, which proved that they had 
spent time learning, training, and knowing how to use the tools 
of acquisition reform. That is not the case for many of the 
civilian agencies. One thing that September 11 brought out was 
the agencies that knew how to contract well and the agencies 
that did not, which somehow were asleep during acquisition 
reform. We have had to spend a lot of time with several 
civilian agencies to bring them up to speed, detailing people 
over there to make sure that they are able to meet the current 
needs to address the terrorism issues. We need to make sure 
that everyone knows how to work under the current system and 
not keep reforming and reforming it.
    One point you made, however, I would like to clarify. We do 
not have a contracting out initiative. We have a competitive 
sourcing initiative. Our focus is not on contracting out 
employees. Our focus is on public-private competition. The 
reason for that focus is so we can ensure that the public 
sector employees that we have right now have the opportunity to 
compete for their job, but also are subject to the pressures of 
competition. Therefore, we can make sure that we are managing 
our agencies effectively and that we get the innovation and 
cost savings the private sector can bring to the table.
    Senator Akaka. Since you mentioned managing, what steps can 
we take to enhance the training and qualifications of our 
acquisition work force?
    Ms. Styles. Since I look at this from a government-wide 
perspective, I think one of the key things that we need to do 
is make sure that the qualifications standards for both the 
defense work force as well as the civilian agencies is 
equivalent. What we are finding right now is that people leave 
the Department of Defense and go to the civilian agencies, but 
they cannot come back. People from the civilian agencies cannot 
go back to the Department of Defense.
    When we face more and more people leaving during this 
retirement wave, we need to be flexible. We need to have a 
procurement work force that can move around to defense 
departments and agencies. As a general proposition, we have one 
Federal Acquisition Regulation and you should generally know 
how to use those regulations and be rather easily able to move 
from agency to agency, whether it is a civilian agency or the 
Department of Defense. We really need to make sure that we work 
toward integrating defense and civilian agencies and their work 
force, including training as well as their requirements.
    Senator Akaka. Over the past 5 years there have been 
proposals to exempt Federal contractors from ceilings that 
limit the amounts that may be charged to the government for 
travel and relocation expenses. However, the proposals would 
continue to cap travel and relocation expenses for Federal 
employees. I opposed eliminating the reimbursement ceilings for 
contract employees in light of estimates by the Defense 
Contract Audit Agency that said the proposed regulations would 
cost the government $130 million annually. This figure was 
supported by the 1999 GAO study that found that contractors who 
were allowed to bill reasonable business travel expenses cost 
the government significantly more than those who are held to 
per diem rates.
    The question is, are there plans to revive these 
regulations? If so, is there no evidence that lifting the 
ceilings will save the American taxpayers money?
    Ms. Styles. We have both of those rules under consideration 
in the FAR Council right now. I certainly understand the 
concerns that contractors would somehow be treated differently 
than the Federal work force. I think if a contractor is staying 
at the Ritz-Carlton and the Federal employee is staying at the 
Holiday Inn, there are obvious equity concerns with that.
    On the other hand, there are concerns from contractors, as 
well on the cost side, about the amount spent determining the 
reasonableness of the costs and what kind of system contractors 
have in place to determine the reasonableness of the costs as 
well.
    These are under consideration right now. I anticipate that 
we would come out with something dealing with relocation, but 
nothing that would differentiate between the Federal work force 
and the contractors in an unfair way. The travel costs are, I 
think, on hold for a while, while we take into greater 
consideration what the increased costs on the budget side would 
be, as well as the policy issues.
    Senator Akaka. The Clinger-Cohen Act eliminated the 
requirement that every purchase of information technology (IT) 
go through the GSA, making it much easier for DOD and other 
agencies to purchase high technology products such as the 
latest computer and communications equipment. The underlying 
premise of the act was that agencies were better positioned to 
do their own capital planning and manage their own IT 
resources.
    Unfortunately, it appears that in many cases the required 
planning is not taking place at all. Ms. Styles, do you think 
we have a problem here, and if so, what can we do about it?
    Ms. Styles. I think that is a problem. I think in many 
respects, and the IT area is a prime example, we have not 
focused on acquisition planning, acquisition basics, or doing 
what you have to do before you actually make the purchase. As a 
general proposition, a lot of the agencies are not well-versed 
in this.
    You also have a disconnect, I think, between people who are 
buying these things and the people who need them. The 
procurement people often are not talking to the requirements 
people, who are not talking to the management people. In order 
for us to effectively function and procure things, be it IT or 
other systems, you have to get these groups of people 
communicating and working together better. I think the 
procurement people have often been left at the tail end of the 
process; all the decisions are made and then you toss it to the 
procurement people to go out and purchase it for you.
    Our system cannot work effectively, unless we are promoting 
the participation of the procurement people very early in the 
process to provide their guidance and expertise.
    Senator Akaka. Two years ago, Congress enacted the 
Government Information Security Reform Act to provide a 
comprehensive framework for ensuring computer security 
throughout the Federal Government. This statute is scheduled to 
expire later this year.
    Ms. Styles, are you familiar with the Government 
Information Security Reform Act and, if so, do you believe that 
it should be extended?
    Ms. Styles. I am not entirely familiar with it, so I am not 
going to present an administration view on its extension, 
although I can tell you from an acquisition perspective we just 
initiated a case on IT security to ensure that when we enter 
into a contract with a contractor that we have all of the 
security needs and requirements taken care of in the contract, 
because we do not have a specific contract clause dealing with 
that right now.
    Senator Akaka. Let me call on Senator Nelson.
    Senator Ben Nelson. Thank you, Mr. Chairman.
    Ms. Styles, I recognize the Ritz-Carlton and Holiday Inn 
issue. I recommend those tents and travel by C-17. It will 
reduce unnecessary travel, I can assure you.
    Ms. Lee, as you are aware, Offutt Air Force Base, Nebraska 
is the home of the Fighting 55th Wing and Strategic Command 
(STRATCOM). The 55th has been asking for at least two more RC-
135 Rivet Joint aircraft for several years. In fiscal year 
2002, there was funding for new RC-135s as well as some new 
engines for the older aircraft that are in service. As a matter 
of fact, the RC-135s mission has proven to be invaluable 
because they were among the first aircraft sent over 
Afghanistan in Operation Enduring Freedom. The number of 
sorties that they have flown has continued to increase 
tremendously.
    Can we find out the status of the new RC-135s, and is there 
a plan to replace them with something like the Boeing 767 
airframe or some other manufacturer? Do we have a time frame? 
Sometimes the local folks ask me questions and I do not always 
have the answer, but I would like to try to find the answer.
    Ms. Lee. Senator, I do not have the details. I would be 
happy to get them for you.
    Senator Ben Nelson. If you would.
    Mr. Wynne. We would be happy to take that for the record.
    [The information referred to follows:]
    Mr. Wynne. Funds were provided in the second 15-day release of the 
Defense Emergency Response Fund for conversion of two existing C-135B 
aircraft to Rivet Joint (RJ) baseline seven configuration. House 
Appropriations Committee, Defense Subcommittee (HAC-D) included 
language in the classified annex to H.R. 107-298 requiring additional 
information prior to obligation of funds. Additional information was 
provided February 4, 2002.
    The Air Force has released funds to build one RJ, bringing the 
fleet total to 17. Projected delivery date is first quarter of fiscal 
year 2005.  
    The Air Force's long-term vision for Rivet Joint includes possible 
migration to a Boeing 767 airframe under the multi-mission command and 
control aircraft (MC\2\A) program. Three possible variants for the 
MC\2\A include ground moving target indicator (GMTI), airborne moving 
target indicator (AMTI), and signals intelligence (SIGINT). SIGINT 
variant will probably be the last to be addressed in the 2020 
timeframe.

    Senator Ben Nelson. Thank you very much.
    Senator Akaka. Thank you very much, Senator Nelson.
    I would like to call on my friend, Senator Inhofe, for any 
statement or any questions.
    Senator Inhofe. First of all let me apologize, Mr. 
Chairman. We just swore in on the floor of the House of 
Representatives the Congressman that is taking my old House 
seat, so I had to be over there to participate in that or I 
would have been here during the entire course of the hearing. I 
have some comments, but would like to include my statement in 
the record.
    [The prepared statement of Senator Inhofe follows:]

             Prepared Statement by Senator James M. Inhofe

    This morning, the Subcommittee on Readiness and Management Support 
meets to receive testimony on the status of the defense acquisition 
system. I want to thank Chairman Akaka for holding today's hearing.
    Improving how the Department of Defense buys goods and services is 
critical to our national security. We need to ensure that the money 
spent on defense acquisition is spent wisely. In doing so, however, we 
have to avoid being penny-wise and pound-foolish. We want to maximize 
competition, but we don't want to be left with only one source of 
supply after ``winner take all'' competitions. We want to protect 
against fraud and abuse, but we don't want to make doing business with 
the government so onerous that some of our Nation's top businesses 
decline to bid on government contracts.
    This hearing will address a full range of acquisition-related 
issues but will primarily focus on spiral development in weapon systems 
acquisition, the acquisition of services, and the state of the 
acquisition workforce.
    This administration has embraced spiral development as a tool to 
reduce cycle time and get weapon systems into the field faster. While 
many have applauded that goal, there have been concerns raised that 
``spiral development'' and ``incremental acquisition'' mean different 
things to different people in the Pentagon. This lack of clarity needs 
to be addressed if we are to reap the benefits from this new approach.
    Services contracting is an emerging problem area that will 
increasingly require the Pentagon's attention. Over the last several 
years, the subcommittee has heard that DOD does not do a very good job 
of managing the almost $60 billion a year in service contracts. As a 
result, Congress enacted section 801 of the National Defense 
Authorization Act for Fiscal Year 2002 to require more effective 
oversight over these contracts.
    Another emerging issue area is the acquisition workforce. DOD's 
acquisition workforce is facing an impending crisis as half of the 
eligible workforce is eligible to retire in the next 5 years. DOD is 
going to have to successfully compete with the private sector for the 
talent to run the acquisition system. Now is the time to address any 
barriers there are in attracting this new workforce.
    I look forward to hearing from our witnesses on DOD's efforts to 
address these challenges.

