    [Senate Hearing 108-440]
    [From the U.S. Government Publishing Office]

                                                     S. Hrg. 108-440, Pt. 3

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                      2005

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

                                    HEARINGS

                                   before the

                          COMMITTEE ON ARMED SERVICES
                              UNITED STATES SENATE

                          ONE HUNDRED EIGHTH CONGRESS

                                 SECOND SESSION

                                       ON

                                    S. 2400

         TO AUTHORIZE APPROPRIATIONS FOR FISCAL YEAR 2005 FOR MILITARY
    ACTIVITIES OF THE DEPARTMENT OF DEFENSE, FOR MILITARY CONSTRUCTION, AND
       FOR DEFENSE ACTIVITIES OF THE DEPARTMENT OF ENERGY, TO PRESCRIBE
    PERSONNEL STRENGTHS FOR SUCH FISCAL YEAR FOR THE ARMED FORCES, AND FOR
                                 OTHER PURPOSES

                                   ----------

                                     PART 3

                        READINESS AND MANAGEMENT SUPPORT

                                   ----------

                       MARCH 9, 23; APRIL 1; MAY 13, 2004

             Printed for the use of the Committee on Armed Services
    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                 2005--Part 3

                        READINESS AND MANAGEMENT SUPPORT

                                     ______

    2005

                                                     S. Hrg. 108-440, Pt. 3

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                      2005

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

                                    HEARINGS

                                   before the

                          COMMITTEE ON ARMED SERVICES
                              UNITED STATES SENATE

                          ONE HUNDRED EIGHTH CONGRESS

                                 SECOND SESSION

                                       ON

                                    S. 2400

         TO AUTHORIZE APPROPRIATIONS FOR FISCAL YEAR 2005 FOR MILITARY
    ACTIVITIES OF THE DEPARTMENT OF DEFENSE, FOR MILITARY CONSTRUCTION, AND
       FOR DEFENSE ACTIVITIES OF THE DEPARTMENT OF ENERGY, TO PRESCRIBE
    PERSONNEL STRENGTHS FOR SUCH FISCAL YEAR FOR THE ARMED FORCES, AND FOR
                                 OTHER PURPOSES

                                   __________

                                     PART 3

                        READINESS AND MANAGEMENT SUPPORT

                                   __________

                       MARCH 9, 23; APRIL 1; MAY 13, 2004

             Printed for the use of the Committee on Armed Services

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                          COMMITTEE ON ARMED SERVICES

                        JOHN WARNER, Virginia, Chairman

    JOHN McCAIN, Arizona                 CARL LEVIN, Michigan
    JAMES M. INHOFE, Oklahoma            EDWARD M. KENNEDY, Massachusetts
    PAT ROBERTS, Kansas                  ROBERT C. BYRD, West Virginia
    WAYNE ALLARD, Colorado               JOSEPH I. LIEBERMAN, Connecticut
    JEFF SESSIONS, Alabama               JACK REED, Rhode Island
    SUSAN M. COLLINS, Maine              DANIEL K. AKAKA, Hawaii
    JOHN ENSIGN, Nevada                  BILL NELSON, Florida
    JAMES M. TALENT, Missouri            E. BENJAMIN NELSON, Nebraska
    SAXBY CHAMBLISS, Georgia             MARK DAYTON, Minnesota
    LINDSEY O. GRAHAM, South Carolina    EVAN BAYH, Indiana
    ELIZABETH DOLE, North Carolina       HILLARY RODHAM CLINTON, New York
    JOHN CORNYN, Texas                   MARK PRYOR, Arkansas

                        Judith A. Ansley, Staff Director

                 Richard D. DeBobes, Democratic Staff Director

                                     ______

                Subcommittee on Readiness and Management Support

                         JOHN ENSIGN, Nevada, Chairman

    JOHN McCAIN, Arizona                 DANIEL K. AKAKA, Hawaii
    JAMES M. INHOFE, Oklahoma            ROBERT C. BYRD, West Virginia
    PAT ROBERTS, Kansas                  BILL NELSON, Florida
    WAYNE ALLARD, Colorado               E. BENJAMIN NELSON, Nebraska
    JEFF SESSIONS, Alabama               MARK DAYTON, Minnesota
    JAMES M. TALENT, Missouri            EVAN BAYH, Indiana
    SAXBY CHAMBLISS, Georgia             HILLARY RODHAM CLINTON, New York
    JOHN CORNYN, Texas                   MARK PRYOR, Arkansas

                                      (ii)
    ?

                                C O N T E N T S

                                  ----------

                        CHRONOLOGICAL LIST OF WITNESSES
                          Military Readiness Programs
                                 march 9, 2004

                                                                       Page

    Casey, GEN George W., Jr., USA, Vice Chief of Staff, United
      States Army....................................................     5
    Mullen, ADM Michael G., USN, Vice Chief of Naval Operations,
      United States Navy.............................................    10
    Moseley, Gen. T. Michael, USAF, Vice Chief of Staff, United
      States Air Force...............................................    24
    Huly, Lt. Gen. Jan C., USMC, Deputy Commandant of the Marine
      Corps Plans, Policies, and Operations, United States Marine
      Corps..........................................................    38

                   Department of Defense Financial Management
                                 march 23, 2004

    Walker, Hon. David M., Comptroller General of the United States
      General Accounting Office (GAO)................................   127
    Zakheim, Hon. Dov S., Under Secretary of Defense (Comptroller)...   143

                         Military Installation Programs
                                 april 1, 2004

    DuBois, Raymond F., Jr., Deputy Under Secretary of Defense for
      Installations and Environment..................................   190
    Lust, MG Larry J., USA, Assistant Chief of Staff for Installation
      Management, United States Army.................................   203
    Weaver, RADM Christopher E., USN, Commander, U.S. Navy
      Installations Command..........................................   218
    Williams, Brig. Gen. Willie E., USMC, Assistant Deputy
      Commandant, Installations and Logistics [Facilities],
      Commandant of the Marine Corps.................................   231
    Fox, Maj. Gen. Dean, USAF, The Air Force Civil Engineer and
      Deputy Chief of Staff, Installations and Logistics, USAF.......   238

                           Acquisition Policy Issues
                                  may 13, 2004

    Wynne, Hon. Michael W., Acting Under Secretary of Defense for
      Acquisition, Technology, and Logistics.........................   336
    Ballard, Tina, Deputy Assistant Secretary of the Army for Policy
      and Procurement................................................   353
    Strock, MG Carl, USA, Director of Civil Works, U.S. Army Corps of
      Engineers......................................................   356
    McManus, MG Wade H., Jr., USA, Commanding General, U.S. Army
      Field Support Command..........................................   361

                                     (iii)

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                      2005

                                  ----------

                             TUESDAY, MARCH 9, 2004

                               U.S. Senate,
                      Subcommittee on Readiness
                                and Management Support,
                                   Committee on Armed Services,
                                                        Washington, DC.

                          MILITARY READINESS PROGRAMS

        The subcommittee met, pursuant to notice, at 2:30 p.m. in
    room SR-232A, Russell Senate Office Building, Senator John
    Ensign (chairman of the subcommittee) presiding.
        Committee members present: Senators Ensign, McCain, Inhofe,
    Cornyn, Akaka, E. Benjamin Nelson, and Pryor.
        Committee staff member present: Leah C. Brewer, nominations
    and hearings clerk.
        Majority staff members present: L. David Cherington,
    counsel, William C. Greenwalt, professional staff member;
    Gregory T. Kiley, professional staff member; Lucian L.
    Niemeyer, professional staff member; and Joseph T. Sixeas,
    professional staff member.
        Minority staff members present: Maren R. Leed, professional
    staff member; Peter K. Levine, minority counsel; and Michael J.
    McCord, professional staff member.
        Staff assistants present: Andrew W. Florell and Sara R.
    Mareno.
        Committee members' assistants present: Christopher J. Paul
    and Dan Twining, assistants to Senator McCain; John A. Bonsell,
    assistant to Senator Inhofe; D'Arcy Grisier, assistant to
    Senator Ensign; William K. Sutey, assistant to Senator Bill
    Nelson; Andrew Shapiro, assistant to Senator Clinton; and Terri
    Glaze, assistant to Senator Pryor.

           OPENING STATEMENT OF SENATOR JOHN ENSIGN, CHAIRMAN

        Senator Ensign. Good afternoon, everyone, and welcome.
        The Subcommittee on Readiness and Management Support meets
    today to begin our hearings for the fiscal year 2005 Defense
    Authorization Request. Before we begin--and Senator Akaka will
    be with us in just a moment--I'd like to thank him. We worked
    together and had a great team last year, worked across party
    lines, and put the Armed Services and the defense of our
    country first and foremost before any political considerations,
    and I just want to say thank you to him and to his staff
    publicly today.
        This subcommittee enjoys a broad charter, the result of
    oversight responsibility in areas that are as diverse as they
    are plentiful. Over the next 5 weeks, the subcommittee will be
    examining a number of issues relevant to ensuring the readiness
    of the Armed Forces and the effective management of the
    Department of Defense and the four Services. In addition to
    today's discussion on military readiness programs, the
    subcommittee's agenda for this session includes: on March 23, a
    hearing on Defense Department financial management policies and
    practice; on April 1, a hearing on issues related to military
    installation and the Department's budget request for military
    construction; and on April 6, a hearing to examine Defense
    Department acquisition policies. We have a great deal of work
    ahead in this session, and I am looking forward to getting
    started.
        Our focus this afternoon will be to discuss key military
    readiness programs of the Services. These include programs that
    support operation and maintenance of ships, aircraft, tanks,
    and related systems; train personnel; provide for logistics;
    and maintain base facilities. I'm looking forward to candid
    assessment from each of the witnesses on the current status of
    these programs and their assessment on how these programs are
    supporting the overall readiness of the Services today.
        The President has proposed a $102.6 billion request for the
    readiness programs of the active and Reserve components for
    fiscal year 2005. This is a 5.1 percent real increase over
    current spending plan for fiscal year 2004. While we have
    received the Services' lists of requirements for fiscal year
    2005 that were not included in the budget request, I am
    particularly encouraged to see that the President was able to
    meet over 96 percent of the funding requirements for the coming
    fiscal year for each of the Services with his budget proposal.
    Given the challenges facing the military today to maintain a
    fully ready force while defending the homeland, fighting the
    war a terrorism, and supporting the transitions to peaceful
    democracies in Iraq and Afghanistan, I believe this request is
    right on the mark.
        We will be specifically interested to learn from the
    witnesses today their assessment of how the President's budget
    request for fiscal year 2005 will support readiness programs
    and what the potential implications would be of any reduction
    in the President's request. In addition to your thoughts on the
    budget for readiness programs, we will also be interested in
    learning about the progress that each of your services has made
    in resetting units that have returned to their home stations
    from deployments in support of Operation Iraqi Freedom and
    Operation Enduring Freedom. Finally, we look forward to hearing
    your views on any long-term readiness issues that could develop
    as a result of the sustained deployment of military units for
    contingency operations.
        I am convinced that we must support the Department's
    manpower enhancement initiatives. With active component/Reserve
    component rebalancing and the military-to-civilian conversion
    initiatives, we can fully maximize the talents and skills of at
    least 70,000 service members that are resident today within the
    active, Reserve, and National Guard. We simply cannot afford to
    have today's service men and women serving in billets and
    occupational specialities that are not essential for 21st
    century challenges.
        Further, I believe that time is of the essence. The costs
    of not implementing these initiatives are simply too high.
    Every day, someone decides either to continue in the service or
    to seek relevance in the growing civilian economy. We have such
    a tremendously capable group of men and women in uniform, and I
    don't want to lose them.
        The Defense Department's initiatives will greatly increase
    the readiness, responsibility, and flexibility of the force.
    For me, this is the bottom line. I look forward to each of the
    witnesses taking a moment to share their views on these
    initiatives.
        We are privileged to have testifying before us a panel
    representing each of the Services. All are exceptionally
    qualified officers joining us today: General George W. Casey,
    Jr., Vice Chief of Staff, United States Army; Admiral Michael
    G. Mullen, Vice Chief of Naval Operations, United States Navy;
    General T. Michael Moseley, Vice Chief of Staff, United States
    Air Force; and Lieutenant General Jan C. Huly, Deputy
    Commandant of the Marine Corps for Plans, Policies, and
    Operations, United States Marine Corps. Many thanks to each of
    you for joining us today.
        Now I turn to the distinguished ranking member, who I said
    some nice things about before you got here. Welcome, Senator
    Akaka.