    Having at one time chaired this subcommittee, I have 
developed over the years some real serious concerns about our 
readiness. I really think one of the observations I would 
have--well, before I say that, since Senator Nelson was a 
little bit colloquial, I will have to be the same. Ms. Lee, I 
particularly welcome you, being from Oklahoma. It is nice to 
have you here before this subcommittee.
    One of the things that does concern me is the future of the 
public depots, the whole core area. When you have new systems, 
it seems now that we are getting into long-term maintenance 
contracts with the original manufacturers. I would like to know 
what you think about that and what we could do to develop a 
core capability that would actually reach the definition of 
core. There is a reason that we have to have that in the public 
depot system.
    At one time it was not quite as important. When I was first 
elected, there were maybe 20 or 25 defense contractors. We have 
cut it down to three right now. So the danger of being held 
hostage at the wrong time is more severe than it was at one 
time.
    Secretary Wynne, do you have any comments to make about the 
future of the public depots?
    Mr. Wynne. I believe we have a policy about retaining core 
competence within the depot structure that would meet, I think, 
the stricture of your comment. I would say that as technology 
moves on forward we are finding better and better ways of not 
reducing necessarily the ultimate need, but certainly the 
instant need for some of those as it applies to new technology 
systems.
    This is causing a strain between the provision of the best 
systems to our warfighters and the needs of supporting the 
depots. So my thoughts are still on balance. I am very neutral 
to the depots. I think they are a useful and productive means 
of supporting our Armed Forces, but I recognize that the 
technology cycles are getting fairly fast, and that fast pace 
is allowing us to do more built-in tests, return okays, and 
reduce spares.
    In fact, a major push of ours is reducing the total 
ownership cost, which is causing people to rethink the sparing 
policies in total.
    Senator Inhofe. I would like to be able to talk to you from 
time to time on ideas that we have. I know several of the three 
remaining air logistics centers are looking into some real 
creative things, getting a lot of public funding or a lot of 
private funding and forming partnerships. I think you are 
probably aware of that.
    Mr. Wynne. Yes, sir.
    Senator Inhofe. In fact, the first trip that Secretary 
Roche made, when he was first sworn in, was out with me to go 
over those issues. I know there is an interest in that.
    It has been reported that the DOD will soon report to 
Congress that the cost growth in weapons systems will be up by 
15 percent. I do not know whether any of you have already 
looked at that and would be able to share with this 
subcommittee the reason for that additional cost?
    Mr. Wynne. No, sir, I have not. In a return to the previous 
question, I certainly endorse the public-private partnerships 
that have occurred. I think that is the wave of the future 
because it allows the depots to really infuse themselves with 
both management and technical capabilities they had a hard time 
getting before.
    As to the 15 percent cost growth, sir, I am not familiar 
with that. I do know that we have effectively created a 
credibility in budgeting and asked that instead of having the 
program managers produce their own cost estimates, we have 
turned to the independent cost group out of the Cost Analysis 
and Improvement Group (CAIG) in the Department of Defense. That 
has caused some of the programs to increase in perceived cost. 
We consider that that was not an increase in real cost, it was 
an increase in the cost that was driven by how we estimate 
today.
    One of the things that I would tell you is when we were 
faced with Navy Area Missile and we refused to certify to the 
Nunn-McCurdy breach this was a shot across the bow. A lot of 
these programs that have come marching in believing that the 
Secretary was going to sign off on that breach. I think it has 
caused a lot of rethinking out there as to how exactly to meet 
the new baselines that they proffer, and I think it has given 
the Secretary the right kind of message to send.
    We want to be credible to you, sir, to this subcommittee, 
and to Congress in general.
    Senator Inhofe. I appreciate that very much.
    Let me ask Ms. Styles one question. Are you familiar with 
the legislation that was introduced by Senator Warner and 
Senator Thompson, S. 1780, to provide emergency contracting 
relief for agencies necessary to respond to terrorist chemical 
attacks?
    Ms. Styles. Very familiar.
    Senator Inhofe. Do you know where it is bogged down now, 
and what is your feeling about the legislation?
    Ms. Styles. We are very supportive of the legislation. We 
would like to see it enacted as soon as possible. A lot of it 
only will be effective for the next 18 months and we think it 
would be essential to get it in place as soon as we can, 
particularly with regards to other transactions authority for 
the civilian agencies. It is a tool that the Department of 
Defense has to do research and development on but that the 
civilian agencies do not have.
    We do not know where it is bogged down right now. There has 
been a hold on the legislation and we do not know where that is 
coming from.
    Senator Inhofe. I see. That is a concern of mine.
    Secretary Wynne, you used the term, ``a shot across the 
bow.'' I think, as tragic as September 11 was, it was also a 
shot across the bow. You are seeing a change in attitude, a 
recognition by many people who did not perceive any threat to 
be out there. We have had a serious problem in our readiness 
during the years that I have been serving here in the Senate. 
If you just look at the change in attitude after the September 
11 tragedy in terms of the concentration of what we are going 
to be doing to defend America, I think it has had a good effect 
on a lot of the young people that are serving.
    I had occasion to be over at Lansduhl, Germany, and talk to 
all the injured people from Afghanistan. Without exception, 
each one of them said they want to get back to their unit and 
they said that they want to make a career out of the military.
    One young lady on the U.S.S. Stennis that was in an 
refueling operation over there, really under combat conditions, 
got her leg caught in some kind of a cable and it dragged her 
over the aircraft carrier. If you have ever looked down off the 
edge of one of those things, it goes down about 70 feet, into 
choppy water. She crushed both of her lungs. I sat and talked 
to her in the hospital and she said she is just anxious to get 
back to her unit and she is going to make a career out of the 
United States Navy.
    So as bad and as tragic as things are, some good and 
positive things will come from that.
    Mr. Wynne. Thank you, sir, for that uplifting story. We are 
so proud of our people that are participating in this 
engagement, we are popping our buttons. They really are doing a 
magnificent job.
    Senator Akaka. Thank you, Senator Inhofe. This is my final 
question. The DOD Inspector General reviewed DOD's compliance 
with the Truth in Negotiations Act, which requires contractors 
to provide certified cost and pricing data to the government in 
sole source procurements of non-commercial products to ensure 
that the prices they charge for these products are fair and 
reasonable.
    The IG found that contracting officials lacked valid 
exceptions from obtaining certified cost or pricing data and 
failed to obtain required data in 36 percent of the 145 
contracting actions. In addition, price analysis documentation 
did not adequately support price reasonableness in 124, or 86 
percent, of those 145 actions. Contracting officials did not 
challenge items characterized as commercial and they accepted 
prices based on contractors catalogues and price lists without 
analysis.
    Ms. Styles and Ms. Lee, are you aware of the Inspector 
General's findings?
    Ms. Lee. Yes, sir.
    Ms. Styles. Yes.
    Senator Akaka. Would you agree that we need to tighten up 
our contracting processes to ensure that we get the information 
we need and perform the analysis we need to ensure that the 
government gets good prices in sole source procurements?
    Ms. Styles. Absolutely. One key area that we may have left 
behind in acquisition reform is the need to make sure, if we 
are dealing with a cost reimbursement contract or we are 
looking at something that is non-commercial in nature, that we 
are getting the appropriate, reasonable price for a good. A lot 
of times the examination of that price has been left behind in 
negotiations or in audit or otherwise.
    We really have to make sure, I think for the integrity of 
our procurement system, that we are getting value for our 
taxpayer dollar. I am concerned on several levels that we are 
not negotiating the best prices and we are not going back and 
reviewing to make sure that the taxpayer is protected in these 
instances.
    Senator Akaka. Ms. Lee?
    Ms. Lee. I agree. We are certainly spending a lot of time 
with our folks in the field emphasizing the importance of 
pricing, whether that be in a sole source buy or even for 
commercial items. Sometimes we will have a sole source item and 
someone will say it is commercial, that is the price. We still 
emphasize to our folks that they do need to do price 
reasonableness and make sure that the taxpayer is getting value 
for the dollar spent. That certainly is an area of emphasis.
    Mr. Wynne. Senator, I certainly appreciate that instructive 
comment. I do not know if Senator Inhofe realized that in the 
audience is the Executive Contracting Class No. 301, and I hope 
they were taking notes on that particular question because that 
is very valuable instruction. Thank you, sir.
    Senator Akaka. I thank Secretary Wynne, Ms. Styles, Ms. 
Lee, and Class 301. I want to thank the three of you for your 
testimonies and your responses to our questions. They have been 
very helpful.
    These are difficult issues and we have to work on it and do 
the best we can in resolving them. I think we will do that. I 
look forward to continuing to work with all of you.
    If there are no further comments, thank you so much for 
coming and for all you have offered today.
    Mr. Wynne. Thank you, Mr. Chairman.
    Senator Akaka. The subcommittee adjourned.
    [The prepared statements of Mr. Bolton, Mr. Young, and Dr. 
Sambur follow:]

            Prepared Statement by Hon. Claude M. Bolton, Jr.

                              INTRODUCTION

    Mr. Chairman and distinguished members of the subcommittee, thank 
you for this opportunity to report to you on the state of acquisition 
reform within the United States Army. It is my privilege to represent 
the Army leadership, the military and civilian members of the Army 
acquisition workforce, and the soldiers who rely on us to provide them 
with world-class weapons and equipment so they can do their jobs at 
anytime, anywhere in the world. We strive for excellence in all areas 
that contribute directly to warfighting capability.
    We thank members of this subcommittee for your strong support of 
the Army's transformation to the Objective Force. This is a time of 
tremendous change within the Army, and we are most grateful for your 
wisdom and guidance. With your help, we will remain the world's 
preeminent land warfighting force--persuasive in peace and invincible 
in war. Your continued advice and support are vital to our success.

                          ARMY TRANSFORMATION

    In the last 2 years, the Army has made great progress toward 
realizing a transformed force that is more strategically responsive and 
dominant at every point on the spectrum of military operations. While 
our transformation was well underway, the attacks on our homeland of 
September 11, 2001, and the operations that followed provide new 
urgency to our work, and justify our earlier decisions to accelerate 
the Army's transformation to the Objective Force. We must ensure that 
our warfighters have the capabilities they need to accomplish the 
Nation's military demands in this new and emerging global environment.
    The Army has taken a holistic approach to transformation, 
implementing changes in warfighting doctrine, training, leader 
development, organization, materiel, and soldier systems--as well as 
business practices. The acquisition, logistics, and technology 
community is working simultaneously on the transformation's three 
interrelated vectors--Legacy, Interim, and Objective Force. We are 
developing concepts and technologies for the Future Combat Systems 
(FCS), our largest single investment in science and technology (S&T) 
and perhaps most significant in terms of achieving full spectrum 
Objective Force capabilities. To fill specific near-term gaps in our 
capabilities today, we are acquiring a family of Interim Armored 
Vehicles for the Interim Force. Through our Recapitalization Program, 
we are rebuilding and selectively upgrading 17 aging systems to enhance 
the warfighting capability of our current force, the Legacy Force. 
Recapitalization not only saves money, it ensures readiness for today's 
victories. In all that we do, our focus is the soldier, the ultimate 
system for decisive victories in land combat.

                    ACHIEVING ACQUISITION EXCELLENCE

    The Army's transformation applies to what we do, as well as how we 
do it. We believe strongly that streamlined acquisition management 
enhances program results, especially when there are clear and 
irrefutable lines of authority and accountability throughout the 
materiel development and acquisition processes. We are putting this new 
structure in place. Following an analysis that was requested by 
Congress, the Army Chief of Staff approved a reorganization of 
acquisition program management. To eliminate duplication of efforts 
between major Army commands, all Program Executive Officers (PEO) now 
report directly to the Army Acquisition Executive (AAE). Further, 
Program/Project/Product Managers (PM) who are either overseen by PEOs 
or report directly to the AAE now manage all Army acquisition programs 
regardless of acquisition category. This action ensures that there is 
only one chain of authority for acquisition programs within the Army, 
and clearly identifies PMs as responsible and accountable for the life-
cycle management of their assigned programs.
    The Army is the first service to elevate supportability to a level 
of importance equal with cost, schedule, and performance. We recognize 
that the acquisition and sustainment communities must work together to 
reduce life-cycle costs. As part of the restructuring of the Army 
Secretariat and Army Staff for a more unified approach in policy 
planning and resource management, the Deputy Chief of Staff for 
Logistics now provides advice and assistance to the Assistant Secretary 
of the Army (Acquisition, Logistics, and Technology) in all areas 
related to integrated logistics support. This will greatly help to 
facilitate the integration of logistics and system supportability into 
the weapon system development process. It will also allow for increased 
commonality, interoperability, and reliability of components to reduce 
total ownership costs for our fielded systems.
    In another area of great importance to the Army, we are examining 
all ways to reduce cycle times. Because advances in technology occur so 
rapidly, we fully support a spiral development/evolutionary acquisition 
approach to identify and plan for block improvements. This approach not 
only allows us to field weapon systems with the latest technology, but 
it allows us to enhance and evolve capability over time. FCS will use 
the spiral development acquisition approach to provide for rapid 
insertion of technologies as soon as they are available. Blocking 
requirements documents will lower risk and help to ensure that the 
program is on time and on schedule.
    The Army is also committed to transform our business practices. We 
are using performance-based acquisition methods to the maximum extent 
possible. Our aim is to meet, well in advance, the Office of the 
Secretary of Defense mandate that a minimum of 50 percent of service 
acquisition dollars be performance-based by 2005. We seek greater 
access to the commercial market with its increased competition, better 
prices, and new entrants/technologies. The introduction of commercial 
practices and components in our acquisition program not only saves us 
money, it supports and complements our S&T program so we can then 
afford the latest technologies for building or enhancing our weapon 
systems.
    The health of the defense industrial base is key to the Army's 
ability to continue to provide innovative technology, technologically 
excellent systems, and equipment at favorable and competitive prices. 
In this area, the Army recognizes the importance of structuring 
business arrangements with industry to ensure successful results 
through contractual incentives. The Army produced an in-depth study on 
the effective use of contract incentives and co-sponsored development 
of a distance-learning course to educate the workforce. Our focus on 
incentives will provide our contracting workforce with the skills and 
tools necessary to provide sound business practices that will motivate 
contractors to do the right thing.

                      EXCELLENCE IN THE WORKFORCE

    The United States Army Acquisition Corps and the entire Army 
acquisition, logistics, and technology workforce are the most 
professional, well trained and educated, and devoted workforce ever in 
our history. They survived years of reductions and consolidations and 
are now poised to provide the full range of support that is required to 
meet the Army's transformation goals and develop the Army of the 
future. We are justifiably proud of their significant accomplishments, 
as well as their eagerness to meet future challenges.
    To continually attract new personnel, the Army Acquisition Corps is 
developing programs to recruit members with both technical and business 
skills from college campuses, corporate America, and the small business 
community. Internally, we are developing multifunctional acquisition 
leaders and managers through programs like the Competitive Development 
Group (CDG), Regional Development & Assignment Program, and the 
Acquisition Career Experience (ACE) Mentor/Intern program. Army 
Commanders, PEOs, and other senior acquisition leaders have created a 
culture that encourages cross-functional training and experience as a 
key to professional growth and career progression.
    In partnership with the Defense Acquisition University and the 
Naval Postgraduate School, we provide our workforce with access to 
advanced acquisition education and training. We also provide advanced 
business and training opportunities at several prestigious universities 
(University of Texas, Massachusetts Institute of Technology, Carnegie 
Mellon, Harvard, and others). To sharpen business skills, the Army has 
teamed with the University of Virginia's Darden Graduate School of 
Business Administration to train acquisition professionals to compete 
in the new business environment. Finally, through the Army Tuition 
Assistance Program we are providing our workforce with fully funded 
opportunities to complete their college or advanced education while 
remaining on the job and at home with their families.
    Our acquisition professionals are at the front of the 
transformation march. That is why we are empowering them to 
continuously look for and adopt smarter ways of doing business. We are 
structuring an environment of innovation, where they are allowed to 
identify and manage risk, and make decisions rather than avoid them. If 
we are to continue to develop, procure, and deliver world-class 
products to our soldiers, a highly trained, well-educated, quality 
workforce is essential.

                               CONCLUSION

    What it all comes down to--transforming the Army, acquisition and 
logistics excellence--is the importance of working hard and working 
together with our industry partners to transform our products and 
processes so we wisely use our defense resources to preserve and 
enhance our military capabilities today, while we build the future 
force. The world situation demands an Army that is strategically 
responsive and dominant at every point on the spectrum of military 
operations. We are working hard to ensure that America's soldiers 
continue to be the best trained, best led, and best equipped land force 
on earth.
                                 ______
                                 
             Prepared Statement by Hon. John J. Young, Jr.

    Mr. Chairman, distinguished members of the subcommittee, thank you 
for this opportunity to discuss the acquisition process. I know that 
Deputy Secretary Wynne will provide a detailed statement covering a 
broad spectrum of acquisition goals and initiatives. This subcommittee 
and Congress have led the way in enabling changes in the defense 
acquisition process. I would like to highlight a few areas where the 
Department of the Navy is using the tools you have provided to further 
streamline and improve the way defense systems are developed and 
acquired.
    I will start by telling you that the Navy and Marine Corps are 
uniquely positioned and configured to respond to the challenges our 
Nation faces. They are prepared to meet these challenges with Naval 
Expeditionary Forces steeped in a tradition of operating deployed; 
swiftly responding to threats to U.S. interests, often in areas where 
access may be restricted by friends, withheld by neutrals, or denied by 
adversaries. Naval Forces are capable of initiating and sustaining 
nearly unlimited combat operations by sea, land, and air without being 
limited by a lack of logistics or host nation support.
    The capability of the Navy and Marine Corps has been well 
demonstrated during Operation Enduring Freedom. Forward-deployed 
aircraft carriers provided the tactical strike capability needed in the 
Afghanistan campaign. The Marine Corps deployed over daunting distances 
to secure the airfield and conduct operations at Kandahar against 
terrorists. Even with these successes, the Department is looking at how 
to provide greater capability for the future. Through programs such as 
the experimental destroyer (DD(X)) and nuclear powered guided missile 
submarine (SSGN), as well as networking our current ships and aircraft, 
we are building survivable and responsive combat capability for the 
future.
    In order to build that greater combat capability, the Department of 
the Navy first had to take steps to stabilize the current modernization 
program to provide a base for building new systems and concepts. The 
Navy faced prior-year completion bills for ships under construction as 
well as cost growth in several programs. We had to take both management 
steps and budget actions to ensure current programs are executable. I 
believe our current combat capability is healthy, we have a more stable 
acquisition program, and this combination provides a solid foundation 
for Navy transformation.
    Ensuring this foundation is one of the major goals of the fiscal 
year 2003 Budget Request. As the Secretary of the Navy testified to 
this committee, the Navy and Marine Corps' first priority was our 
commitment to our people and their training as well as to the readiness 
of their equipment. As the next priority, we have funded systems such 
as Cooperative Engagement Capability (CEC) and the Naval Fires Network 
(NFN) to enhance the performance of the current warfighting systems. 
Finally, we have sought to fully fund our ship and aircraft 
construction programs while adding funds to develop new capabilities 
such as DD(X) and SSGN. With this foundation, there are opportunities 
to make additional improvements in how we develop and buy new systems.

                    FUNDING TO INDEPENDENT ESTIMATES

    First, as I noted, the Marine Corps and Navy have sought to ensure 
that programs are fully funded. The current Department of Defense (DOD) 
policy encourages that programs be budgeted to the Cost Analysis 
Improvement Group (CAIG) estimate. However, DOD's ability to develop 
greater capabilities and achieve higher procurement rates will be 
diminished if every program delivers to the CAIG estimate. Thus, once 
we fully fund programs, there is still an urgent need for policies and 
strategies that provide incentives for programs to deliver at a lower 
cost and on a faster pace.
Buy To Budget
    I plan to work to keep a significant portion of any savings within 
the program. One excellent incentive option is a technique described as 
buy-to-budget. Under this approach, the Department would be allowed to 
buy additional quantities for the authorized and appropriated budget. 
The buy-to-budget concept has received support from Secretary Aldridge 
for application to the Air Force F-22 Raptor program. This concept 
gives industry a chance to perform better than the CAIG estimate and 
thereby reduce cost and produce more. The Department may even decide to 
view delivery to the CAIG estimate as marginal past performance for 
that contractor when evaluating new proposals.
    Following the pattern of Secretary Aldridge on F-22, I recently 
signed an acquisition decision memorandum for the new sidewinder (AIM-
9X) missile to encourage the procurement of the quantity allowed by the 
CAIG estimate, the higher quantity allowed by the program office 
estimate, and the possibility of buying even more missiles if 
additional greater efficiencies and savings can be found. Allowing the 
government and industry program team to deliver more systems for a 
fixed amount of dollars is a useful incentive. Taking dollars from a 
program that becomes more efficient is a disincentive to improve. I 
hope we can all work to keep a significant portion of any savings 
within a program to purchase greater quantities or to make production 
investments that can lower future procurement costs.

                    INFLATION AND GENERAL REDUCTIONS

    Second, I would like to suggest that general reductions to programs 
can have a significant impact on our ability to procure efficiently. 
Secretary Aldridge suggested, and I agree, that each $1 cut from a 
program can result in a $3 to $5 cost increase. If the program had a 
slim profit margin or a tight delivery schedule already, then the Navy 
and Marine Corps will be renegotiating milestones as well as schedule 
and program cost.
    When signing a contract, the Defense Department has to work with 
industry to make assumptions and projections about future labor rates 
and material cost inflation. The reality is that software intensive 
weapon systems with complex technology and low procurement rates do not 
generally experience inflation at the same rates as consumer products. 
When the Defense Department adjusts program prices to changes in 
consumer-based inflation indexes, we build a cost challenge into the 
program's budget. These reductions can also lead to re-planning of 
schedules and milestones if the program cannot achieve savings.
    The impact of such reductions on multi-year procurements is 
obvious. First, the programs have few places to turn in taking 
reductions or achieving savings while maintaining the multi-year 
contract. Frequently, these decisions can have an unintended 
consequence of deleting cost reduction initiatives and other production 
process improvements. Reductions force program managers to re-plan 
their schedules and milestones, renegotiate contract line items, and 
extend the schedule for accomplishing the same work. All of these 
changes waste man-hours and increase cost. This process is the 
antithesis of affordability. The most cost effective way to deliver 
affordable weapons is to make realistic inflation assumptions, allocate 
an adequate budget, and to avoid general reductions to the program 
budget.

                             CLINGER-COHEN

    Third, the Navy, along with the other military departments, has 
been working with the Office of the Secretary of Defense (OSD) to 
clarify the application of the Clinger-Cohen Act (CCA) requirements to 
information technology (IT) systems used for warfighting and to align 
implementation of the CCA with the existing DOD acquisition process for 
these systems. Positive steps are being taken to develop OSD 
implementing policy that recognizes the unique requirements of both 
processes but reduces the ambiguity, duplicative paperwork, and 
extraneous requirements, which arise from directly imposing CCA on the 
existing acquisition process. Having accomplished that, the next step 
will be to review how well the modified processes serve their intended 
purpose-to improve the productivity, efficiency, and effectiveness of 
our programs; and if not, to take appropriate action to change the 
process.

            CONTINUING RESOLUTION AUTHORIZATION GROUNDRULES

    Fourth, current Continuing Resolution Authorization (CRA) ground 
rules brought several issues to light this year. While I understand 
that these ground rules were established to prevent spending that may 
not be authorized and appropriated by Congress, there may be 
significant impacts to our ability to provide the best combat 
capability.
    One of the CRA ground rules requires us to calculate the percentage 
of funds for programs based on the worst mark established in committee. 
Last year, a significant mark was made against the DD(X) program. The 
calculation limited our ability to pursue the Volume Search Radar (VSR) 
program. The Navy had to stop efforts on VSR, and the tenth Nimitz 
class aircraft carrier (CVN-77) planned to use this radar. Because of 
this disruption, the VSR program schedule can no longer satisfy the 
needs of the CVN-77 program, and the Navy now must evaluate alternate 
radar acquisition strategies.

                   DEVELOPMENT TEST/OPERATIONAL TEST

    Fifth, I believe that Spiral Development concepts can provide more 
affordable programs. However, the current Development Test/Operational 
Test (DT/OT) testing requirements make it difficult to tailor testing 
to a program in spiral development. In these cases, testing 
requirements may kill the spiral development concept for some programs. 
The Department will have to work with the testing community and 
Congress to define new processes that allow us to develop and insert 
new technologies as they become available without making this insertion 
process unaffordable because of the cost and schedule impacts of 
testing.

                               TIMELINES

    Finally, I am also concerned that our present budgeting and 
acquisition procedures, taken as a whole, frequently impede our ability 
to exploit technology for improved combat capability and cost 
reduction. While new technologies are emerging from government and 
commercial laboratories at an increasing rate (and in the case of high-
tech electronics may become obsolete and cease production in as little 
as a few months), our process means that at least 2 years will elapse 
from the time a specific technology opportunity is recognized until 
funds are programmed and available to take advantage of it. My concern 
is not that we are missing ``breakthrough'' opportunities, but that we 
are not making effective use of the many incremental advances that are 
all around us. 
    Let me give an example of a success story, to show what can be done 
but too often is not. The baseline design of the F/A-18 E/F Super 
Hornet was decided several years ago and included a copper cable-based 
avionics data network which could meet or exceed the requirement and 
represented the state-of-the-art. The data networking needs grew with 
time and by mid-2000 the Program Manager (PM) realized that the 
bandwidth requirement for Initial Operational Capability (IOC) could 
probably be met by adding more cable (and weight) but that by 2010 the 
cabling throughout the airplane would have to be replaced with fiber 
optic cable at great expense. Working with what is now the Commercial 
Technology Transition Office (CTTO), he determined that new commercial 
off the shelf (COTS) fiber optic cable would meet the Super Hornet's 
needs into the foreseeable future and could be incorporated into the 
fiscal year 2003 avionics upgrade, but only if certification and other 
steps began right away. Armed with the fact that $43 million in 
lifecycle cost could be avoided by a small investment, the PM and CTTO 
obtained the necessary funding in time to meet the insertion window and 
long before the Program Objective Memorandum (POM) process could have 
responded. Besides the lifecycle cost savings, the Super Hornet 
benefits right away from a 90 percent reduction in cable weight, 2/3 
reduction in cable volume, and a 10-fold increase in data capacity.