                  STATEMENT OF SENATOR DANIEL K. AKAKA

        Senator Akaka. Thank you very much, Mr. Chairman.
        Senator Ensign. As a matter of fact, it was a brilliant,
    glowing statement. [Laughter.]
        Senator Akaka. Thank you. I'll look at the record.
    [Laughter.]
        I'm delighted to be here with you and working with you, Mr.
    Chairman.
        I want to begin by saying how much we appreciate what the
    brave men and women of the Army, Navy, Air Force, and Marine
    Corps, who are putting their lives on the line for America, are
    doing for our country. We're proud of them and all of the
    leadership of the military. Our men and women in uniform around
    the world are in our thoughts and prayers, and you and your
    soldiers, sailors, airmen, and marines all have our sincere
    gratitude.
        I want to also welcome our panelists here this afternoon,
    and thank you for sharing your insights with us on readiness
    today. We appreciate your being here. I want to welcome you,
    individually, General Casey and Admiral Mullen, General
    Moseley, and I understand Jenny is here--oh, yes, welcome--and
    also General Huly.
        Each year when we conduct this hearing, I think we have
    reached the peak of strain on our forces; but each year, the
    stress on our forces gets worse. I sincerely hope that this
    year does represent the peak, as the level of engagement of our
    forces right now is very high and is a significant strain. I
    also hope that the efforts each of your Services are making to
    reduce their strain are effective. So even if our military is
    faced with the same level of operational commitments in the
    future, the burden on our personnel and their families will be
    lessened.
        While I have every confidence in our Armed Forces and their
    ability to excel at whatever we might ask of them, I want to
    ensure that we continue to provide the support that they need
    as we go forward. We have had a lot of testimony already this
    year about possible shortfalls in supplemental funding for the
    remainder of this year, and the timing of any supplemental
    funding for next year, both of which will have a significant
    impact on the services' ability to reconstitute their forces
    and reset their future operations. Between now and then, we
    will consider the fiscal year 2005 budget request, which we
    will get more into today.
        I must add that, for our part, as we consider that request,
    I hope that Congress does not compound the challenges facing
    the services by making deep cuts in operation and maintenance
    accounts.
        That said, and as was the case last year, we find ourselves
    considering a budget request that seems disconnected from
    current reality because it assumes ongoing operations in Iraq
    and Afghanistan will stop by September 30. I hope that the
    Senate will be able to remedy that disconnect in our upcoming
    budget resolution, at least to a certain extent; but, in the
    meantime, we find ourselves examining a so-called peacetime
    budget when we know that at least some of our forces will
    continue to be deployed in Iraq and Afghanistan at the
    beginning of next fiscal year.
        Despite these artificialities, our challenge is to provide
    the strongest possible foundation for the readiness of our
    forces in this year's authorization act. As I have reviewed
    your requests, I have some concerns about certain readiness
    areas. I am particularly concerned about apparent shortfalls in
    depot maintenance, which most of you have funded at 84 percent,
    or lower, of your known peacetime requirements. I am also
    worried about funding for base operating support and the
    possible sources of funds you will decrement to pay mandatory
    bills in this area as the fiscal year proceeds.
        Hopefully, your testimony and our discussions today will
    shed light on some of the considerations behind the decisions
    reflected in this budget. I also hope to gain a deeper
    appreciation for your short- and long-term readiness concerns,
    and any help that we may be able to provide.
        Again, I welcome our witnesses and look forward to your
    testimony.
        Thank you very much, Mr. Chairman.
        Senator Ensign. Thank you.
        Before proceeding, I want to note that we will only be
    discussing topics today at the unclassified level. I remind
    each of you to keep that in mind. Also, without objection, your
    full statements will be made part of the record. We look
    forward to your personal presentations here, and then we'll
    have a period of questions and answers.
        We have a vote that's going to start about 2:45, and
    Senator Akaka's going to go to the floor and vote, and then
    come back, and then I'll go--so we won't keep you any longer
    today than is absolutely necessary.
        So, General Casey, we'll just start with you, and work down
    the table.

       STATEMENT OF GEN GEORGE W. CASEY, JR., USA, VICE CHIEF OF
                       STAFF, UNITED STATES ARMY

        General Casey. Great, thank you, Mr. Chairman.
        I appreciate the opportunity to appear today to discuss the
    Army's readiness and our plans to meet current worldwide
    commitments while we simultaneously transform to a more
    versatile, agile joint and expeditionary force.
        I thank the members of the committee for their continued
    support to the men and women in uniform that make up our great
    Army.
        For us, with over 320,000 soldiers deployed in 120
    countries worldwide, the Army is clearly remaining actively
    engaged in support of our Nation's operational requirements.
    Approximately 165,000 of our soldiers are overseas on 12-month
    unaccompanied tours, and the vast majority of these troops are
    engaged in combat operations in the U.S. Central Command area
    of operations.
        Currently, the equivalent of eight Army divisions are
    either deploying to or redeploying from overseas missions. This
    constitutes the largest movement of U.S. forces since World War
    II. Couple that with the mobilization of more than 150,000
    combat-ready National Guard and Army Reserve soldiers, and you
    can see this is an unprecedented moment in the Army's history.
    Today, Senators, it is not business as usual for your United
    States Army.
        Our commitments have highlighted stressors, as Senator
    Akaka mentioned, and the Army has embarked on a series of
    initiatives to reduce these stresses, to improve our
    capabilities, and to transform ourselves to a more joint and
    expeditionary force in this decade.
        First, we are rebalancing capabilities between our active
    and Reserve component forces to improve our strategic
    flexibility. We removed more than 100,000 positions to relieve
    the burden on low-density, high-demand units; for example,
    military policemen (MPs).
        Second, we are reorganizing our combat formations into
    modular, brigade-sized formation to make them more self-
    sufficient and more readily available for force packaging. We
    intend to increase the number of active brigades from 33 to 43
    by fiscal year 2007, and also to convert our 34 National Guard
    brigades to modular formations. This process has already begun
    at Fort Stewart, Georgia, with the 3rd Infantry Division. As I
    mentioned to you yesterday, to accomplish building these 10
    brigades, the President and the Secretary of Defense have
    approved our request to grow the Army by 30,000 beyond its
    statutory end strength under the authorities of title 10,
    section 123(a). We ask for your support on this. It will enable
    us to significantly improve our capabilities, about a 30-
    percent increase in our combat power.
        Third, we are initiating a force-stabilization program to
    increase unit readiness, reduce personnel turbulence, and make
    life more predictable for our soldiers, units, and families.
    Under this program, units will form, train, and stay together
    for roughly 36 months, enhancing unit cohesion and, thereby,
    unit effectiveness. Soldiers will remain assigned to
    installations for 6 to 7 years, as opposed to the 3-year tour
    that we normally have folks on now. This will improve
    predictability again, and allow their families to grow some
    roots in the community. These efforts, taken together, will
    yield an Army that has the right capabilities to respond
    rapidly and decisively to future challenges that our country
    might face.
        While moving forward on these initiatives, the Army must
    also address continuing areas of interest affecting our people
    and our infrastructure. This includes providing our forces with
    the right equipment for the missions in the global war on
    terrorism; reconstituting our equipment returning from
    Operation Iraqi Freedom (OIF) and Operation Enduring Freedom
    (OEF) to a rigorous long-range plan we call Setting the Force;
    third, ensuring that our modernization efforts continue to bear
    fruit, as with the recent fielding of our Stryker Brigade that
    went from concept to Iraq in 4 years--this is a significant
    accomplishment; fourth, providing our uniformed and civilian
    members the quality of life that is the equivalent of the
    society they defend; and, lastly, improving the quality of our
    installations.
        Our commitment to improve current and future readiness is
    steadfast, even when this entails making tough choices, such as
    canceling the Comanche aircraft program. Now, we can talk about
    it in the questions and answers, but we need the committee's
    support to retain the Comanche resources to fix Army aviation.
        The 2005 President's budget will enable our Army to provide
    our combatant commanders with the requisite land-power
    capabilities for the global war on terrorism, homeland defense,
    and other worldwide commitments. It covers our baseline
    operations, the 15 critical systems in our recapitalization
    program, and our transformation program. It does not address
    the ongoing missions in Iraq and Afghanistan, and the recovery
    from those missions.
        Your support of this budget and war-related costs of our
    ongoing operations is critical if our units are to continue
    their remarkable performance and remain ready for future
    contingencies.
        We appreciate your dedication to your military and to
    America's sons and daughters, who are operating selflessly
    around the world defending this great country.
        Thank you, Senator, for the opportunity. I look forward to
    taking your questions.
        [The prepared statement of General Casey follows:]

              Prepared Statement by GEN George W. Casey, Jr., USA

                                  INTRODUCTION

        Chairman Ensign, Senator Akaka, members of the committee--I
    appreciate the opportunity to appear before you to discuss the Army's
    readiness and our plans to meet current worldwide commitments, while we
    simultaneously transform to a more flexible, capable, joint, and
    expeditionary force.
        I thank the members of the committee for their continued
    outstanding support to the men and women in uniform, who make up our
    great Army. Your concern, resolute action, and deep commitment to
    America's sons and daughters are widely recognized throughout the ranks
    of our Service.