                        ACCOMPLISHMENTS TO DATE

    I have talked at length about some broad policy issues that may 
merit review by both Congress and the Defense Department. Now, I would 
like to offer a few specific examples of areas where the Navy has made 
positive changes in program acquisition strategies. In highlighting 
these examples, I would like to illustrate the benefits of the changes 
for modernization, since even these program adjustments will require 
the support of this committee. Therefore, I am grateful to the 
committee for the opportunity to explain our motivation.
DD(X)
    Since I was sworn-in, I have spent more time on the DD(X) program 
than probably any other program. I am convinced that the family of 
combatants, led by DD(X), is essential to the future of the Navy. I am 
equally convinced that the DD 21 (the next generation destroyer) 
program could not continue.
    The transition from DDG 51 (Arleigh Burke class destroyer) to DD 21 
posed significant risks for the industrial base. DDG production was to 
end with two ships ordered in fiscal year 2004. There was to be one DD 
21 ordered in fiscal year 2005, the lead ship, followed by three more 
orders in fiscal year 2007. The destroyer industrial base could not 
survive this profile, period.
    The DD 21 program also allowed very little technical risk 
reduction, and yet, many of the technologies are quite 
transformational. With DD 21, we were taking a single step to full 
capability. There was a success-oriented assumption that everything 
would proceed on schedule and cost. There were limited opportunities 
for prototyping and no room for error. The Department was risking 
significant Navy dollars, the industrial base, and the future surface 
fleet capability.
    The requirements placed on the DD 21 program were, in my view, too 
aggressive. The requirements process, never knowing what the future 
holds, is often tempted to set overly conservative requirements for the 
platform at hand. I believe we put too many requirements on DD 21, 
hedging bets that CG-21 (the next generation cruiser) may take longer 
than expected, or never come. The requirements drove substantial size 
and complexity into the ship.
    In the end, these factors resulted in a ship that was at risk. 
Indeed, the Navy was promising to deliver, within about 8 years, a 
significantly larger and more complex destroyer with all new systems 
for the price of a current DDG. Many people felt this was a formula for 
problems. The CAIG certainly did not agree with the Navy cost estimate. 
Since funding to the CAIG estimate is current policy, this alone could 
have broken DD 21 or other Navy and Marine Corps programs. Thus, DD(X) 
was formulated to employ a broad range of strategies to make our entire 
family of next-generation surface combatants more affordable.
    Stable Industrial Base--As part of the restructuring, the 
Department of the Navy first stabilized DDG production so that the 
surface combatant industrial base is not put at risk. The Future Years 
Defense Program includes a stable DDG profile. The budget added six 
DDGs in order to mitigate the severe surface combatant industrial base 
gap of prior profiles. This increase lowers the risk that the Navy will 
be able to maintain the existing surface-combatant force structure and 
represents the best compromise between required procurement quantities 
and limited resources.
    Additionally, if DD(X) ship design and technology progresses and 
matures, the fiscal year 2006 and fiscal year 2007 funds could be 
reprogrammed to build DD(X). This significant improvement in our 
destroyer transition plan allows us to go forward and competitively 
build the new family of surface combatants.
    Prototypes--To mitigate the high technical risk; the restructured 
DD(X) program adds several land-based and sea-based prototypes for the 
key technologies. This provides an excellent means of reducing risk 
within each area. The Navy will see potential problems earlier in the 
process, providing a better chance to solve them. This strategy 
improves the chances of delivering a functional destroyer within cost 
and schedule.
    Lead ship in RDT&E--The Navy plans to produce the lead ship of a 
new ship class using RDT&E funds. The Program Manager will be required 
to demonstrate progress on an annual basis to defend his budget. The 
Navy can react to problems without the risk of resorting to prior-year 
completion funding. The program manager can focus on establishing an 
efficient process for manufacturing the DD(X) class and avoid trading 
away producibility initiatives when costs increase. Being able to 
adjust the RDT&E budget for the lead ship provides the best chance to 
control costs and define a production process that allows the Navy to 
affordably build these next-generation surface combatants.
    As you all recognize, construction of the lead ship in RDT&E is a 
significant change in the Navy's approach to shipbuilding. The Navy 
believes that these policy changes provide the tools to allow a more 
manageable execution and requests the committee's support.
    Spiral Development--The spiral development approach will allow 
technologies to be fielded when they are ready through a flight 
approach, forged to capture cutting edge initiatives. As DD(X) drives 
the development of technology in many areas, we will look for 
opportunities to backfit advancements on existing platforms. Carefully 
focused upgrade and conversion programs will ensure that the existing 
core of surface combatants maintain the capability for battlespace 
dominance. Each of these strategies was employed to provide a sound way 
ahead for DD(X).
LPD/DDG Swap
    The Navy leadership has also had lengthy discussions on the 
feasibility of procuring a small quantity of a single class of ships 
from multiple yards. With so few ships being produced, we find that 
there are cases where the Department is paying a significant premium 
for the increased overhead and ramp-up costs of using multiple yards to 
build a small quantity of a single class of ships. Specifically for 
this reason, the Navy has welcomed industry interest in the possibility 
of swapping LPD (Amphibious Assault Ship) work for DDG work. This 
strategy avoids the risk and cost of building two lead ships in a 12-
ship program. Further, the strategy provides appropriate work for each 
yard that is well suited to their respective skills and capital 
investments.
SSGN
    The SSGN program promises to provide a new and transforming 
capability for the warfighters. One of my highest priorities was to 
construct a SSGN acquisition strategy that provided low risk and the 
least chance of cost growth. As I discussed earlier, the Department's 
goal is to avoid building additional prior-year completion bills into 
the ship construction program.
    My second priority was to construct a program which was conscious 
of the current workload in yards and which provided some flexibility 
for the industrial base. Lastly, I was very conscious of the potential 
impacts of SSGN on other ongoing Navy and Marine Corps programs.
    A major concern for these conversions was the workload situation in 
Norfolk. The Navy is currently experiencing delays and cost growth on 
CVN-76 (U.S.S. Ronald Reagan) and the CVN-69 (U.S.S. Dwight D. 
Eisenhower) overhaul because of worker shortages, particularly in key 
trades such as electricians and machinists. Norfolk Naval shipyard 
needs to hire people in the next year to meet its currently planned 
workload. Norfolk Naval and Newport News are currently hiring people 
from each other, at higher wages, to deal with the labor shortages. 
Thus, the east coast SSGN conversions had the potential to dramatically 
increase the labor shortages in Norfolk and to force the Department of 
the Navy to cut, eliminate, or delay other programs currently in these 
yards to pay for SSGN conversion.
    The Defense Department has developed an acquisition approach, which 
gets this transformational capability into the hands of the user 
quickly and uses a business-like approach to reduce cost-growth risk. 
The two west coast submarines will be refueled and converted 
concurrently. The two east coast submarines will have their conversions 
initiated roughly as the refueling is completed. Compared to completing 
four concurrent conversions, this compromise provides reduced risk and 
some opportunity to save dollars through learning experience from the 
initial conversion.

                                SUMMARY

    Mr. Chairman, the Navy and Marine Corps acquisition team is 
continuing to work very hard to build a blend of acquisition programs 
that maximize our current benefits while buying smart for the future. 
We are institutionalizing reforms that make acquisition success a 
common occurrence. We continue to communicate fully and openly with 
Congress, industry, our warfighters, and our acquisition professionals, 
and are doing everything it takes to make sure our sailors and marines 
are provided with the safest, most dependable, and highest performance 
equipment available within fiscal constraints. We appreciate the 
support provided by Congress and look forward to working together with 
this committee toward a secure future for our Nation.
                                 ______
                                 
               Prepared Statement by Dr. Marvin R. Sambur

    Mr. Chairman, Senator Inhofe, members of the subcommittee. Thank 
you for this opportunity to report to you on the Air Force's efforts 
and progress on acquisition reform. Your support, which has been so 
crucial to our success to date, will be vital as we work together to 
ensure that we continue to deliver to our warfighters capabilities they 
need to ensure victory.
    I am pleased to report that the Air Force has come a long way in 
reforming the way we do business. Through our two previous sets of 
Lightning Bolt initiatives and through our other groundbreaking 
innovations, we have moved steadily toward a system that embraces the 
best practices of industry and government, ensuring that our 
acquisition and sustainment professionals have the training and the 
authority to innovate and challenge the status quo.
    The successes have been impressive. Here are a few examples:
    The C-17 Globemaster III: Our multi-year procurement of the last 80 
aircraft allowed delivery 5 months ahead of schedule and avoided cost 
of at least $5.4 billion. We are pleased that Congress last year gave 
us authority to build on that success with another multi-year 
procurement.
    But it was not just in initial procurement that we have innovated 
with great success. By using commercial (FAR Part 12) procedures, we 
moved from concept to first production of the Extended Range Fuel 
Containment System--the centerline fuel tank--in just 20 months and 
began delivery of this new capability on aircraft 71.
    Integrated Space Command and Control (ISC\2\): This program 
consolidated mission functions of Cheyenne Mountain Operations Center. 
By developing the system through a series of spirals, we were able to 
deliver new capability ahead of schedule.
    F-16 FM Immunity: Europe required that all aircraft Instrument 
Landing System (ILS) receivers meet new frequency requirements due to 
interference from high-power FM and pirate radio stations. Without the 
change, U.S. aircraft could be denied airspace access or approach 
clearance. Instead of traditional procurement methods, we used a 
commercial, General Services Administration (GSA) catalogue solution. 
The result was a delivery date of 12 days, instead of 180. Initial 
operating capability was reached just 120 days after contract award.
    Joint Direct Attack Munition (JDAM): With the support of Congress, 
we made JDAM a pilot program for lean acquisition. As a result, 140 
much-needed JDAMs were delivered just 23 months after the start of 
Engineering and Manufacturing Development, we accelerated to 1,400 
units in 3 months and unit cost dropped by 50 percent.
    Small-Diameter Bomb (SDB): By using an innovative source selection 
method we held open discussions with contractors throughout a nearly 
paperless source selection process. The result was that the time from 
RFP to selection was cut from an expected 10 months to 4 months and the 
proposals received from competitors were all highly responsive to the 
request.
    These are just a handful of the successes. I'd be pleased to share 
more of them with you. But the point is that we have proven repeatedly 
that when we put our collective minds to it, and when we can win your 
trust and support for innovation, together we can do things smartly.
    Despite the impressive progress to date, much remains to be done if 
we are to achieve the President's and Secretary Rumsfeld's goal of 
truly transforming the way we conceive, develop, test, purchase, and 
sustain our systems. We must do a better job of learning from successes 
in individual programs and institutionalizing them across the Air 
Force.
    The task may be difficult, but the goal is clear: We must reduce 
the cycle times for moving new technology from the laboratory to the 
battlefield. At the same time, we must improve our ability to estimate 
both costs and schedules and greatly reduce the number of program 
surprises that undermine confidence in our programs and disrupt our 
progress. We are committed to the challenge that lies before us. 
Indeed, we really have no choice.
    Even though the United States Air Force unquestionably has 
unparalleled combat capability, the events of September 11 and 
afterward show vividly that we now face a battlefield characterized by 
unpredictable, asymmetric threats that demand fundamental change. 
Agility, urgency, and collaboration are paramount. We can no longer 
treat requirements, acquisition, and sustainment as isolated, 
independent processes. We must build strong, enduring partnerships 
between our warfighters and our acquisition and sustainment 
professionals, so that our warfighters have the tools they need to 
fight and win wars. We also must seek out every appropriate way to draw 
on the vast knowledge base in the private sector--including non-defense 
industries.
    Fortunately, Secretary Rumsfeld, Secretary Aldridge, and the 
service secretaries are fully engaged. We have no lack of support at 
the top! In fact, I believe we have a unique opportunity to make 
lasting change. Recognizing that, we already are moving out.
    The Air Force launched six new initiatives--Lightning Bolts 2002--
to address critical areas of our acquisition processes that need 
systemic improvement. Together, they form the core of what we call 
``agile acquisition.''
    They focus on:

         Streamlining our processes to eliminate non-value 
        added steps;
         Freeing managers to innovate and giving them a single 
        place to come to for help in removing bureaucratic roadblocks;
         Sustaining, refreshing, and revitalizing our 
        workforce;
         Ensuring that we are getting the best possible value 
        from the increasing share of our procurement money that is 
        devoted to services contracts;
         Establishing a ``knowledge pipeline'' with industry to 
        ensure constant communications and improvements in processes on 
        both sides of the government-contractor fence; and
         Establishing collaborative spiral development as the 
        preferred way of doing business and requiring heretofore-unseen 
        levels of collaboration between our warfighters and the 
        acquisition communities.

    Each of these initiatives will substantially increase our ability 
to respond more quickly and reliably to our warfighters needs.
    Streamlined processes: We are now in the process of developing a 
new Air Force acquisition regulation. Our goal is to replace our 
current high prescriptive regulation with one that, within all the 
bounds of acquisition law and existing DOD regulation, allows our 
program managers to tailor their acquisition strategies to their 
program while maintaining a process of fairness, transparency, and 
integrity.
    Freeing managers to manage and providing them the help they need to 
succeed: In December, we stood up the Acquisition Center of Excellence 
(ACE) and appointed one of our most innovative and senior program 
managers to run it. The Center is leading the effort to draft the new 
regulation. It will also become the focal point for lessons learned as 
we experiment with innovative acquisition strategies. Most importantly, 
it will become the place for Air Force acquisition professionals to 
turn when they need help pushing through the bureaucracy. Already, the 
ACE is asked daily for advice.
    Sustaining and revitalizing our workforce: No matter what processes 
we adopt, people will always be the key to achieving acquisition 
excellence. I know this committee is aware of the changes we face in 
the human resources arena. They are similar to those faced throughout 
the government, only worse. As you are aware, nearly half of our 
technical workforce will be eligible to retire by 2005. That represents 
a potentially crippling brain drain and comes on top of significant 
personnel reductions over the past decade that have already resulted in 
lost talent, institutional memory and mentoring capability.
    The numbers are troubling. Our acquisition workforce has been drawn 
down by 42 percent from fiscal years 1989-2001. For the last 2-3 years 
we have begun seeing symptoms indicating that the acquisition workforce 
has been cut too deeply. The following is an excerpt from testimony 
provided to House Appropriations Committee, Surveys and Investigations 
staffers during a visit to the Air Force Flight Test Center:

          ``While end strength has continually decreased since 1989, 
        workload has dramatically increased. Modeling and simulation, 
        ground testing, test planning and engineering analysis, 
        evaluation, and reporting workloads have dramatically increased 
        since 1989. The nature of testing has changed. A major part of 
        the testing and evaluation workload has shifted from flight 
        dynamics (performance, flying qualities, airframe flutter, and 
        loads) to avionics and electronic warfare evaluations. This 
        shift has been caused by the development of exceptionally 
        complex and totally integrated avionics and electronic warfare 
        systems that must be extensively tested prior to delivery to 
        the operational testers and, ultimately to the warfighter. 
        Consequently, our need for engineers (particularly systems 
        engineers) is higher than ever as older platforms such as the 
        B-52, C-130, C-5, and T-38 undergo upgrades and as new systems 
        are integrated to achieve the full-spectrum, effects-based 
        capabilities our warfighters need.
          The continuing shortage of acquisition personnel means 
        resources are not available to develop new techniques and data 
        analysis tools for weapons systems. Impacts are seen in all 
        phases of the test process, and ultimately can result in either 
        a delay in fielding the system or the lack of adequate testing 
        which can cause system problems that don't surface until 
        operational testing or after the system is fielded.''

    Overall, acquisition workforce reductions are best evidenced by the 
decline in corporate knowledge. To avoid reductions-in-force during 
acquisition reductions, the AF has aggressively utilized Voluntary 
Separation Incentive, Voluntary Early Retirement, management 
reassignment placements, and normal attrition. As a result, many of the 
people that have left were those with the greatest experience and 
knowledge, which has seriously degraded our experience levels.
    Agile Acquisition addresses some of these problems. First, we plan 
to increase participation in the Acquisition Workforce Demonstration 
Program, which gives us great hiring flexibility and gives managers the 
ability to reward outstanding achievement. Your support for this 
program, which was implemented in my headquarters organization and at 
Edwards Air Force Base, California, has made a huge, positive 
difference. We have measurable, verifiable results that show that the 
tools given to us by this demonstration project are working to improve 
the workforce. We need to move aggressively to implement this 
demonstration throughout the acquisition workforce.
    Air Force Materiel Command also has taken on the critical task of 
re-engineering our acquisition training so that we, as our Lightning 
Bolt says, begin ``breeding innovators.'' Today, too much of our 
training is focused on how to follow processes. We need to train people 
to think, take reasonable risks and innovate. We will do that through a 
new ``Change Culture Process,'' in partnership with both the National 
Defense University (NDU) and the Defense Acquisition University (DAU) 
for virtual learning. The huge personnel turnover we face in the next 
decade is daunting, but it is also a once-in-a-generation opportunity 
to mold a new workforce and ensure that it is ready for the 21st 
century acquisition challenges.
    Managing services contracts: The Air Force recently established a 
Program Executive Officer (PEO) for Services Contracting. In this role, 
the new PEO will be the Air Force focal point for all matters of 
Services Acquisition. The PEO will provide centralized AF senior 
leadership on services acquisition, particularly for efforts over $100 
million in value as well as all A-76 studies involving more than 300 
positions. Additionally, the PEO will facilitate the use of Performance 
Based Services Acquisition (particularly focused on performance-based 
specifications) and assure the appropriate application of lessons 
learned from multiple experiences. The PEO will also ensure that the 
Air Force balances its concentration on services efforts post award and 
not just on pre-award issues.
    Sharing information with industry: We must find a better way to 
cultivate understanding between the government and industry on 
acquisition policy. Obviously, when we buy from industry, we have an 
obligation to the taxpayers to ensure that we get the best value for 
their money. At the same time, both sides in this relationship can 
benefit from the other's vast knowledge stores by sharing best 
practices--and not just with the defense industry but also with those 
who we have never thought of doing business with us. We briefed some of 
the top leaders of the defense industry on this idea in December and 
the reaction was very encouraging. Over the next 6 months, we will be 
working to further develop this idea.
    Collaborative spiral development: This is the area with the 
greatest potential to enable transformation and significantly reduce 
cycle time and increase credibility. All too often, our long cycle 
times and our program breakages have their roots in the way we 
conceive, plan and start our acquisitions. Our processes are too serial 
and allow each community involved to work too much in isolation. Too 
often, the warfighter decides a capability is needed and works for 
months or years to develop a 100 percent solution that is given to the 
acquisition community as a requirement. The acquirers then struggle to 
come up with an acquisition strategy that will meet the requirement 
within a limited budget. Because we are looking for a ``big bang,'' 
all-at-once delivery of capability, the development timeline--which 
drives both schedule and cost--is long and fraught with possibilities 
for things to go wrong. On major systems, our cycle time has steadily 
grown too long. If we include the time to develop the requirements and 
select a contractor, the time is even longer. Imagine the changes in 
technology, threat, and manufacturing circumstances that occur during 
that timeframe. Given the odds, it is not amazing that we have programs 
that break; it is amazing that more of them do not get in trouble.
    There is a better way. With collaborative spiral development, we 
will bring warfighters, scientists, acquirers, testers, budget 
planners, logisticians, and anyone else who needs to be involved 
together from the start to develop realistic, incremental, and 
disciplined plans to delivery new capability to the warfighter as 
quickly as possible. We will change the mindset that says we won't 
deliver a product until we can deliver the 100-percent solution. 
Instead, we will work together to understand the trades that must be 
made, to ensure that capability is delivered as soon as possible and to 
assure the warfighter that each successive spiral, even if it is not 
fully defined at the outset, will bring increased capability.
    By delivering capability in increments, with a period for the 
warfighter to ``use and learn'' at each increment, we can incorporate 
what is learned in each new spiral. Because the spiral will be short, 
schedules and cost estimates will be more reliable and programs will be 
less subject to funding fluctuations. There will be many opportunities 
to rapidly inject new technology as a system develops as well as to 
look at requirements and re-prioritize as world events and threats 
change. Bringing the communities together will help us ensure that our 
science and technology programs are focused in areas that truly address 
the warfighters long-term capabilities roadmaps. It will also allow us 
to collapse our testing schedules, replacing the separate and often-
repetitive Developmental Testing and Operations Testing regimes with a 
single, integrated, and rigorous verification program.
    This new approach will require all of us--in DOD, in Congress and 
in industry--to change the way we think about systems development. For 
this to work we must be willing to accept and fund programs that are 
not fully defined 10 years down the road. Let me be clear: We are not 
asking for a blank check. But we will be asking for an understanding 
that highly developed plans that claim to predict the exact state and 
cost of complex technology a decade or more into the future are, at 
best, speculative and often provide little more than a false sense of 
security. We believe the collaborative spiral approach, which demands 
success in increments, will allow everyone involved--including 
Congress--to determine repeatedly if we are on the right track. It will 
force all involved to re-evaluate programs regularly as they move 
through spirals and learn from experience. It will offer the 
opportunity to accelerate those programs that become higher priorities 
and fix or kill those that are not performing or, due to changed 
circumstances, provide marginal utility.
    These initiatives will help increase budget stability and improve 
cost and schedule estimates across Air Force weapons system program 
acquisition. More importantly, they will enable us to accelerate the 
delivery of new capabilities that the warfighter can use.
    One of our ``pathfinders'' in this new way of working is the 
Unmanned Combat Aerial Vehicle (UCAV) program. We are hopeful that by 
using a highly collaborative spiral approach we will deliver the first 
fieldable prototype UCAV to the warrior as much as 5 years earlier than 
we would have through the traditional, serial, all-or-nothing 
requirements and acquisition approaches. The first deliverables will 
not give the warfighter everything he or she wants, but that is okay. 
We will deliver a capability that the warfighter can use and learn 
from, with the experience being fed back into the next spirals.
    Other initiatives: Two other critical components of acquisition 
excellence are the expanded use of commercial acquisition processes and 
increased leverage of the commercial market. Additionally, the Air 
Force supports a number of initiatives being pursued by the Department 
of Defense to improve the efficiency of the acquisition process by 
streamlining processes and striving toward e-business. These 
initiatives include ensuring test and evaluation processes support 
evolutionary acquisition and creating an electronic business vision and 
roadmap for defense acquisition.
    Mr. Chairman, the Air Force leadership is absolutely committed to 
achieving acquisition excellence. We are challenging everything we do 
and looking for ways to do them faster, cheaper and better. I assure 
you that our sense of urgency could not be higher and we are marching 
in lockstep with Secretary Aldridge and his staff to ensure that we do 
not lose the momentum that is building behind this effort. As always, 
we look forward to working with you to ensure that our warfighters have 
the tools they need to ensure decisive victory, no matter what the 
threat. Thank you again for your continuing support.

    [The prepared statement of Messrs. Jack L. Brock, Jr. and 
Randolph C. Hite follows:]
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    [Questions for the record with answers supplied follow:]

             Questions Submitted by Senator Daniel K. Akaka

                      SPIRAL DEVELOPMENT PROGRAMS

    1. Senator Akaka. Mr. Wynne, how do you define spiral development 
programs? Are spiral development programs the same as, or different 
from, incremental or evolutionary acquisition programs?
    Mr. Wynne. Evolutionary acquisition refers to an acquisition 
strategy that defines, develops, produces, acquires, or fields an 
initial hardware or software increment (or block) of operational 
capability based on mature technologies, time-phased requirements, and 
demonstrated manufacturing or software deployment capabilities in a 
short period of time, followed by subsequent increments of capability 
over time allowing for full and adaptable systems over time. Each 
increment will meet a militarily useful capability specified by the 
user (i.e., at least the thresholds set by the user for that 
increment); however, the first increment may represent only 60 percent 
to 80 percent of the desired final capability.
    There are two basic approaches to evolutionary acquisition. In one 
approach, the ultimate functionality can be defined at the beginning of 
the program, with the content of each deployable increment determined 
by the maturation of key technologies. In the second approach, the 
ultimate functionality cannot be defined at the beginning of the 
program, and each increment of capability is defined by the maturation 
of the technologies matched with the evolving needs of the user.
    An increment or block is a militarily useful and supportable 
operational capability that can be effectively developed, produced or 
acquired, deployed, and sustained. Each increment of capability will 
have its own set of thresholds and requirements set by the user.
    Spiral development is an iterative process for developing a defined 
set of capabilities within one increment, providing opportunity for 
interaction between the user, tester, and developer to refine the 
requirements through experimentation and risk management, provide 
continuous feedback, and provide the best possible capability within 
the increment. Each increment may include a number of spirals. For 
example, software may be developed and released in a spiral fashion a 
number of times within a single block or increment.

    2. Senator Akaka. Mr. Wynne, how does the Department intend to 
budget for these programs--that is, if a program is started with time-
phased requirements and a block approach to full capability, will each 
block be treated as a separate program with each subsequent block being 
funded fully and separately?
    Mr. Wynne. Yes, that is correct. Each increment or block will be 
fully and separately funded as early as possible, but in no case later 
than when the start of development for that increment or block is 
projected to occur in the first 2 years of the Future Years Defense 
Plan (FYDP) under review. Multiple increments or blocks may be funded 
simultaneously in the same program element. In all cases, each 
increment must be justified and supported by the capabilities provided 
over time.

    3. Senator Akaka. Mr. Wynne, how will deliverables be defined?
    Mr. Wynne. Each increment or block will meet a militarily useful 
capability specified by the user through the definition of time-phased 
requirements. In an evolutionary acquisition approach; each block shall 
have a set of parameters with thresholds and objectives specific to 
that block.

    4. Senator Akaka. Mr. Wynne, product developers in the private 
sector have used knowledge based criteria and metrics for technology 
maturity, design maturity, and manufacturing capability to ensure that 
development cycle-times stay short. Does the Department of Defense plan 
to incorporate similar demonstration metrics and standards to support 
decisions at each key point in a program? (Examples might include 
technology readiness levels to prove technology readiness before 
starting, completed prototypes and engineering drawings to demonstrate 
design maturity before making a production decision.)
    Mr. Wynne. Our new acquisition model provides for a clear 
definition between technology work and systems work, a technology 
demonstration before beginning systems-level work, and a full systems 
demonstration before committing to low-rate production. Our revised 
acquisition process (as defined in DODI 5000.2) also mandates entrance 
criteria that must be met before approval may be given to enter System 
Development and Demonstration (SDD). Entrance into SDD is dependent on 
three key things: technology (including software) maturity, validated 
requirements, and funding. Unless some other factor is overriding in 
its impact, the maturity of the technology will determine the path to 
be followed. Additionally, in order to enter the production and 
deployment phase, a program must demonstrate technology maturity (with 
an independent technology readiness assessment), system and relevant 
mission area (operational) architectures, mature software capability, 
demonstrated system integration or demonstrated commercial products in 
a relevant environment, and no significant manufacturing risks.

    5. Senator Akaka. Mr. Wynne, how will the new spiral development 
and evolutionary acquisition processes improve the prospects of getting 
more interoperability into our weapon systems?
    Mr. Wynne. All acquired systems shall be interoperable with other 
U.S. and allied defense systems, as defined in the specific 
requirements and interoperability documents. The program manager must 
describe the treatment of interoperability requirements. In an 
evolutionary acquisition including successive blocks satisfying time-
phased requirements, this description must address each block, as well 
as the transitions from block to block. This description must also 
identify enabling system engineering efforts such as network analysis, 
interface control efforts, open systems, data management, and 
standardization. The strategy must also identify related requirements 
or constraints (e.g., treaties or international standardization 
agreements) that impact interoperability requirements (e.g., standards 
required by the DOD Joint Technical Architecture or the systems, 
forces, units, etc. for which interoperability is at, or could be at 
issue), and any waivers or deviations that have been obtained or are 
anticipated being sought.