                                CURRENT POSTURE

        With over 320,000 soldiers deployed in 120 countries worldwide, the
    Army remains actively engaged in support of the Nation's operational
    requirements. Approximately 165,000 of our soldiers are overseas on 12-
    month, unaccompanied tours, and the vast majority of these troops are
    engaged in combat operations in the U.S. Central Command Area of
    Operations. Currently, the equivalent of eight Army divisions is either
    deploying to or redeploying from our overseas missions, including
    Operations Iraqi Freedom and Enduring Freedom in Southwest Asia, the
    Stabilization Force and Kosovo Force in the Balkans, and the
    Multinational Force and Observers mission in the Sinai. This
    constitutes the largest movement of U.S. forces since World War II.
    Couple that with the mobilization of more than 150,000 combat-ready
    National Guard and Army Reserve soldiers, and you can see that this is
    an unprecedented moment in the Army's history.
        The Army is the dominant land campaign force for our combatant
    commanders. Our centerpiece is the American soldier. Today, these great
    soldiers are performing extraordinarily well in tough combat and
    stability operations around the world. They understand their missions
    and willingly undertake their roles with pride and determination. They
    make a difference every day.

                             READINESS AND TRAINING

        While the situations these forces face are challenging, I am struck
    by how well our combat training centers and institutional education
    programs have prepared our leaders and soldiers for their missions and
    for the rigors of combat operations.
        Our combat formations headed to Operation Iraqi Freedom have
    received a full-spectrum train-up, either at the National Training
    Center at Fort Irwin, California, the Joint Readiness Training Center
    at Fort Polk, Louisiana, or the Combat Maneuver Training Center at
    Hoenfels, Germany. This realistic preparation is based upon the lessons
    we gleaned from our combat operations and our ongoing security
    operations in Iraq and Afghanistan.
        The Army's training programs have also been, and will continue to
    be, the cultural drivers for the future. Leaders will not learn what to
    think, but instead how to think--jointly, strategically, and within the
    context of an expeditionary mindset. We will continue to invest in
    cutting edge facilities and technology and constantly modify our
    curricula to reflect current and expected threats, and incorporate the
    lessons of actual operations, as we already are doing with the
    experience gained in Afghanistan and Iraq.

                              THE ONE ARMY CONCEPT

        Side by side, the active component, Army National Guard, and Army
    Reserve have proven that they are a combat-capable and ready team. Our
    Reserve components have shared a substantial portion of the Army's
    mission since September 11, 2001. Our successes would not have been
    possible without our Reserve component soldiers.
        Currently, we are in the process of deploying three more enhanced
    Separate Brigades: the 39th Infantry Brigade from the Arkansas National
    Guard with the 1st Cavalry Division; the 30th Infantry Brigade from the
    North Carolina National Guard with the 1st Infantry Division; and the
    81st Infantry Brigade from the Washington National Guard to CJTF-7, and
    large numbers of combat support and combat service support soldiers
    from across the country. These units are well-equipped, well-trained,
    and well-prepared for their missions.

       MITIGATING STRATEGIC RISK THROUGH INCREASED LAND-POWER CAPABILITY

        Our Nation and Army are at war. Our extensive commitments have
    highlighted stresses to our forces, which have existed for some time.
    To mitigate risk, our Army has embarked on a series of initiatives
    including the implementation of the human resources and competitive
    sourcing initiatives in the President's Management Agenda (PMA). I
    would like to address several of these initiatives today, because it is
    important to understand how the Army is transforming itself as we
    provide trained and ready forces to combatant commanders.
        First, we are rebalancing capabilities between our active and
    Reserve component forces to improve our strategic flexibility. Second,
    we are reorganizing our combat formations into modular, brigade-based
    formations to make them more self-sufficient and to facilitate force
    packaging. Third, we are initiating a force stabilization program to
    increase unit readiness, reduce personnel turbulence, and make life
    more predictable for our soldiers, units, and families.
        These efforts will yield an Army that has the right capabilities to
    respond rapidly and decisively to future challenges.

                              REBALANCING OUR ARMY

        Being an Army at war provides focus and insights as we rebalance to
    meet the challenges of the emerging operational environment. We
    recognize that we must provide our Nation with full-spectrum, ground
    combat and support capabilities that can defeat adaptive enemies
    anywhere in the world.
        Our challenge is not necessarily that we have too few soldiers.
    Instead, it stems from the fact that our formations, designed for the
    Cold War, must now meet the requirements of the global war on terrorism
    and other operations, which will persist for years to come. To meet the
    challenges of the future, we are rebalancing more than 100,000 spaces
    in our active and Reserve components--converting them to relieve the
    burden on the low density/high demand units, e.g., military police. We
    also are converting military billets now doing commercial activities to
    either civilian employees or contracts, which will assist in meeting
    the Department of Defense's Business Initiative Council's goals and
    provide us more warfighter/core staffing.
        We accelerated this process after September 11, 2001, to alleviate
    the stress placed on our most-needed units. In compliance with
    Secretary of Defense's guidance to minimize involuntary mobilizations
    within the first 30 days of a contingency, we made further progress in
    2003. We expect Army rebalancing measures to continue with the same
    momentum in 2004, 2005, and beyond. Our National Guard and Army Reserve
    have been, and will continue to be, integral to the planning and
    decisionmaking process for this effort.

                                   MODULARITY

        In addition to rebalancing our forces, we are creating a brigade-
    based, modular Army to enhance responsiveness and to increase our joint
    and expeditionary capabilities. Webster's defines modularity as
    ``composed of standardized units for easy construction or flexible
    arrangements.'' Although this may seem to be an oversimplification of
    what the Army is doing, it is precisely our concept.
        The basic maneuver element in the modular Army will be the unit of
    action, similar to today's brigade. Units of action will be flexible,
    self-contained, and capable across the entire operational spectrum.
        The Army intends to increase the number of active component
    brigades from 33 to 43 by fiscal year 2007; at that time, we will
    decide whether to continue the process to achieve 48 brigades. During
    the same time period, Army National Guard Brigades will reorganize into
    34 brigade-size units using the same modular design as the active
    component.
        The Chief of Staff has approved the initial modular design of the
    3rd Infantry Division and its transformation is under way. Following
    rigorous training, to include rotations through our combat training
    centers at Fort Polk, Louisiana, and Fort Irwin, California, the
    division will be reset for potential deployment anywhere in the world
    as early as the first quarter of fiscal year 2005.

                              FORCE STABILIZATION

        The challenges associated with current operational requirements
    place significant stress on our existing force structure, both active
    and Reserve. The approval of a temporary end-strength increase affords
    us the opportunity to implement permanent initiatives aimed at
    mitigating that stress to the force which is consistent with our PMA
    human capital initiative.
        The force stabilization initiative consists of two complementary
    policies: unit-focused stability and home basing. Under home basing,
    soldiers will remain at their initial installation for 6 to 7 years--
    well beyond the current 3-year average. Unit-focused stability will
    allow soldiers to arrive, train, and serve together for roughly 36
    months, enhancing unit cohesion, training effectiveness and readiness.
    During the unit's operational cycle, soldiers can expect to complete an
    operational deployment rotation of 6 to 12 months. Overall, with force
    stabilization, units will have more reliable training and deployment
    schedules, and soldiers and families will get a greater sense of
    predictability.

                                 INSTALLATIONS

        Installations are essential to maintaining the Army; they serve as
    our flagships. Our short-term installation plans center on three
    essential tasks: posturing installations as deployment platforms with
    robust, reach-back capabilities; adjusting installation support to meet
    the needs of an Army at war and transforming; and supporting the well-
    being of all soldiers and their families.
        Many of our installations require restoration and modernization to
    enable Army transformation and the rotation-based system of global
    engagement. In the past, the Army has repeatedly accepted risk in
    infrastructure and installation services in order to maintain
    warfighting capabilities and readiness; as a result, facility
    conditions have deteriorated. We are in the process of reversing the
    decay, but much remains to be done on installations that will continue
    after the forthcoming base realignment and closure (BRAC) round. Our
    overall goal is to achieve C-2 quality (minimal impact on mission
    accomplishment) by 2010, with specific facility types achieving C-1
    ratings. In fiscal year 2005, the President's budget has programmed
    $2.5 billion for sustainment, restoration and modernization (SRM) to
    stop deterioration and to improve our facilities; within that sum,
    sustainment dollars will cover 95 percent of requirements. We also have
    increased base operations support funding in fiscal year 2005.

                                QUALITY OF LIFE

        The Army strives to provide its members, uniformed and civilian, a
    quality of life equivalent to the society they defend. They deserve
    nothing less. To help fulfill this obligation, we have increased
    soldier compensation and decreased out-of-pocket housing expenses. In
    fiscal year 2004, out-of-pocket housing costs will drop from 7.5
    percent to 3.5 percent; we are on a glide path to cutting those
    expenses to zero in fiscal year 2005.
        Our Army also is improving the housing itself. Through the
    Residential Communities Initiative and the Army Family Housing program,
    17,000 of our 100,000 sets of quarters will be renovated by the end of
    2005.
        In addition, this year we inaugurated a program with the private
    sector to increase employment opportunities for our Army spouses. Our
    objective in fiscal year 2005 is for 55 percent of spouses seeking
    employment to obtain positions through these corporate sponsorships.