    6. Senator Akaka. Mr. Wynne, how will you address the problem of 
having multiple variants of the same platform in service at the same 
time?
    Mr. Wynne. Having multiple variants of the same platform in service 
at the same time is neither a new nor unique condition resulting from 
spiral development. This situation normally occurs with the updating 
and modernization of systems where it is prohibitive in terms of cost 
or time to update all operational platforms to the same configuration. 
This is a normal fact of life in acquiring systems. However, the use of 
spiral development concepts, based on open interface standards, 
actually improves the situation since improvements/upgrades are planned 
up-front with the associated funding in place. By developing precisely 
defined capabilities within each variant, while having a grand plan for 
evolution of the platform configurations, there are fewer unknowns in 
the process, complexity within each variant is reduced, risks of 
obsolescence are mitigated, and the variants can have greater 
commonality within technology evolution. This approach will, therefore, 
reduce overall lifecycle costs of the system.

    7. Senator Akaka. Mr. Wynne, will this process emphasize open 
systems as an alternative to unique, proprietary systems? If so, is 
there a downside to open systems architecture in terms of security?
    Mr. Wynne. The use of an open systems approach is a fundamental 
tenet of our acquisition policy for all systems. Open systems are a 
vital enhancer of spiral development, both in terms of providing 
architecture for change, risk reduction, obsolescence mitigation, and 
reduced complexity as well as providing a framework for affordability.
    To ensure that weapon systems meet security requirements, these 
requirements need to be properly levied on programs up-front. This must 
be followed by an appropriate systems engineering process to assure 
that the resulting systems meet the security requirement. This is the 
case whether or not open systems and spiral development techniques are 
involved. Blanket adherence to the use of open interfaces/products 
without proper systems engineering is a sure fire prescription for 
developing a system that does not meet security requirements.
    For certain mission critical applications, open system 
architectures can be applied, but certain critical elements must be 
carefully evaluated. Special versions or interface extensions of these 
elements may be necessary in order to provide the additional requisite 
trust and assurance. These versions can involve additional security 
functionality and evaluation levels as directed in the National 
Institute of Standards Common Criteria. Many commercial grade products 
do not go through a rigorous evaluation and certification process, and 
hence, may not provide the level of trust desired for mission critical 
applications. Therefore, the systems engineering process is the 
fundamental key to success.

    8. Senator Akaka. Mr. Wynne, in the past, requirements setters have 
been reluctant to develop operational requirements for systems in a 
phased approach because they didn't trust that later blocks would get 
funded and eventually deployed, thereby leaving the military commands 
short of their full objective. Instead, they pushed the one step 
process in weapon system development, accepting significant 
technological risk just to ensure the program gets started. How will 
the Department of Defense change this attitude and create trust in the 
military commands so they can make legitimate attempts to employ the 
evolutionary approach and time-phased requirements to achieve the long-
term goals of the military command?
    Mr. Wynne. It's true that the ability to take full advantange of 
the evolutionary acquisition approach requires support by both the 
requirements community and the acquisition community. However, the 
Department has already taken several important steps toward that 
cultural shift. ``Requirements generation'' policy emphasizes the use 
of time-phased requirements (increments of militarially useful 
capability) as our acquisition policy emphasizes the use of 
evolutionary acquisition. We have developed programs using an 
evolutionary acquisition approaches. Recent examples of programs 
utilizing both time-phased requirements and evolutionary acquisition 
strategies include Global Hawk, Theater Medical Improvement Program, 
and DOD Teleport. Finally, both the requirements generation community 
and the acquisition community recognize the need to get advanced 
technology to the warfighter faster, particularly when the technology 
cycle is so short.

    9. Senator Akaka. Mr. Wynne, traditionally, there has been a 
disconnect between DOD's science and technology and acquisition 
communities. The technologies that are required at the outset of an 
acquisition program are often very immature, sometimes only conceptual. 
In a new evolutionary acquisition process that demands speed of 
development, technologies will have to be ready for product development 
and will have to be managed much more closely. How does the Department 
of Defense plan to do this?
    Mr. Wynne. Evolutionary acquisition is premised on the use of 
mature technologies to shorten the development time and speed fielding 
of systems. Although they may be part of overall program planning, 
technologies that require further maturation will be inserted when 
appropriate and when risk is deemed acceptable. Our approach to manage 
this process includes the use of technology readiness assessments, 
which will be conducted by the science and technology community. This 
approach also addresses the disconnect you mention by requiring an 
increased collaboration and communication between the science and 
technology and acquisition communities.

    10. Senator Akaka. Mr. Wynne, research of technology development 
practices indicates that $1.00 spent discovering something in 
technology development can save as much as $10,000 during production 
development. Because of this, successful firms in the private sector 
have found that it is beneficial to keep technology out of the product 
development process until it can be demonstrated to work in an 
operational environment. Do you agree?
    Mr. Wynne. Technology demonstrated in an operational environment is 
preferable; however, that is not always feasible in defense systems. 
Our current acquisition documents state that ``technology must be 
demonstrated in a relevant environment or, preferably, in an 
operational environment to be considered mature enough to use for 
product development in system integration.'' The Director, Defense 
Research and Engineering is responsible for evaluating the technology 
readiness assessments conducted by the services and advising the 
Defense Acquisition Board on the feasibility to move forward with the 
current planned technology.

    11. Senator Akaka. Mr. Wynne, Advanced Concept Technology 
Demonstrations (ACTDs) seem to hold a promise as a way to transition 
technologies to products. The acquisition process does not specify the 
role of ACTDs in the acquisition process beyond a simple description. 
Can you define the role that ACTYDs, currently funded and managed by 
science and technology (S&T) organizations, should play in this new 
evolutionary acquisition process? For example, will any major 
acquisition be required to graduate from an ACTD?
    Mr. Wynne. There will not be a future or present major acquisition 
program required to ``graduate'' from an ACTD. We have had major 
acquisition programs result from past ACTDs, as exemplified by the 
Global Hawk and Predator ACTDs. ACTDs are a transformational process 
designed to address immediate and compelling needs of the Commanders in 
Chiefs and services. A major part of an ACTD is to define a concept of 
operations of a proposed solution from emerging technologies and 
provide a residual for the warfighter. The services decide to 
transition the products of an ACTD through their Program Objective 
Memorandum process and support the residuals through operations and 
maintenance funding following the formal ACTD period.

    12. Senator Akaka. Mr. Wynne, while new policy statements embrace 
the concept of spiral development and evolutionary acquisition, the 
Department has supported decisions in the past year for the Joint 
Strike Fighter and Crusader programs to proceed to the next 
acquisition, even through they did not demonstrate full maturity in all 
of the technologies to meet existing requirements. What is different 
about those decisions compared with decisions that preceded the concept 
of spiral development and evolutionary acquisition?
    Mr. Wynne. Our acquisition policies recognize there is more than 
one way to develop and deploy systems. While our preferred approach is 
to use evolutionary acquisition, we can take a single step to full 
capability when that is appropriate. The decision on the Joint Strike 
Fighter (JSF) program illustrates the value of flexibility in 
developing an acquisition strategy. Regardless of approach, the JSF had 
to mature its technologies to the appropriate level prior to entering 
the next acquisition phase.
    For the JSF program, the Under Secretary of Defense (Acquisition, 
Technology, and Logistics) approved an evolutionary acquisition 
strategy. Pursuant to that approach, the Deputy Under Secretary of 
Defense, Science and Technology (DUSD(S&T)), conducted an independent 
technology readiness assessment of the JSF program per Department of 
Defense Instruction 5000.2, ``Operation of the Defense Acquisition 
System,'' October 23, 2000. In the assessment, DUSD(S&T) concluded the 
maturity of the block 1 JSF program was sufficient to warrant entry 
into the system development and demonstration (SDD) phase. As 
subsequent technologies mature, they will be included in later blocks.
    The JSF program office has implemented its acquisition strategy 
consistently. The program office has identified, baselined, and tracked 
risks, documenting the specific events required to reduce the risk 
associated with critical technologies, processes, and system 
characteristics to an acceptable level prior to the beginning of SDD.
    Since the Secretary of Defense has recommended to Congress that the 
Crusader's funds be redirected, it is probably not a good program to 
discuss in terms of spiral development and evolutionary acquisition.

    13. Senator Akaka. Mr. Wynne, an acquisition process should provide 
guidance in the form of milestones, measurements, and markers for 
success as a program progresses. As you move toward spiral development 
and evolutionary acquisition, what changes do you see in these areas? 
Will each block or increment of a spiral development or evolutionary 
acquisition program go through the same milestones specified in the 
Department's current regulation?
    Mr. Wynne. Our evolutionary acquisition process is defined in DOD 
Directive 5000.1 and DOD Instruction 5000.2. Our process calls for each 
increment or block of capability to have a set of requirements and an 
acquisition program baseline in order to proceed through its 
development milestones, and to have an assessment of capability prior 
to fielding. An evolutionary acquisition strategy must define: the 
first block of capability and how it will be funded, developed, tested, 
produced, and supported; the full capability the evolutionary 
acquisition is intended to satisfy, and the funding and schedule 
planned to achieve the full capability to the extent it can be 
described; and the management approach to be used to define the 
requirements for each subsequent block and the acquisition strategy 
applicable to each block, including whether end items delivered under 
earlier blocks will be retrofitted with later block improvements.

    14. Senator Akaka. Mr. Wynne, the Department of Defense has 
invested significant time and energy into its ``Total Ownership Cost'' 
initiative that is aimed at reducing the overall life cycle cost: of 
weapon systems. How can the concept of spiral development or 
evolutionary acquisition enable better control over total ownership 
costs? Isn't there a risk of increased logistics costs associated with 
maintaining multiple variants of the same platform from different 
phases or an incremental program?
    Mr. Wynne. We have been pleased with the progress that we have 
achieved with the Reduction in Total Ownership Costs (R-TOC) program. 
We feel that our Evolutionary Acquisition initiative will further aid 
in reducing Total Ownership Costs (TOC). Virtually every piece of 
equipment in the field has multiple variants of the same platform, 
because units were produced over a period of time and during that 
production period parts became obsolete or were replaced by newer and 
better technologies. This has happened within models of the same type 
as well as different models of a weapons system. The tendency in recent 
years to reduce yearly quantities and stretch out production over a 
greater number of years has only served to magnify this trend.
    Our evolutionary acquisition initiative should assist in reversing 
this trend by allowing us to field new equipment sooner than would 
otherwise occur if we had to wait for a new technology to become fully 
developed before it was fielded or if we waited until full capability 
had been achieved. We will field new equipment as it provides 
sufficient capability to meet our requirements at that time and not 
have to wait until a new technology has fulfilled all of its potential. 
Earlier fielding of the new equipment will allow us to retire old 
equipment sooner and thus get rid of obsolete and frequently 
maintenance intensive weapons fielded in multiple variants and 
configurations. The new systems will be less maintenance intensive than 
the systems replaced because of our initiatives to reduce total 
ownership costs and because newer technology allows us to improve the 
reliability, durability, and maintainability of the equipment, just as 
newer television sets are vastly more reliable than the old tube-type 
sets and new automobiles require much less scheduled maintenance than 
their predecessors.
    Evolutionary acquisition will also allow us to plan improvements 
and technology insertions in a well thought out and more orderly 
process that should minimize the number of changes in equipment and 
number of variants compared with what we have seer in the past.
    Evolutionary acquisition should also allow us to reduce the number 
of variants because as each succeeding cycle of the evolutionary 
approaches, the previous systems are to be upgraded to the latest 
version, thus keeping all of a weapon system at the same level of 
capability. Each succeeding evolutionary cycle will also allow us to 
solve maintenance problems identified in the earlier versions of the 
system.
    In summary, we feel evolutionary acquisition will allow us to 
minimize logistics costs by our current emphasis on reducing total 
ownership costs, by allowing earlier fielding of newer technology 
systems with better maintenance built into them, and by minimizing the 
number of variants in the field through a better and more orderly 
planning process.

                           ACQUISITION CULTURE

    15. Senator Akaka. Mr. Wynne, the Department of Defense has 
indicated that it has a goal of limiting product development cycle 
times to 5 to 7 years. Do you believe that is achievable in the current 
DOD acquisition culture? If so, when can we expect to see concrete 
results?
    Mr. Wynne. The average development cycle time (i.e., program 
initiation to initial operational capability) for DOD major weapons 
programs started before fiscal year 1992 was 132 months (11 years). The 
average development cycle time for major weapons programs started since 
fiscal year 1992 has decreased to 95 months (7.9 years). The 
Department's goal for program new starts after fiscal year 2001 is 66 
months (5.5 years). Although this goal is ambitious, we believe that 
the implementation of the new Defense Acquisition System (5000 Series) 
will keep us on a concrete trend toward this goal.
    A key focus of the 5000 Series policy is to deliver advanced 
technology to the warfighter faster through: (1) rapid acquisition with 
demonstrated technology; (2) time-phased requirements and evolutionary 
development; and (3) integrated test and evaluation. The new 
acquisition model is based on achieving proven technology and having a 
validated operational requirements document before beginning systems-
level work at milestone B. It would also complete full systems 
demonstration before committing to low-rate production (milestone C).
    Evolutionary acquisition based on time-phased requirements is the 
preferred approach, not a ``non-traditional'' excursion, under our new 
acquisition model. Early, upfront involvement of the test community in 
the requirements process and design of an integrated test strategy is 
emphasized. Test and evaluation approaches for evolutionary (spiral) 
developments will have to be adapted.
    These major tenets of the 5000 Series are intended to reduce the 
acquisition cycle times of DOD weapons systems and achieve the long 
term goal of 66 months for post-fiscal year 2001 programs. It will take 
several years (approximately 5) before the post-fiscal year 2001 
program sample provides a statistically significant ``average.''