                              EQUIPPING THE FORCE

        Providing our forces with the right equipment for the missions in
    Iraq and Afghanistan and the global war on terrorism is an imperative.
    To this end, we are adapting and improving our acquisition and fielding
    processes to better support our warfighter. Thanks to congressional
    support in the fiscal years 2003 and 2004 emergency supplemental
    appropriations, our Army has been able to obtain and field solutions to
    $4.4 billion of operational requirements. For example, in fiscal year
    2003 we implemented our Rapid Fielding Initiative (RFI) to ensure that
    all of our troops deploy with the latest available equipment. We
    substantially compressed the procurement and fielding cycle and revised
    schedules to support unit rotation plans.
        Our fiscal year 2004 goal for RFI is to upgrade a minimum of 16
    brigade combat teams, to include three Reserve Component Enhanced
    Separate Brigades, serving in Operation Iraqi Freedom and Operation
    Enduring Freedom. More than $100 million have been programmed to
    continue RFI in fiscal year 2005.
        Additionally, the Army has established a Rapid Equipping Force
    (REF) that works directly with operational commanders to find solutions
    to operational requirements. These solutions may be off-the-shelf or
    near-term developmental items that can be made quickly available. We
    also created a task force to safeguard our soldiers from improvised
    explosive devices (IEDs). Its work is saving lives in the Operation
    Iraqi Freedom and Operation Enduring Freedom areas of operation. In
    fiscal year 2004, the IED initiative was funded solely through existing
    Army programs, at a cost of $21 million. In light of its success, our
    Army has decided to make the task force a permanent organization.
        Our modernization efforts continue and are bearing fruit, as
    evidenced by the recent fielding and deployment to Iraq of our first
    Stryker Brigade Combat Team (SBCT). Our second SBCT will become
    operational this spring, and the third in 2005. Three more SBCTs will
    be fielded through 2008.
        Our commitment to improve current and future readiness is
    steadfast, even when that entails making tough choices, such as
    canceling the Comanche program. Though it was a difficult decision, we
    believe it was unquestionably the right one. By reallocating funds
    originally intended for Comanche the Army can buy almost 800 new
    aircraft, upgrade or modernize an additional 1,400 aircraft--
    modernization for almost 70 percent of our fleet--and outfit our
    aircraft with the survivability equipment they need. In fiscal year
    2005 alone, the Army will convert 19 Apaches to the Longbow
    configuration, upgrade 5 Black Hawks to the UH-60M configuration,
    purchase 27 new UH-60Ls; buy four new CH-47Fs; convert 16 existing CH-
    47s into F and G models; and procure 160 new, higher-power CH-47
    engines. In addition, our Army will start a Lightweight Utility
    Helicopter program, under which we will acquire 10 new, off-the-shelf
    aircraft in fiscal year 2005. We need your support to use the Comanche
    resources to fix Army aviation.

                               SETTING THE FORCE

        We are in the process of reconstituting our equipment returning
    from Operations Iraqi Freedom and Enduring Freedom through a rigorous,
    long-range plan known as ``Setting the Force.'' This program, which is
    designed to restore our units and equipment stocks to predeployment
    levels of readiness so they are rapidly ready for follow on missions.
    The goal is for all returning active and Army Reserve units to achieve
    this level of combat readiness within 6 months after their arrival at
    home station. For National Guard units, the target is one year.
        The Army's Reset Task Force has determined the repair requirements
    for all Operation Iraqi Freedom 1 units. The workload consists of
    approximately 1,000 aviation systems, 12,467,000 communications and
    electronics systems, 5,700 combat/tracked vehicles, 45,700 wheeled
    vehicles, 1,400 missile systems, 9 Patriot battalions, and
    approximately 232,200 various other systems. The basic reset plan
    incorporates the use of domestic and overseas depot, installation and
    commercial repair facilities.
        As part of setting the force, our Army also will have to replace
    those weapons and systems destroyed on the battlefield or too badly
    damaged to be repaired economically. The procurement requirements
    established through our Reset Task Force cover only known losses at
    this point and we expect that they will grow as operations continue. We
    also predict that, as we inspect and repair equipment, the number of
    items catalogued as uneconomically repairable will increase.

                                   CONCLUSION

        In closing, the fiscal year 2005 budget will enable our Army to
    provide our combatant commanders the requisite land-power capabilities
    for the global war on terrorism, homeland defense and other worldwide
    commitments. It will enable us to provide our soldiers with the best
    available technology and materiel, and to properly train them to handle
    any situation or challenge they encounter. The fiscal year 2005 request
    covers our baseline operations, the 15 critical systems in our
    recapitalization program and our transformation program. It does not
    address the ongoing missions in Iraq and Afghanistan.
        Our soldiers continue to perform magnificently around the globe.
    Simultaneously executing the global war on terrorism, implementing our
    modularity and transformation initiatives and setting the force will be
    a challenge that is consistent with fulfilling the President's
    Management Agenda. However, it is also an opportunity to reshape
    ourselves for the future that we cannot pass up.
        Your support of this budget and for our ongoing operations,
    specifically in Iraq and Afghanistan, is critical if our units are to
    continue their remarkable performance and to be ready for future
    contingencies.
        We appreciate your dedication to your military and to America's
    sons and daughters, who are serving selflessly throughout the world to
    make America safe and free. Thank you again for the opportunity to
    discuss our Army and I look forward to answering any questions you may
    have.

        Senator Ensign. Thank you, General Casey.
        Admiral Mullen.

     STATEMENT OF ADM MICHAEL G. MULLEN, USN, VICE CHIEF OF NAVAL
                     OPERATIONS, UNITED STATES NAVY

        Admiral Mullen. Good afternoon, Mr. Chairman.
        I, too, greatly appreciate the opportunity to appear before
    you, along with my joint-service counterparts, to discuss one
    of the most important topics to our military and the security
    of our Nation, the state of the current and future readiness of
    your Navy.
        I would, first, like to report that the fiscal year 2004
    supplemental funding that you provided last year has gone
    precisely where we said it was needed most. I'm very grateful
    for that. Most shortfalls we had are being filled, and the
    readiness gaps are, in large part, solved. The Navy could, in
    the very near future, rapidly surge up to six carrier strike
    groups within 30 days, and two more soon thereafter, what we
    call ``Six Plus Two,'' as well as similar quantities of
    amphibious forces, providing options and significant combat
    capability for the President, just like that provided at the
    height of OIF, just 1 year ago. This is the return on your
    readiness investment.
        The Navy has some unplanned expenditures tied to the
    current movement of forces into Iraq for OIF 2. I expect the
    Department of Defense to cover as much of these costs as
    possible from resources managed centrally by the Comptroller,
    such as the Iraqi Freedom Fund. While we continue to be
    forward-deployed in support of OIF and OEF, the most joint
    operations ever, our new employment initiatives have provided a
    more flexible, sustainable rotational force. That newly-
    organized force is still forward-deployed, but now is coupled
    with a significant surgable combat-ready element in home
    waters.
        My written testimony goes into some detail about our Fleet
    Response Plan (FRP), but the bottom line is that we have
    stabilized the force; and our new employment construct would
    allow us to repeat what we did a year ago, later this year. We
    are producing the best readiness levels I have seen in my
    career.
        We have also instituted other organizational changes to
    increase our current readiness and accelerate our advantages.
    Validating a new force-packaging concept, Expeditionary Strike
    Group 1 returns today from its first operational deployment.
    Expeditionary strike groups (ESG) combine Navy deep strike and
    Marine forcible entry capabilities, portending new concepts of
    operations for ship-to-objective strikes deep inland and the
    potential for significant near covert operations executed from
    sea bases offshore. ESGs provide new, powerful, and flexible
    options.
        Commander Navy Installations Command was stood up and was
    established to centrally manage all of our shore installations,
    promote best-practices development, and increase efficiencies,
    saving approximately $1.2 billion across the Future Years
    Defense Plan (FYDP). This is partially in response to a
    conversation we had the other day. We're taking significant
    steps forward to manage the Department more efficiently, to
    look for resources from within.
        For recapitalization and future readiness, we have
    identified $12.4 billion in cost savings and requirements
    mitigation over the next 5 years to further our Seapower 21
    vision. Multi-year procurement contracts and economic order-
    quantity purchases are already generating savings. The F-18E/F
    multi-year procurement contract is expected to save us in
    excess of $1 billion across the FYDP, for example.
        This past year also validates the strategic value of sea-
    basing. During the opening hours of OIF, sea-basing enabled a
    three-axis attack on Iraq. More recently, the Navy's military
    sealift command has moved over 9.8 million square feet of
    joint-force cargo over the last 6 months in support of the
    largest force rotation since World War II.
        We will continue to budget the resources to make this a
    true national capability. Our vision is to support as much of
    the joint fighting force as required when facing an anti-access
    environment, or host-nation support is unavailable or overly
    restrictive.
        Admiral Clark and I are confident that the Navy's fiscal
    year 2005 budget submission will provide the right readiness at
    the right cost for the right force as we continue to fight the
    global war on terrorism. Units are now maintaining extended
    periods of combat readiness to meet our Nation's needs, known
    and unknown. We have, however, taken some well-considered risk
    in this budget proposal as we balanced our efforts between
    current readiness, future readiness, and the overall health of
    the Navy. There is no fat in the readiness accounts.
        I would like to draw your attention to some potential
    challenges. There is little to no excess capacity in the public
    ship-repair industrial base. It's at full capacity, and working
    overtime, in most cases. Our fiscal year 2004 planned
    maintenance requirements modestly exceeded our full capacity,
    causing us, again, to defer some work to fiscal year 2005.
    There is some risk associated with this lack of excess
    capacity, and the ship industrial base must be very carefully
    managed if we are to sustain our ability to surge; and we are
    doing that. The FRP and our continuous maintenance philosophy
    are also mitigating some of this risk.
        Stockpiles of precision-guided munitions (PGM) are slightly
    below current requirements. The Navy has, however, programmed
    and funded PGM production, and we will see our stocks
    replenished by the end of this budget period.
        Finally, I believe that encroachment of our training areas
    will not abate. Encroachment directly impacts current, and
    certainly future readiness, and the risk rises each time our
    forces enter combat with less than realistic training. I would
    ask for your continued leadership and support in resolving this
    challenge, challenge for the long-term health of the military
    services.
        On the whole, you should be confident that we have provided
    the best budget possible based on what we know today. Readiness
    at any cost is also unacceptable. We have striven to reasonably
    spend the taxpayers' dollar to provide for a ready Navy. We
    believe that our readiness accounts are properly balanced and,
    outside of unforeseen changes in our obligations, on solid
    financial footing.
        Mr. Chairman, Senator Akaka, in closing, I, again, would
    like to express my great appreciation for your enduring and
    exceptional support. The Navy was, is, and always will be a
    rotationally deployed force providing joint combatant
    commanders with persistent combat-credible naval power. The
    Navy is now providing a significant surge capability, as well.
    The nation's investment in the United States Navy is providing
    solid returns in the form of combat-ready forces. These are
    dollars well spent.
        I thank you for your time here today, and look forward to
    taking your questions.
        [The prepared statement of Admiral Mullen follows:]

                Prepared Statement by ADM Michael G. Mullen, USN

        Chairman Ensign, Senator Akaka, and distinguished members of this
    subcommittee, I am extremely pleased to testify before you, along with
    my Service counterparts, on the readiness of our military forces.
    Current readiness continues to be one of the Chief of Naval Operation's
    (CNO) top priorities and, with your enduring and generous support, we
    have built and organized a Navy that is truly ready, in every regard;
    more so today than ever before. Forward deployed with a significant
    surge capability poised to go, our forces are able to take credible,
    persistent combat power to the far corners of the Earth.
        In the fall, I testified before Congress that the CNO's goal for
    2004 was to constitute and ``reset the force.'' Later this year, the
    U.S. Navy will be fully ready to do it again. We will be able to
    provide combat forces on par with the OIF effort. A combat power that
    is ready around the world, around the clock; enabled by surge naval
    forces if called. This gives our President options. The exceptional
    support of this committee and Congress has enabled the Navy to wisely
    invest the taxpayer dollar; an unprecedented level of readiness now is
    the return on that important investment in the Navy. Before I go into
    more detail on current readiness and our fiscal year 2005 budget
    request to support continued readiness of naval forces, I will review
    the remarkable events and circumstances of the past year.

                              LAST YEAR IN REVIEW

        At this time last year, 168 Navy ships and over 77,000 sailors were
    deployed around the world supporting the global war on terrorism and in
    position to execute Operation Iraqi Freedom. In total, 221 of our then
    306 ships--representing 73 percent of our force--were underway,
    including 7 of 12 carrier strike groups, 9 of 12 expeditionary strike
    groups, and 33 of 54 attack submarines. The Navy and Marine Corps alone
    had nearly 600 aircraft forward deployed in support of these
    operations. SEALs, construction battalions (SEABEES), Explosive
    Ordnance Disposal (EOD) teams, port operations support units, maritime
    patrol squadrons, medical teams, and naval coastal warfare units were
    also deployed overseas, all well-trained and ready for real world
    combat operations. Twenty-one combat logistics and 76 sealift ships
    provided the movement and sustainment for this fighting force. It was a
    tremendous and superbly executed effort that projected decisive combat
    power across the globe in concert with our joint partners.
        Naval forces were integrated into joint and coalition operations in
    support of Operation Enduring Freedom (OEF) and Operation Iraqi Freedom
    (OIF). In the case of OIF, our forces provided the joint force
    commander a capability to strike deep inland from the sovereign
    operational sea bases provided by our aircraft carriers and other naval
    combatants. OEF and OIF were the most joint operations in our history,
    providing valuable lessons learned that will enhance our power
    projection (Sea Strike), our defensive protection (Sea Shield) and the
    operational independence afforded by the freedom to maneuver on the sea
    (Sea Basing). The lessons learned thus far reaffirm that the
    capabilities-based investment strategy, new warfighting concepts and
    enabling technologies we are now pursuing in the Sea Power 21 vision
    are right on course. Just a few examples of our warfighting investments
    in light of these lessons include:

             Purchasing precision guided munitions at the maximum
            rate currently possible;
             Enhancing the proven capability of Tomahawk cruise
            missiles;
             Accelerating science and technology (S&T) programs
            that proved effective in mine clearance; and
             Instituting new employment concepts to better utilize
            our existing forces.

        The capabilities-based transformation of our individual platforms
    and new operating concepts for the force continue to accelerate our
    advantages as the appropriations provided by this Congress become
    reality in the fleet. We must stay ready as well as invest in the
    future.
        Our Navy achieved many successes the past year, including some new
    high water marks in our priority areas:
    Sea Strike
        Sea Strike was an important contributor to successful combat
    operations during OIF, particularly during the crucial opening hours
    and days. In 2003, Navy flew nearly 9,000 sorties, fired over 800
    Tomahawk missiles and delivered over 15,000 marines to the fight in
    support of the joint force. The Navy delivered combat power where it
    was needed, when it was needed; providing tactical surprise,
    persistence and deep reach to the combatant commander from flexible
    naval forces under his command. The Navy strongly demonstrated its
    ability to conduct strike operations deep inland in concert with ground
    forces--whether Marine Corps, Special Operations or Army--to contribute
    to the decisive defeat of an armed adversary. We are also enhancing our
    power projection capabilities as we transform, providing flexible
    strike forces that are ready and immediately employable to the
    President.
        This past year we deployed the Navy and Marine Corps' first
    Expeditionary Strike Group (ESG 1), pairing the deep striking power of
    U.S.S. Port Royal (CG 72), U.S.S. Decatur (DDG 73), and the submarine
    U.S.S. Greenville (SSN 772) to the traditional forcible entry
    capabilities of our marines enabled by U.S.S. Peleliu (LHA 5), U.S.S.
    Ogden (LPD 5), and U.S.S. Germantown (LSD 42). This ESG provides
    increased capability to the joint combatant commander that is
    persistent and sovereign. The future addition of destroyer-experimental
    (DD(X)) and Joint Strike Fighter (JSF) short take-off/vertical landing
    variant (STOVL) to ESGs will greatly enhance these already tremendous
    combat forces. We also benefited this past year from the first fleet
    operations of the F/A-18E/F and over the next few years are fielding
    two new SEAL Teams and four nuclear-powered cruise missile attack
    submarines (SSGNs); which add unique capabilities to our portfolio of
    naval power.
    Sea Shield
        We continue improving the deterrent value and the warfighting power
    of our Navy through new sea shield capabilities, including: homeland
    defense, sea and littoral control, and theater air and missile defense.
    The ESG is also evidence of the shift in operational emphasis to
    providing the necessary sea shield capability required to operate in an
    anti-access environment.

         This year U.S.S. Higgins (DDG 76) provided early warning
    and tracking to joint forces in Kuwait and southern Iraq during the war
    to help defend against the theater ballistic missile attacks. This
    capability demonstrated the initial potential of extending Sea Shield
    defenses to the joint force, effectively projecting defensive power
    over the land battlespace.
         Three months ago, we advanced our theater missile defense
    capability with another successful flight test of our developmental
    sea-based defense against short-to-medium range ballistic missiles.
    U.S.S. Lake Erie (CG 70) and U.S.S. Russell (DDG 59) combined to
    acquire, track, and hit a ballistic test target in space with an SM-3
    missile in support of the Ballistic Missile Defense program. An
    effective theater ballistic missile defense (TBMD) system is essential
    in the future to protect air and sea ports of debarkation in theater,
    enabling the flow of military power for successful Joint operations
    ashore.
         Our OIF mine warfare efforts cleared 913 nautical miles of
    water in the Khor Abd Allah and Umm Qasr waterways, opening 21 berths
    in the Umm Qasr port and clearing the way for the first coalition
    humanitarian aid shipments into Iraq onboard RFA Sir Galahad, a British
    logistics ship. Other operations in the littoral areas of the Northern
    Arabian Gulf prevented sea mines from being deployed and secured active
    oil platforms, assuring maritime access to Iraq, freedom of navigation
    in the entire Arabian Gulf and preventing a potential environmental
    disaster.
         Antiterrorism/Force Protection (AT/FP): Significant
    progress was made in security, and investments in AT/FP continue as our
    personnel and bases remain potential terrorist targets. We
    significantly increased AT/FP resources: expanding our military police
    forces, delivering AT/FP equipment to the end users and formalizing
    fleet training and certification requirements. We also tested new
    systems as well as existing systems in an AT/FP role with good success
    and aligned counter-terrorism functions into the Naval Criminal
    Investigative Service.
    Sea Basing
        We are pursuing Sea Basing as an integral part of the Navy-Marine
    Corps team's transformation, encompassing and integrating powerful
    extensions to current Joint capabilities. The inherent mobility,
    security, and flexibility of naval forces provide an effective counter
    to emerging military and political limitations to overseas access.
    Supporting OEF and OIF in 2003, an element of our emerging Sea Basing
    concept is exemplified by the Military Sealift Command, which delivered
    over 32 million square feet of combat cargo, over 34,000 tons of combat
    and support cargo, and more than one billion gallons of fuel to the
    Nation's warfighters in OIF. Thus, within the Sea Basing construct, we
    were able to sustain the strategic and operational flexibility
    necessary to generate a three-axis attack in Iraq from our dispersed
    sea bases of aircraft carriers, surface combatants and submarines in
    the Red Sea, the Mediterranean Sea and the Arabian Gulf. This effort
    continues today in support of OIF II with 153 MSC-controlled ships
    activated on full operational status, 85 of them forward deployed
    economically and securely delivering over 350,000 tons of cargo in
    support of joint operations and the largest troop movement since World
    War II.
        As we continue to develop and field additional elements of Joint
    Sea Basing with the U.S. Marine Corps and our other sister services, we
    will ``accelerate our advantages'' to assure access for joint
    operations wherever it is required. Sea Basing provides the dynamic
    access, speed of response, flexibility and persistent sustainment
    capabilities necessary to execute combat operations ashore, exploiting
    the maneuver space provided by the sea to enable and conduct joint
    operations at a time and place of our choosing.
    Sea Warrior
        The human resource investment through our Sea Warrior program
    remains one of our top priorities as we execute the CNO's Guidance to
    ``expedite Sea Warrior'' and ``streamline and align the total manpower
    structure.'' Retention has never been better; for the third straight
    year we've seen record retention levels. In 2003 we retained 60.8
    percent of our first term sailors, a full four points above goal while
    attrition was driven down to 8.2 percent, three points lower than goal.
    Our officer corps chose to continue their naval careers in record
    numbers; our officer loss rate has decreased from 9.5 percent in 2000
    to 7.1 percent in 2003. This great retention allowed us to lower our
    accession goal to just over 41,000, down from 56,700 in 2000, while
    dramatically improving the quality of people we brought into the Navy.
    More than 94 percent of our recruits held high school diplomas and some
    3,200 of them had completed at least 12 semester hours of college
    credits. This success stands as testament to our commitment . . . with
    your support . . . to improve the quality of service in the Navy.
    Sea Trial and Experimentation
        We kept our commitment to testing and experimentation by both
    formalizing the process into the Sea Trial program as well as
    conducting tests in support of real-world operations where it made
    sense. These operations supporting OIF included the use of the High
    Speed Vessel X1 (Joint Venture), Navy patrol craft and six unmanned,
    autonomous underwater vehicles (AUV) directly from our science and
    technology (S&T) program. These successful field tests supported
    special operations and mine clearance in the littoral as well as
    delivering important insights into our vision for future littoral and
    mine warfare concepts and capabilities.