                              NUNN-MCCURDY

    16. Senator Akaka. Mr. Wynne, the Nunn-McCurdy legislation requires 
the reporting of a program's development schedule, procurement 
schedule, and testing plans as well as its estimated cost. Do you 
receive appropriate information in each of these areas to ensure that 
programs are performing as they should? Do you believe that any 
additional information is needed?
    Mr. Wynne. The Department reviews Major Defense Acquisition 
Programs (MDAPs) periodically to assess actual program performance 
against the program's planned schedule and testing plans as well as its 
estimated cost. This information is evaluated to ensure that the 
program is meeting cost, schedule, and performance goals, as agreed to 
by the program manager, service acquisition executive, and the 
milestone decision authority. This intensive review provides an 
appropriate level of information to determine whether programs are 
performing as expected. Additional program information is not needed.

                 SPACE-BASED INFRARED RADAR SYSTEM-HIGH

    17. Senator Akaka. The Space Based Infrared Radar System, High 
Component (SBIS-High) program has experienced billions of dollars of 
cost growth, and is 4 to 5 years behind its original schedule. As a 
result, the Air Force set up an independent review team to assess the 
corrective actions required to get the program back on track. Are you 
confident that you know whether any other major DOD programs are 
experiencing similar problems? If not, how will you find out?
    Mr. Wynne. Our program managers (PMs) are required to provide 
periodic reports via the Defense Acquisition Executive Reporting System 
(DAES). These reports require input from the PM regarding progress in 
regard to cost, schedule, and performance. In turn, the PM's report is 
reviewed by the service acquisition executive and independently 
assessed by the Office of the Secretary of Defense staff. Differences 
of view are highlighted. Where those differences are significant, we 
schedule the program for formal review and, where required, direct 
remedial action. This approach has proven effective over time and, I 
believe, will provide us with advance warning of problems similar to 
those encountered by SBIR-High.

    18. Senator Akaka. How will you ensure that the lessons learned 
from SBIRS-High are applied to all major DOD programs?
    Mr. Wynne. The Defense Acquisition University has an active program 
to capture lessons learned from our acquisition programs. We 
incorporate those lessons in the curriculum for our workforce and 
intensively consider them as case studies in our senior management 
courses. We also have multiple outreach and communications media such 
as websites, the ``acquisition deskbook,'' and electronic magazines to 
disseminate lessons learned to our workforce. I should add that the 
term ``lessons learned'' is usually interpreted to mean a negative 
experience. It is equally important to capture and share the positive 
lessons from initiatives that contributed to the success of many of our 
programs.

                  COST ANALYSIS AND IMPROVEMENT GROUP

    19. Senator Akaka. Mr. Wynne, a number of press reports state that 
the Pentagon has adopted cost estimates developed by the independent 
Cost Analysis and Improvement Group (CAIG), rather than estimates from 
the services, as the basis for program budgets. Could you please 
explain the Department's current policy for costing its major weapon 
systems, and the rationale for it?
    Mr. Wynne. Each major weapon system program must be fully funded to 
a reasonable cost estimate. We have found that CAIG estimates tend to 
be more realistic than program office estimates and the Secretary has 
stated we will use CAIG estimates as a guide to ensure programs are 
fully funded.
    This policy is not unprecedented. For example, one of the 
``Carlucci Initiatives'' adopted by Secretary Weinberger in 1981 was to 
realistically fund major acquisition programs.

    20. Senator Akaka. Mr. Wynne, does the CAIG have access to the 
program cost data that it needs to make reliable, independent cost: 
estimates?
    Mr. Wynne. I believe the CAIG does have the access to program cost 
data it requires. The CAIG is the judge of its own data requirements 
and has the standing to raise issues associated with denial of access 
or unavailability of data to the Under Secretary of Defense for 
Acquisition, Technology, and Logistics.
    There is, however, further work to be done on improving the systems 
used to capture and utilize historical information on costs. To this 
end, we are continuing initiatives associated with Contractor Cost Data 
Reports, and improvements in visibility and management of operating and 
support cost (VAMOSC) information. We also have undertaken new 
initiatives to improve reporting of software cost data metrics and to 
improve warehousing and accessibility of cost information.

    21. Senator Akaka. Mr. Wynne, is the CAIG staffed adequately to 
properly perform its new responsibilities?
    Mr. Wynne. The CAIG recently requested a modest increase in CAIG 
staffing and initiated a staffing study that will involve the Office of 
the Under Secretary of Defense for Acquisition, Technology, and 
Logistics, as well as other offices of the DOD. The study will analyze 
CAIG manning in light of recent changes to both the volume of workload 
and senior management expectations of the CAIG. That study should be 
completed in approximately 3 months.

                             SPACE PROGRAMS

    22. Senator Akaka. Mr. Wynne, Under Secretary Aldridge recently 
signed a memorandum delegating the oversight of space programs to the 
Under Secretary of the Air Force. In view of this delegation, how will 
you ensure the appropriate ``jointness'' of military space programs?''
    Mr. Wynne. In recognition of the importance of space to the other 
services, the Secretary of the Air Force has already taken initial 
steps to help ensure the ``jointness'' of military space programs.
    The primary focal point for development and acquisition of space 
systems will be the Under Secretary of the Air Force/Director National 
Reconnaissance Office (USecAF/DNRO). Formal steps have been taken to 
include other services in the space development and acquisition 
processes. The National Security Space Architect (NSSA) was realigned 
under the USecAF/DNRO. The office of the NSSA includes personnel from 
other services/agencies, who will be able to bring their home service/
agency perspective to the performance of NSSA duties. The NSSA will 
also include a Senior Advisory Group, which will include 
representatives from other services/agencies, and will provide a forum 
to introduce other service/agency concerns.
    The Secretary of the Air Force has invited the other services to 
place officers within the USecAF staff, in positions which will be 
mutually agreed upon. This will allow other services to have insight 
into the Air Force's implementation of Executive Agency of Space, as 
well as to shape decisions for the good of the entire DOD space 
programs.
    Although the Air Force has milestones decision authority for space 
programs, the other services/agencies are invited to participate in the 
program review efforts as each major program meets its acquisition 
milestone or key decision points. This will enable the other services 
to evaluate space systems against documented requirements from their 
individual Service. All of these processes are intended to make Air 
Force implementation of Space Executive Agency a transparent and 
involved process for the other services. 

    23. Senator Akaka. Mr. Wynne, will Under Secretary Aldridge 
continue to provide oversight for these programs? If so, in what way?
    Mr. Wynne. The Department has taken steps to ensure adequate 
oversight of the actions of the Under Secretary of the Air Force as the 
Executive Agent and Milestone Decision Authority for DOD space 
programs. Although the Air Force has milestones decision authority for 
space programs, the other services/agencies are invited to participate 
in the program review efforts as each major program meets its 
acquisition milestone or key decision points. The memorandum delegating 
Milestone Decision Authority to the Air Force was specific in ensuring 
that the Office of the Secretary of Defense (OSD) would be informed of 
any waivers and exceptions Under Secretary of the Air Force decides to 
make to established acquisition regulations. Delegation of milestone 
decision authority does not change space-related responsibilities or 
statutory authorities of OSD. The OSD Cost Analysis Improvement Group, 
the OSD CAIG, which reports on acquisition programs, will continue to 
prepare independent cost estimates for the space Major Defense 
Acquisition Programs. Likewise, the OSD Director of Operational Test 
and Evaluation (OSD/DOT&E) who oversees all operational testing to be 
conducted in connection with a major defense acquisition program, will 
continue to independently review, approve, and oversee the execution of 
operational test plans and programs for space Major Acquisition 
Programs. The Under Secretary of the Air Force is to report to OSD 
after completion of the Air Force/National Reconnaissance Office ``best 
practices'' review with regard to further space acquisition 
streamlining being contemplated. All of these processes are intended to 
make Air Force implementation of Space Executive Agency a transparent 
and involved process for OSD and the services.
    The Department has taken steps to improve the oversight of the 
level of funding and personnel resources provided for space programs. 
The Department has established a ``virtual'' Major Force Program for 
Space to increase the visibility of all fiscal resources the Department 
allocates to space activities. Working with the Comptroller, we have 
established a Virtual Major Force Program for Space that includes about 
180 Program Elements grouped into Space Control, Space Force 
Application, Space Force Enhancement, Space Support, and Other Space. 
Included in the ``virtual'' Major Force Program for Space are RDT&E, 
systems, user equipment, people, organizations, and infrastructure 
whose primary/dedicated mission is space or a space related ground 
system. The ``virtual'' Major Force Program for Space identifies 
program elements from the Air Force, Army, Navy, National 
Reconnaissance Office, Missile Defense Agency, Defense Information 
Systems Agency, and Defense Advance Research Project Agency.
                                 ______
                                 
             Questions Submitted by Senator James M. Inhofe

                      SPIRAL DEVELOPMENT PROGRAMS

    24. Senator Inhofe. Mr. Wynne, DOD regulation states, ``Technology 
Readiness Levels (TRLs) enable consistent, uniform, discussions of 
technical maturity, across different types of technologies. Decision 
authorities shall consider the recommended TRLs (or some equivalent 
assessment methodology) when assessing program risk.'' Does the 5000 
series mandate that all weapons systems programs implement the TRL 
methodology?
    Mr. Wynne. Emphasis on technical maturity is a key component of our 
revised acquisition process. As the level of technology maturity is a 
principal element of program risk, it is important for the Department 
to be able to measure the degree to which proposed critical 
technologies meet program objectives. However, the 5000 series does not 
mandate the use of TRLs. The key point is that an appropriate (TRL or 
equivalent) technology readiness assessment be conducted to examine 
program concepts, technology requirements, and demonstrated technology 
capabilities to determine technological maturity.

     25. Senator Inhofe. Mr. Wynne, is it DOD's policy that all weapons 
programs must achieve TRL 7 prior to entering Systems Design and 
Development (SDD)?
    Mr. Wynne. No. TRLs are a necessary and useful input to the 
decision making process, but they are not sufficient alone in 
determining decision points and when to transition technologies into 
weapon systems. The acquisition strategy should be developed in 
consonance with the technology transition or insertion strategy. Total 
ownership costs and other considerations, coupled with urgency based on 
threat assessments, must also be taken into account in the decision 
making process.

    26. Senator Inhofe. Mr. Wynne, based on TRL methodology, is the 
Department of Defense eliminating their emphasis on the importance of 
modeling and simulation?
    Mr. Wynne. No. TRLs provide a common language for evaluating 
technologies and give the decision makers a relative measure of 
maturity. Modeling and simulation (M&S), on the other hand, is a tool, 
useful throughout the acquisition process, for understanding the 
performance and feasibility of subsystems, a system or systems. M&S 
allows us to immerse systems and concepts in environments that would 
otherwise not be cost effective or possible with physical 
representations. There is no decrease in our emphasis on M&S, and in 
fact, our technology readiness assessments may increase the use of M&S.

    27. Senator Inhofe. Mr. Wynne, will programs be required to produce 
additional prototypes in order to comply with the TRL process?
    Mr. Wynne. The need and extent of prototyping is a function of a 
specific program's acquisition strategy or a broader need to 
demonstrate technologies that may have more general application. In 
both cases, the intent is to understand technology and mitigate risk as 
well as reduce cost. TRLs are a way of expressing technological 
maturity. Their use does not require any more or any less prototyping, 
but may be used to express the outcome or desired outcome of a 
prototyping effort. 

    28. Senator Inhofe. Mr. Wynne, is the intent of the TRL methodology 
to reduce the program's risk level specifically from high to low? If 
so, is DOD's policy that all weapons programs must be ``low risk'' in 
order to enter SDD?
    Mr. Wynne. The maturity of technology is a component of a program's 
overall risk determination. The purpose of TRLs is to measure the 
maturity of technologies. Using TRLs will not reduce risk, but it will 
provide useful information for the acquisition and the science and 
technology communities as well as the decision makers regarding the 
level of technological maturity. In general, our policy is to reduce 
risk to a manageable level, but also to seek a balance between all 
programmatic factors-cost, performance, and schedule.
                                 ______
                                 
              Questions Submitted by Senator Rick Santorum

                           SPIRAL DEVELOPMENT

    29. Senator Santorum. Mr. Wynne, please explain briefly the 
difference between the Department of Defense's new concept of ``spiral 
development'' and the traditional block modification practices where 
increased capabilities are added with advances in technology.
    Mr. Wynne. The primary difference between spiral development and 
the traditional block modification practices is in the way that the 
user's requirements are addressed. The spiral development process 
refers to an acquisition strategy that defines, develops, produces or 
acquires, and fields an initial hardware or software increment (or 
block) of operational capability based on mature technologies, time-
phased requirements, and demonstrated manufacturing or software 
deployment capabilities in a short period of time, followed by 
subsequent increments of capability over time allowing for full and 
adaptable systems over time. Each increment will meet a militarily 
useful capability specified by the user (i.e., at least the thresholds 
set by the user for that increment); however, the first increment may 
represent only 60 percent to 80 percent of the desired final 
capability.
    There are two basic approaches to spiral development. In one 
approach, the ultimate functionality can be defined at the beginning of 
the program, with the content of each deployable increment determined 
by the maturation of key technologies. This approach has some 
similarities to the traditional block modification practices. In the 
second approach, the ultimate functionality cannot be completely 
defined at the beginning of the program, and each increment of 
capability is defined by the maturation of the technologies matched 
with the evolving needs of the user. This approach is particularly 
common with our information technology (IT) systems. We can provide 
militarily useful capability to meet current threats in significantly 
shorter development/deployment cycle times. 