                               WHERE WE ARE TODAY

        When I addressed Congress last October, I indicated that the Navy
    had begun constituting the force. If called now, the Navy could rapidly
    surge six carrier strike groups within 30 days and two more soon
    after--what we call ``Six plus Two''--as well as significant amphibious
    forces, providing flexible options and significant combat capability to
    the President and Secretary of Defense. We reached this point by
    instituting organizational changes; and in this case, an innovative new
    operational employment concept called Fleet Response Plan (FRP). I will
    go into some detail on this transformational concept later, but
    briefly, FRP fundamentally changes our approach to readiness at the
    unit level and provides maximum return for the taxpayers' dollar, and
    is in place now. FRP ensures that fleet units achieve combat readiness
    sooner after completing a deployment and associated maintenance period.
    Units also maintain that high level of readiness longer than before.
    The net result is a period of extended readiness for a large portion of
    the force, a force that is ready to continue rotationally deploying or,
    if called, ready to surge quickly for combat or other operations. I
    urge your strong support of the readiness accounts in the President's
    budget request for fiscal year 2005 which will allow me to execute this
    vital new and better way to fund readiness.
        Today, the Navy remains underway and forward deployed to all
    corners of the world. As I provide this testimony to you, 86 ships
    including two carrier strike groups, two expeditionary strike groups
    and one surface strike group are forward deployed. These forces are or
    have been operating in support of OEF, OIF and other operations
    worldwide, enhancing their coordination and value in joint operations.
    In addition to this forward deployed posture, there are 66 ships and
    submarines underway conducting homeland security missions, counterdrug
    patrols, goodwill visits, multi-national exercises and pre-deployment
    training. Units not deployed overseas are achieving combat readiness
    earlier under FRP, ensuring that forces are available when called.
        Also, in my fall statement to Congress, I made reference to several
    of the largest challenges to reset the force. In that testimony, I
    discussed spares, depot maintenance, precision-guided munitions, EA-6B
    wing panels and F/A-18 ancillary equipment. Fiscal year 2004
    supplemental funding met our immediate needs for these critical
    capabilities and our fiscal year 2005 budget request keeps us on track
    for the future--we have used your support to achieve, and crafted our
    fiscal year 2005 budget request to now maintain the Navy's force
    constitution. We thank you for approving the supplemental last fall.

                            THE FLEET RESPONSE PLAN

        In the CNO's guidance for 2004, one of his major action items was
    to ``deliver the right readiness.'' It was clear in responding to OIF
    that the Navy could not best meet the long-term global war on terror
    force requirements using its traditional employment methods. As a
    result and to meet the challenges I mentioned, we undertook, and are
    well underway, in the Navy's organizational transformation. Foremost
    among these changes is the way we employ our forces. I have made the
    point of using the term ``constitution'' vice ``re-constitution'' to
    place emphasis on the fact that we are truly involved in a
    transformation in the way we develop ready forces.
        The Fleet Response Plan (FRP) is among the most important of those
    transformations, and as discussed above, is the real reason we can
    provide such an immediate surge capability close on the heels of major
    combat operations. The Navy has been, is now, and will always be a
    rotationally deployed force. The FRP fundamentally changes the way we
    get the fleet ready. While continuing to rotationally deploy forces
    overseas, FRP institutionalizes a higher level of force employability
    and provides the surge capability necessitated by the global security
    environment. At the same time, we respond more flexibly by deploying
    for a purpose and add to the security of our forces by becoming less
    predictable to those that would do us harm.
        The ramp-up to support OIF, permitting the extended arrival window
    of five Carrier Strike Groups at the outset, was impressive but we
    cannot count on a passive competitor in the future. The 21st century
    presents our Nation with varied and deadly new threats, including
    regional adversaries armed with growing anti-access capabilities and
    international terrorist and criminal organizations. Countering such
    enemies and consistent with guidance espoused within our National
    Security Strategy, Navy reviewed the best way to transform its Fleet
    employment policy. Last May, the Chief of Naval Operations approved the
    Fleet Response Plan (FRP), redefining our readiness process, and in
    doing so, provided a more responsive force to meet our defense and
    military strategies, and presenting the President with more force
    employment options. A premium is placed on ready, flexible forces able
    to pulse rapidly either to augment forward-deployed forces or respond
    to crises in remote and widely separated locations.
        FRP not only directly meets our defense strategy requirements but
    also provides the combatant commander with the tailored capabilities
    that will best meet their needs. Tailored packages beyond Carrier and
    Expeditionary Strike Groups include Surface Strike Groups or SSGNs in
    the near future. For example, the Navy is responding quickly to Haiti.
    The recent unplanned deployment and employment of U.S.S. Boxer (LHD 4)
    and U.S.S. Bataan (LHD 5) supporting the current OIF II rotation is
    another example of providing tailored packages to meet the mission
    needs of the combatant commander. In these cases, full ESG capability
    was not required--the right force at the right time was ready and is
    performing with characteristic excellence. By refining our maintenance,
    training and manning schedules, we have institutionalized the
    capability to provide six Carrier Strike Groups (CSG) within 30-days
    and an additional two Carrier Strike Groups within 90-days, more
    commonly known as ``Six plus Two.''
        I discussed CSGs because they are the most complex components to
    prepare for deployment, but FRP applies to the entire fleet. With the
    implementation of FRP, half of Navy forces could be ready to provide
    homeland defense and be either forward deployed or ready to surge
    forward with overwhelming and decisive combat power.
        We are now focusing our readiness efforts on achieving rapid
    deployability once a strike group has emerged from an extended
    maintenance period. This is a significant mind-shift change from the
    old way of achieving deployment readiness on the verge of the scheduled
    deployment date. The result is a period of extended readiness that
    nearly doubles former readiness windows. Though the time that platforms
    are available for employment will increase, the total time sailors are
    deployed will not. The framework of FRP will allow enough structure for
    sailors and their families to plan their lives, while also keeping our
    adversaries off balance.
        The Fleet Response Plan presents the Navy the opportunity to
    outline an operating pattern that is irregular to our adversaries,
    keeping them off guard by disrupting their calculus and ability to plan
    their hostile actions. While flexibility has advantages, FRP must also
    provide combatant commanders and allies the level of predictability
    needed to plan U.S. Navy participation in exercises, engagement with
    overseas partners and re-enforce assurances of our Nation's commitment
    to the security of friends and allies.
        Finally, during the additional months of readiness for surge, FRP
    will not increase the burden on our sailors by keeping them in a
    constant alert status, uncertain when, if, and for how long they will
    be summoned to respond. Of course, for any major national crisis, the
    Navy will surge all the ships and aircraft with which we need to
    respond. Our sailors understand that when the Nation is threatened,
    their duty is to answer the call, as they have over the last 3 years.
    However, for those increasingly frequent situations that deserve a
    response, but do not imminently threaten the U.S. or its interests, a
    new employment concept is required.
        The Navy developed the Flexible Deployment Concept (FDC) as a
    complement to FRP to ensure a proper balance between readiness to surge
    versus the practical need to place responsible limits on the
    operational tempo (OPTEMPO) of our sailors. To provide safeguards for
    our people, FDC proposes the establishment of two windows when ready
    ships could be available for employment, either on routine presence
    deployments in support of combatant commander objectives, or on shorter
    ``pulse'' employment periods in response to emerging requirements.
    These windows provide predictability. Sailors will know when they might
    be expected to deploy, and combatant commanders will know which forces
    are ready to respond to emergent needs.
        FRP and FDC provide ready forces able to defend the homeland,
    respond quickly to deter crises, defeat the intentions of an adversary,
    or win decisively against a major enemy. This is what we now call
    ``Presence with a Purpose.'' Together they implement the type of force
    employment transformation envisioned by national and military leaders
    and are the most significant change in the Navy's operational construct
    in decades.
        Of significance to this committee, FRP/FDC implementation will be
    accomplished within resources already planned. We will achieve resource
    efficiencies in maintenance and training. When considering the
    increased force availability gained through this transformational
    change, the taxpayer gets a larger return on investment with our
    current force structure.

                      OUR FISCAL YEAR 2005 BUDGET REQUEST

        The CNO is intent on ``delivering the right readiness at the right
    cost,'' as stated in his guidance for 2004, while we accelerate our
    advantages to meet the challenges of an uncertain world. Readiness is
    much more than a count of our end strength, our ordnance and spares and
    the number of hours and days spent training. It is the product of our
    ability, through all of these pieces, to deliver the required effects
    needed to accomplish the mission. We know, too, that readiness at any
    cost is unacceptable; as leaders we must achieve and deliver the right
    readiness at the right cost. We have taken significant steps forward in
    order to assess our readiness.
        The Integrated Readiness Capability Assessment (IRCA) was developed
    for the fiscal year 2005 budget and beyond to more carefully examine
    our readiness processes. Starting with our new FRP operating construct,
    we took a hard look at everything that we needed to have on hand and
    what we needed to do to deliver the required combat readiness for the
    Nation's needs.
        The IRCA process helped us better understand the collective
    contributions of all the components of readiness, accurately define the
    requirements, align the proper funding and provide a balanced
    investment to the right accounts. It improved our visibility into the
    true requirements and it gave us a methodology to assess and understand
    both acceptable and unacceptable risks to our current readiness
    investments. Specific highlights from our fiscal year 2005 budget
    request are as follows:

             Ship and Aircraft Operations: We have requested funds
            for ship operations OPTEMPO of 51.0 days per quarter (down from
            54.0 days per quarter) for our deployed forces and 24 days per
            quarter for our non-deployed forces (down from 28 days per
            quarter). Through a realignment of existing resources, we have
            properly funded the flying hour account to support the
            appropriate levels of readiness and longer employability
            requirements of the FRP. This level of steaming and flying
            hours, though lower than previous years in the aggregate, will
            enable our ships and air wings to achieve the required
            readiness over the longer periods and, as a result, will
            improve our ability to surge in crisis and sustain readiness
            during deployment.