                        VETERAN-OWNED BUSINESSES

    30. Senator Santorum. Ms. Styles, what is being done to ensure that 
all DOD solicitations, and all contracts used by DOD entities, such as 
the General Services Administration scheduled, identify the procurement 
goals for veteran-owned businesses?
    Ms. Styles. DOD small business specialists are responsible for 
reviewing all DOD acquisitions over $10,000 for small business 
opportunities, including opportunities for veteran-owned and service-
disabled veteran-owned small businesses to contract with DOD or perform 
subcontracted work under DOD contracts. With regard to subcontracting 
opportunities, DOD contracting officials are required by Federal 
Acquisition Regulation (FAR) Subpart 19.7 to include in their contracts 
a requirement that any contractor receiving a contract for more than 
the simplified acquisition threshold give small businesses, including 
veteran-owned and service-disabled veteran-owned small businesses, 
maximum practicable opportunity to participate in contract performance 
consistent with efficient performance. For acquisitions that meet the 
statutory thresholds, DOD contracting officials are required to include 
in their contracts small business subcontracting plans that include 
separate percentage goals for using veteran-owned and service-disabled 
veteran-owned small businesses. Also, as part of their duties under the 
Small Business Act and applicable acquisition regulations, DOD small 
business specialists and DOD Offices of Small and Disadvantaged 
Businesses recommend small business goals for individual acquisitions 
as well as overall procurement goals for DOD offices. The Under 
Secretary of Defense for Acquisition, Technology, and Logistics (USD 
(AT&L)) issued a Small Business Reinvention Initiative in May 2001 that 
emphasizes the importance of, and holds senior leadership accountable 
for, small business performance improvements.
                                 ______
                                 
              Questions Submitted by Senator Susan Collins

                  CONTRACT BUNDLING AND CONSOLIDATION

    31. Senator Collins. Ms. Lee and Ms. Styles, Subtitle B of the 
Small Business Reauthorization Act of 1997 (P.L. 105-135) speaks to the 
small business procurement opportunities program, and more 
specifically, section 411 through 413 defines and lays out procurement 
considerations for contract bundling. With this in mind, please explain 
what the current DOD policy is on contract bundling.
    Ms. Lee. DOD complies with the Federal Acquisition Regulation (FAR) 
coverage that implements the statutory provisions on contract bundling 
that were added to the Small Business Act by sections 411 through 413. 
In addition, on January 17, 2002, the Under Secretary of Defense for 
Acquisition, Technology, and Logistics issued a policy memorandum on 
contract consolidations, including contract bundling, that provided 
additional guidance to Department acquisition personnel. In those 
instances where contract bundling is deemed to be necessary and 
justified, in accordance with the regulations, it is DOD policy that 
acquisition planners take efforts to mitigate the negative impact 
contract bundling has on small business concerns.
    A Benefit Analysis Guidebook was distributed with the memorandum. 
This Guidebook was developed to assist acquisition planners in 
determining whether the benefits from a bundled contract are 
``measurably substantial'' prior to proceeding with the acquisition. 
The Guidebook also provides information on methods to avoid bundling.
    Ms. Styles. In her statement Dee Lee stated DOD policy on contract 
bundling. I have nothing to add to that statement.

    32. Senator Collins. Ms. Lee and Ms. Styles, contract bundling has 
a negative connotation in the field among small- and mid-sized firms. 
In fact, contract bundling is seen as having a significant and negative 
effect on small- and mid-sized businesses. A U.S. Small Business 
Administration report dated September 2000 states that for every 
increase of 100 bundled contracts, there was a decrease of more than 
106 individual contracts awarded to small firms. What safeguards or 
reforms are underway to ensure that small businesses get the 
opportunity to continue to play a critical role in supporting DOD's 
mission and contribute to the strength of the U.S. industrial base?
    Ms. Lee. First, I would like to note that the referenced Small 
Business Administration report used a definition of contract bundling 
that differed from the definition added to the Small Business Act by 
section 412 of the Small Business Reauthorization Act of 1997. DOD 
recognizes it is in the long term best interests of the Department to 
ensure that we structure requirements to facilitate small business 
participation to the maximum extent practicable.
    The Under Secretary of Defense for Acquisition, Technology, and 
Logistics, USD(AT&L), issued a Small Business Reinvention Initiative in 
May 2001 that emphasizes the importance of, and holds senior leadership 
accountable for, small business performance improvements. Additionally, 
USD(AT&L) recently issued a memorandum outlining expectations regarding 
contract consolidations and bundling. Our objective is to ensure that 
we are developing acquisition strategies based on sound business 
decisions, including the survivability of a competitive industrial 
base.
    Ms. Styles. The President has a strong interest in this area. On 
March 19, 2002, the President announced his Small Business Agenda, a 
plan to help create an environment where small businesses can flourish. 
Included in the President's plan are proposals to improve access to 
government contracting opportunities for small businesses. The 
President instructed the Director of the Office of Management and 
Budget to prepare a strategy for unbundling contracts, where 
practicable. To help carry out the President's agenda, my office formed 
two inter-agency working groups, one focusing on competition and the 
other focusing, on contract bundling issues. The contract bundling 
working group is preparing a report to present to the President that 
will provide a strategy for unbundling contracts where practicable and 
recommendations to implement that strategy.

    33. Senator Collins. Ms. Lee and Ms. Styles, contract consolidation 
seems to be used more and more by the DOD. Would you explain to me the 
DOD's interpretation of contract consolidation and the pros and cons 
associated with this contracting approach?
    Ms. Lee. We utilize the term ``contract consolidation'' to refer to 
the combination or other aggregation of several previous contracts or 
requirements into a single larger contract. The Small Business Act 
definition of a bundled contract is a subset of a consolidated 
contract. It includes only those contracts for requirements that were 
previously performed by or suitable for award to small businesses, but 
that no longer are likely to be suitable for award to a small business 
concern as a result of the consolidation.
    Contract consolidations can produce quantity cost savings, reduce 
cycle time, improve customer service, eliminate duplication, make more 
efficient use of existing resources, and simplify government 
administration. Contract consolidations come under scrutiny when 
companies, whether large or small business, that previously performed 
as prime contractors no longer can compete, lose these larger dollar 
competitions, or are relegated to a subcontractor role.
    Ms. Styles. In her statement, Dee Lee accurately describes contract 
consolidation, distinguishes that term from the statutory definition of 
``contract bundling,'' and discusses the pros and cons of that 
contracting approach.

    34. Senator Collins. Ms. Lee and Ms. Styles, would you also comment 
on the difference between contract consolidation and contract bundling? 
What percentages of the contracts awarded in fiscal year 20O1 were 
either bundled or consolidated and what types of products or services 
did these contracts provide the Department?
    Ms. Lee. The key difference between contract consolidation and 
contract bundling is that requirements on a bundled contract were 
previously performed by or suitable for award to small businesses, but 
no longer are likely to be suitable for award to a small business 
concern as a result of the consolidation.
    The Defense Contract Automated Data Collection System began 
collecting information in fiscal year 2001 on bundled contracts 
expected to exceed $5 million. This system collects information on 
contract actions and dollars obligated, no matter what year the 
original contract was awarded. Because this was the first year of 
automated collection, manual corrections were required and edits are 
now being developed to minimize errors in future reporting. In fiscal 
year 2001, only 0.2 percent of all contract actions and dollars 
obligated for the Department were on such bundled contracts. The 
bundled actions amounted to approximately $297 million, with an almost 
even split between hardware purchases and services. The majority of the 
hardware dollars bundled were for bombs and aircraft accessories or 
components. The majority of the services dollars bundled were for 
maintenance or engineering technical services.
    The Defense Contract Automated Data Collection System does not 
identify whether a contract action is consolidated, so we do not have 
comparable information on consolidated contracts.
    Ms. Styles. In her answer to this question and a previous question, 
Dee Lee accurately describes contract consolidation and distinguishes 
that term from the statutory definition of ``contract bundling.'' DOD 
maintains whatever data is available on DOD's bundled contracts and the 
types of products or services typically covered by those contracts.

    35. Senator Collins. Ms. Lee, what types of contracts or services 
are currently being bundled within the Department of Defense? What 
types of contracts or services are being consolidated within the 
Department of Defense, and what process is being used to determine 
whether a contract should be consolidated or bundled?
    Ms. Lee. The majority of the hardware dollars bundled were for 
bombs and aircraft accessories or components. The majority of the 
services dollars bundled were for maintenance or engineering technical 
services. Of these reported actions, 56 percent of the dollars were on 
fixed-price type contracts with most of these dollars being spent on 
hardware purchases. The dollars spent on services were largely on other 
than fixed-price type contracts, and relatively evenly split between 
cost-type contracts and time and material contracts. The Defense 
Contract Automated Data Collection System does not identify whether a 
contract action is consolidated, so we do not have comparable 
information on consolidated contracts.
    DOD follows the process set forth in the Federal Acquisition 
Regulation to determine whether a bundled contract is necessary and 
justified. Additionally, the Under Secretary of Defense for 
Acquisition, Technology, and Logistics has promulgated a Benefit 
Analysis Guidebook to help DOD personnel determine whether a bundled 
contract is necessary and justified.

    36. Senator Collins. Ms. Lee, does the Department have a way to 
monitor or track the market research and analysis that support the 
contracting decisions being made today? If so, I would like to see a 
list of the last 20 contracts that have been consolidated, including a 
list of the companies affected, and what types of products or services 
that these contracts will provide the Department.
    Ms. Lee. The Department does not have a central repository of 
market research and analysis supporting contracting decisions, nor do 
we track such information. Only during occasional management reviews or 
audits of specific buying commands do we monitor actions, such as 
market research and analysis, that support contracting decisions. For 
this reason, we are not able to provide the requested list. 

    37. Senator Collins. Ms. Lee and Ms. Styles, contracting officers 
today have a lot of discretion in how the purchasing decisions are 
handled (consolidated vs. separate contracts) in the various agencies, 
despite the Small Business Reauthorization Act of 1997 (P.L. 105-135). 
What is the Department of Defense doing to ensure that the contracting 
officers are consistent with how they apply Section 411 through 413 of 
the law? What I am trying to understand is whether or not the 
Department of Defense has it consistent and uniform application of 
standards to consider consolidation or bundling of contracts.
    Ms. Lee. The policy memorandum and the Benefit Analysis Guidebook 
issued by the Under Secretary of Defense for Acquisition, Technology, 
and Logistics on January 17, 2002 convey the consistent approach that 
is expected of acquisition personnel. This, coupled with the guidance 
of the Federal Acquisition Regulation in implementing the statutory 
provisions on bundling in the Small Business Act, afford the 
Department's acquisition personnel with comprehensive and consistent 
guidance relative to contract consolidation and bundling.
    Ms. Styles. DOD's Benefit Analysis Guidebook contains particularly 
useful guidance for recognizing and addressing contract bundling 
issues. Also, as I mentioned in my answer to a previous question, to 
help implement the President's Small Business Agenda my office is 
developing a government-wide strategy and recommendations on contract 
bundling that we plan on presenting to the President this fall.

    38. Senator Collins. Ms. Styles, Section 822 of the Senate version 
of the Fiscal Year 2002 National Defense Authorization Bill would have 
required that prior to consolidation of contract requirements in excess 
of $5 million that a determination be made that the benefits of the 
acquisition strategy, including consolidation requirements, 
substantially exceed the benefits of alternative contracting approaches 
that would involve a lesser degree of consolidation. What would the 
administration's position be on this language, if the language were 
applied government-wide and replaced the current legislative 
requirement?
    Ms. Styles. The language that you describe seems to be essentially 
the legislative approach embodied in S. 2466, the ``Small Business 
Federal Contractor Safeguard Act,'' a stand-alone bill that would 
replace current ``contract bundling'' requirements with statutory 
provisions covering ``contract consolidations'' and concomitant market 
research and justification requirements. The administration does not 
have a position on S. 2466 at this time. In a few weeks, we plan on 
presenting to the President our proposed strategy on contract bundling, 
including recommendations for specific actions that can be taken under 
the existing statutory framework. Concurrent statutory changes could be 
confusing to procurement personnel at a time when we plan on asking 
them to take on more responsibility.

    [Whereupon, at 11:40 a.m., the subcommittee adjourned.]

                                 
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