                                                [In millions of dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                                      Fiscal Year
                                             ------------------------------------------------------------   Totals
                                                 2005        2006        2007        2008        2009
    ----------------------------------------------------------------------------------------------------------------
    Ship Operations
      Presbud-04............................       2,512       2,487       2,647       2,609       2,659      12,914
      Presbud-05............................       2,605       2,694       2,798       2,916       2,943      13,956
    Aircraft Operations
      Presbud-04............................       4,103       4,187       4,061       4,165       4,084      20,600
      Presbud-05............................       4,069       3,937       3,806       3,822       3,881      19,515
    ----------------------------------------------------------------------------------------------------------------

             Ship and Aircraft Maintenance: We have made
            significant improvements these last few years by reducing major
            ship depot maintenance backlogs and aircraft depot-level repair
            back orders; improving aircraft engine spares; ramping up
            ordnance and spare parts production; maintaining steady
            ``mission capable'' rates in deployed aircraft; fully funding
            aviation initial outfitting; and investing in reliability
            improvements. Our fiscal year 2005 request continues to improve
            the availability of non-deployed aircraft and meets our 100
            percent deployed airframe goals. We have also included funding
            to continue the procurement of EA-6B outer wing panels, for
            which you specifically provided much needed funding last fall.
            The EA-6B will continue to be a maintenance challenge as it is
            an old airframe--and my most expensive to operate--and in need
            of replacement as soon as possible.
              Our ship maintenance request continues to `buy-down' the
            annual deferred maintenance backlog and sustains our overall
            ship maintenance requirement. We are making great strides in
            improving the visibility and cost effectiveness of our ship
            depot maintenance program, reducing the number of changes in
            work package planning and using our continuous maintenance
            practices when changes must be made. We are very carefully
            managing and balancing the maintenance and FRP employment of
            our units in order to ensure that the Navy can surge with
            greater flexibility.

                                                [In millions of dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                                      Fiscal Year
                                             ------------------------------------------------------------   Totals
                                                 2005        2006        2007        2008        2009
    ----------------------------------------------------------------------------------------------------------------
    Ship Maintenance
      Presbud-04............................       3,706       3,522       3,415       3,397       3,488      17,527
      Presbud-05............................       3,917       3,323       3,421       2,760       3,788      17,208
    Aircraft Maintenance
      Presbud-04............................         940         866         805         986         974       4,571
      Presbud-05............................         996         967         919         938       1,005       4,825
    ----------------------------------------------------------------------------------------------------------------

             Shore Installations: Our facilities Sustainment,
            Restoration, and Modernization (SRM) program remains focused on
            improving readiness and quality of service for our sailors.
            While our fiscal year 2005 Military Construction and
            Sustainment program reflects difficult but necessary trade-offs
            between shore infrastructure and fleet recapitalization, the
            majority of the SRM trends are very good. Facilities
            sustainment has increased in fiscal year 2005. Our budget
            request keeps us on a course to achieve the DOD goal of a 67-
            year recapitalization rate by fiscal year 2008, achieve DON
            goals to eliminate inadequate family and bachelor housing by
            fiscal year 2007 and provides Homeport Ashore Bachelor Housing
            by fiscal year 2008. We are exploring innovative solutions to
            provide safe, efficient installations for our service members,
            including design-build improvements, and BRAC land sales via
            the GSA Internet. Additionally, with the establishment of
            Commander, Navy Installations (CNI) this past year, we have
            improved our capability to manage our dispersed facility
            operations, conserve valuable resources, establish enterprise-
            wide standards and continue to improve our facility
            infrastructure.

                                                [In millions of dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                                      Fiscal Year
                                             ------------------------------------------------------------   Totals
                                                 2005        2006        2007        2008        2009
    ----------------------------------------------------------------------------------------------------------------
    SRM
      Presbud-04............................       1,446       1,449       1,425       1,928       2,085       8,333
      Presbud-05............................       1,536       1,403       1,441       1,405       1,611       7,396
    ----------------------------------------------------------------------------------------------------------------

             Precision-Guided Munitions receive continued
            investment in our fiscal year 2005 request with emphasis on
            increasing the Joint Stand-Off Weapon (JSOW) baseline variant,
            Joint Direct Attack Munition (JDAM), Tactical Tomahawk
            (TACTOM), and Laser-Guided Bomb (LGB) inventory levels, while
            the JSOW penetrator variant enters full-rate production. We
            also continue to invest in the Joint Common Missile program
            with the U.S. Army to replace the aging inventory of TOW,
            Maverick and Hellfire missiles. Joint partnerships with the Air
            Force and Army in several of our munitions programs continue to
            help us optimize both our inventories and precious research and
            development investments and will remain a focus for us in the
            future.

                                             [Procurement Quantities--Each]
    ----------------------------------------------------------------------------------------------------------------
                                                                      Fiscal Year
                                             ------------------------------------------------------------   Totals
                                                 2005        2006        2007        2008        2009
    ----------------------------------------------------------------------------------------------------------------
    JSOW....................................         389         412         380         422         444       2,047
    AIM-9X..................................         157         170         226         211         181         945
    JDAM....................................       6,620       4,250       3,430       2,850       4,380      21,530
    AMRAAM..................................          46         101         150         140         150         587
    JASSM...................................           0           0           0          28         106         134
    Common Missile..........................           0           0           0          22          88         110
                                             -----------------------------------------------------------------------
      Total.................................       7,212       4,933       4,186       3,673       5,349      25,353
    ----------------------------------------------------------------------------------------------------------------

             Training Readiness: We continue to make significant
            strides in this critical area. In fiscal year 2004, Congress
            supported two important programs to advance our training
            readiness. First, you endorsed the Training Resource Strategy
            (TRS), to provide more complex threat scenarios and to improve
            the overall realism and value of our training. Additionally,
            you funded the Tactical Training Theater Assessment and
            Planning Program to provide for a comprehensive training range
            sustainment plan. Our fiscal year 2005 budget continues this
            work. We are working to make the Joint National Training
            Capability a reality. We have established a single office to
            direct policy and management oversight for all Navy ranges as
            well as serve as the resource sponsor for all training ranges,
            target development and procurement, and the Navy portion of the
            Major Range Test Facility Base.
             Environmental Readiness: We remain committed to good
            stewardship of the environment and have the resources and
            policies in place to do so. Congress has provided significant
            and reasonable legislative relief from many of the elements
            that impact readiness. These reasonable amendments help to
            balance nurturing the environment with the realistic military
            training required to keep forces ready. We will continue to
            focus the use of our ranges on military training, and remain
            committed to our environmental obligations through integrated
            natural resource management plans. We have procedures in place
            and will continue to exert every effort to protect marine
            mammals while ensuring our sailors are properly trained and our
            transformational systems are properly tested. Encroachment
            impacts readiness and is an area of particular concern,
            inseparable from the readiness of our naval forces and, I
            believe, our military forces in general. As we continue
            addressing complex environmental issues from a balanced
            perspective with fact-based analysis, the Navy is committed to
            maintaining our ongoing environmental stewardship.

        In the end, we have a carefully balanced and well-defined readiness
    requirement. We have identified areas where we can streamline or cease
    activities that do not add to readiness, and we have requested the
    funds our commanders need to create the right readiness for fiscal year
    2005. I ask for your support of this year's current readiness request
    as we've redefined many of these processes and already taken acceptable
    risks. We will deliver the right readiness at the right cost to the
    Nation. Any significant reduction in my readiness accounts poses high
    risk to my combat capability.
        We have taken some risk as it is imperative that we accelerate our
    investment in our Sea Power 21 vision. We must recapitalize and
    transform our force to reduce the burden on our operating accounts and
    improve our ability to operate as an effective component of the joint
    warfighting team. To this end, our Navy budget request for fiscal year
    2005 and the future also includes:

             Nine new construction ships in fiscal year 2005,
            including construction of the first transformational destroyer
            (DD(X)) and the Littoral Combat Ship (LCS), the acceleration of
            a San Antonio Class Amphibious Transport Dock Class ship from
            fiscal year 2006 to fiscal year 2005, and one Ballistic Missile
            Submarine (SSBN) conversion and refueling. Our request this
            year includes the following ships:

                     Three Arleigh Burke Class Guided Missile
                    Destroyers (DDG)
                     One Virginia class submarine (SSN)
                     One San Antonio class Amphibious Transport
                    Dock (LPD)
                     Two Lewis and Clark Class Dry Cargo and
                    Ammunition ships (T-AKE)
                     One 21st century destroyer (DD(X))
                     One Littoral Combat Ship (LCS)
                     One SSBN conversion/refueling
                     Three Maritime Prepositioned Force (Future)
                    (MPF (F)) ships and advanced procurement for an MPF (F)
                    aviation variant.

        We are shifting focus to the next generation surface combatants and
    sea basing capabilities. We have also assessed the risks and divested
    several assets that have high operating costs and limited technological
    growth capacity for our transformational future; this includes
    decommissioning two coastal mine hunter ships, and the accelerated
    decommissioning of the remaining Spruance-class destroyers, Sacramento
    Class Fast Combat Store Ships and the first five Ticonderoga-class
    guided missile cruisers in the future year's plan.

             Procurement of 104 new aircraft in fiscal year 2005,
            including the F/A-18E/F Super Hornet, the MH-60 R/S Seahawk and
            Knighthawk Multi-mission Combat Helicopter, the T-45 Goshawk
            training aircraft and the Marine Corps MV-22 Osprey among
            others. We continue to maximize the return on procurement
            dollars through the use of multi-year procurement (MYP)
            contracts for established aircraft programs like the Super
            Hornet. We have increased our research and development
            investment this year in the Joint Strike Fighter (JSF), the EA-
            18G Airborne Electronic Attack (AEA) aircraft and the broad
            area antisubmarine, antisurface, maritime and littoral
            intelligence, surveillance and reconnaissance (ISR) capable
            Multi-mission Maritime Aircraft (MMA).

             Investment in transformational unmanned underwater
            vehicles (UUV) like the Long-Term Mine Reconnaissance System,
            and unmanned aviation vehicles (UAV) such as the Broad Area
            Maritime Surveillance UAV and the Joint--Unmanned Combat Air
            System. The budget also requests funding for experimental hull
            forms like the X-Craft, and other advanced technologies
            including the Joint Aerial Common Sensor (JACS).

                    WHERE WE'RE HEADED . . . SEA ENTERPRISE

        As I've already testified above, your Navy today is the most
    capable and most ready Navy in our history--in the world's history--and
    clearly thanks to the support of this Congress and of the American
    people. But, I believe that we can still do better--that, in fact, we
    must do better--as stewards of the public trust in determining not just
    how much we should spend on programs, but how those defense dollars are
    spent. This is especially true today because of the strategic
    challenges posed by the ongoing global war on terrorism, because of our
    need to recapitalize aging infrastructure and capability, and because
    of the burgeoning technological and operational changes that will
    dramatically alter the way we fight. Revolutionizing the way in which
    our defense dollars are spent presents further opportunities to
    increase our effectiveness, both now and in the future. Our Sea
    Enterprise initiative is focusing headquarters leadership on outputs
    and execution, and is creating ideas that will improve our productivity
    and reduce our overhead costs. Its key objectives are to:

             Leverage technology to improve performance and
            minimize manpower costs,
             Promote competition and reward innovation and
            efficiency,
             Challenge institutional encumbrances that impede
            creativity and boldness in innovation,
             Aggressively divest non-core, underperforming or
            unnecessary products, services, and production capacity,
             Merge redundant efforts,
             Minimize acquisition and life-cycle costs,
             Maximize in-service capital equipment utilization,
             Challenge every assumption, cost, and requirement.

        Senior Navy leaders, civilian and uniformed, are actively engaged,
    as a board of directors, in tracking the execution of ongoing Sea
    Enterprise initiatives totaling approximately $40 billion, and
    identifying $12.4 billion in cost savings and requirements mitigation
    across the Future Years Defense Program (FYDP). We are committed to
    efficiency and productivity improvements that will generate the savings
    necessary to augment our investment stream and implement our Sea Power
    21 vision of delivering the right force, with the right readiness, at
    the right cost. Specific highlights of these fiscal transformation
    initiatives to date include:

             Right Readiness. Along with the FRP, we have also
            initiated processes ashore that will generate a more effective
            force. As just one example introduced previously above, we have
            established a single shore installation management
            organization, Commander, Navy Installations (CNI), to globally
            manage all shore installations, promote ``best practices''
            development, and provide economies of scale, increased
            efficiency, standardization of polices, and improved budgeting
            and funding execution. The CNI alone is anticipated to harvest
            approximately $1.2 billion across the FYDP.
             Right Cost. We've taken a hard look at our ``level of
            effort'' programs to maximize return on taxpayer investment,
            these programs lack performance-based metrics in force
            structure, readiness or cost benefit. This year's effort
            reduced the requirements for these accounts by nearly $2
            billion across the FYDP, allowing us to reallocate these funds
            toward higher Navy priorities. In addition, we focused on
            streamlining our organizations and processes as a means to
            further improve efficiencies and control costs. Innovative
            programs like Shipmain and the Naval Aviation Readiness
            Integrated Improvement Program are aiding in developing and
            sharing best practices, streamlining maintenance planning and
            improving performance goals in shipyards, aviation depots, and
            intermediate maintenance activities. We also reorganized the
            Navy Supply Systems Command, including the establishment of the
            Naval Operational Logistics Support Center to consolidate
            transportation, ammunition and petroleum management. We will
            continue to look for additional opportunities in this area
            while leveraging the gains already made.
             Right Force. We believe transformation to our future
            force must include improving our buying power. To improve upon
            our force structure, we're divesting non-core, redundant,
            underperforming, and outdated products and services. We are
            using multi-year procurement contracts and focusing where
            possible on economic order quantity purchase practices to
            optimize our investments. An excellent example lies in the F/A-
            18E/F multi-year procurement contract that anticipates
            procurement of 210 aircraft while saving us in excess of $1.1
            billion across the FYDP. We also recognize the need to
            transform our single greatest asymmetric advantage, our people.
            The upcoming year will focus on ensuring we not only have the
            right number, but the right mix of military, civilian, and
            contractor personnel to accomplish the mission at the lowest
            possible cost. You've given us a tremendous tool to enhance our
            flexibility in this area, the National Security Personnel
            System, and we plan to take full advantage of it.

        In 2005, the Navy will continue to pursue product and process
    efficiencies and the opportunities to be more effective while improving
    our warfighting capability. Harvesting the savings for recapitalization
    is a vital part of that effort, and we will continue to balance the
    benefits of new productivity initiatives against operational risks. Our
    intent is to foster a culture of continuous process improvement, reduce
    overhead, and deliver the right force structure both now and in the
    future. I want you to be confident that the budget you write into law
    is the best estimate possible of what the Navy needs to be ready to
    serve America both now and in the future.

                      WHERE WE'RE HEADED . . . SEA WARRIOR

        It is important to note that the improvements to our operational
    availability of forces and our demand for increased efficiency in
    maintaining readiness will not be made on the backs of our people. We
    have a smart, talented force of professionals who have chosen a
    lifestyle of service. Our ability to challenge them with meaningful,
    satisfying work that lets them make a difference is part of our
    covenant with them as leaders.
        A new operating concept like the Fleet Response Plan could not be
    implemented if we still had the kind of manpower-intensive mindset to
    problem solving that we had just 5 years ago. But today, thanks to your
    sustained investment in science and technology among others, we have
    already realized some of the advancements in information technology,
    simulators, human system integration, enterprise resource planning,
    web-enabled technical assistance and ship and aircraft maintenance
    practices that can reduce the amount of labor intensive functions, the
    training and the technical work required to ensure our readiness. More
    output . . . at reduced cost.
        As our Navy becomes more high tech, so must our workforce. Our
    people will be a more educated and experienced group of professionals
    in the coming years, and we must properly employ their talents. We will
    spend what is necessary to equip and enable these outstanding young
    Americans, but we do not want to spend one extra penny for manpower
    that we do not need. As part of that effort, we continue to pursue the
    kind of new technologies and competitive personnel policies that will
    streamline both combat and non-combat personnel positions, improve the
    two-way integration of active and Reserve missions, and reduce the
    Navy's total manpower structure. To that end, we are proposing a fiscal
    year 2005 Navy end strength reduction of 7,900 personnel.
        We will use existing authorities and our Perform to Serve program
    to preserve the specialties, skill sets, and expertise needed to
    continue properly balancing the force. We intend to build on the
    positive growth and momentum of retention and attrition metrics
    achieved over the last 3 recordbreaking years. We are fully committed
    to ensuring every sailor has the opportunity and resources available to
    succeed. Our goal remains attracting, developing, and retaining the
    most highly skilled and educated workforce of warriors we have ever had
    to lead the 21st century Navy. Sea Warrior is designed to enhance the
    assessment, assignment, training, and educating of our sailors. Our
    fiscal year 2005 budget request includes the following tools that we
    require to enhance mission accomplishment and provide professional
    growth within our Sea Warrior program.

             Optimal Manning: Optimal manning is one of the
            innovative personnel employment practices being implemented
            throughout the fleet. Experiments in U.S.S. Boxer (LHD 4),
            U.S.S. Milius (DDG 69), and U.S.S. Mobile Bay (CG 53) produced
            revolutionary shipboard watch standing practices, while
            reducing overall manning requirements and allowing sailors to
            focus on their core responsibilities. The fleet is implementing
            best practices from these experiments to change ship manning
            documents in their respective classes. Optimal manning means
            optimal employment of our sailors.
             Sea Swap: We have our fourth crew aboard U.S.S.
            Fletcher (DD 992) and our third crew aboard U.S.S. Higgins (DDG
            76) in our ongoing Sea Swap initiative. This has saved millions
            of dollars in transit fuel costs and increased our forward
            presence without lengthening deployment times for our sailors.
            Fletcher and Higgins will return to San Diego later this year
            after a period of forward deployed operations of 22 months and
            17 months respectively. We will continue to assess their
            condition and deep maintenance needs to develop and apply
            lessons learned to future Sea Swap initiatives.
             Selective Reenlistment Bonus (SRB): Targeted bonuses
            such as SRB are critical to our ability to compete for highly
            trained and talented workforce both within the Navy and with
            employers across the Nation. Proper funding, adequate room for
            growth and flexible authority needed to target the right skills
            against the right market forces are important to accurately
            shape the workforce. This program specifically targets
            retention bonuses against the most critical skills we need for
            our future. We ask for your continued support and full funding
            of this program.
             Perform to Serve (PTS): Last year, we introduced PTS
            to align our Navy personnel inventory and skill sets through a
            centrally managed reenlistment program and instill competition
            in the retention process. The pilot program has proven so
            successful in steering sailors in overmanned ratings into skill
            areas where they are most needed that the program has been
            expanded. More than 2,400 sailors have been steered to
            undermanned ratings and approved for reenlistment since the
            program began last February and we will continue this effort in
            2005.
             Assignment Incentive Pay (AIP) is a financial
            incentive designed to attract qualified sailors to a select
            group of difficult to fill duty stations. AIP allows sailors to
            bid for additional monetary compensation in return for service
            in these locations. An integral part of our Sea Warrior effort,
            AIP will enhance combat readiness by permitting market forces
            to efficiently distribute sailors where they are most needed.
            Since the pilot program began last June, more than 1,100 AIP
            bids have been processed resulting in 238 sailors receiving
            bonuses for duty in these demanding billets that previously
            were difficult to keep fully manned with the highest quality
            sailors. We ask for continued support of this unique
            initiative.
             Professional Military Education (PME): We are taking a
            more comprehensive approach to the continuing education of our
            people than we have in the past. We are in the process of
            developing a PME continuum that integrates general education,
            traditional Navy-specific Professional Military Education
            (NPME), and Joint Professional Military Education (JPME)
            curricula. This will allow us to develop a program that fully
            incorporates all aspects of our professional and personal
            growth and improve individual readiness through providing a
            complete set of training needs. Advances thus far include
            establishing networks with civilian educational institutions,
            developing new degree programs, and establishing partnerships
            with other services' institutions. We are also expanding
            opportunity through distance learning and the Internet.
            Specifically, the Naval Postgraduate School in Monterey has
            embraced partnerships and developed distance learning programs
            that more than doubled its enrollment to nearly 10,000 degree
            and short course students throughout the world, including the
            first national homeland security curriculum, expansion of
            enrollment to include enlisted personnel, as well as advanced
            education opportunities in nearly 140 countries. This is just
            one example of how we are committed to broadening the
            professional and intellectual horizons of both our officers and
            our enlisted men and women to prepare them to operate
            tomorrow's fleet and assume key naval and Joint leadership
            roles.
             Human Performance Center (HPC) has been established to
            apply Human Performance and Human System Integration principles
            in the research, development, and acquisition processes. In
            short, the HPC will help us understand the science of learning.
            The center will ensure training is driven by fleet requirements
            and they will focus requirements on the performance needed to
            carry out our missions. This will eliminate potential
            performance and training deficiencies, save money and help us
            improve our readiness.
             The Integrated Learning Environment (ILE) is at the
            heart of our Revolution in Training. ILE is a family of systems
            that, when linked, will provide our sailors with the ability to
            develop their own learning plans, diagnose their strengths and
            weaknesses, and tailor their education to support both personal
            and professional growth. They will manage their career
            requirements, training, and education records. It will match
            content to career requirements so training is delivered at the
            right time. Most importantly, these services will be provided
            anytime, anywhere via the Internet and the Navy-Marine Corps
            Intranet (NMCI).

        We are taking advantage of every opportunity to accelerate
    incorporating the best tools available to develop the 21st century
    workforce. The improvements and pilot programs that this Congress has
    supported--including bonuses, pay table adjustments, retirement
    reforms, better medical benefits, and our Sea Warrior initiatives--are
    having the desired impact.
        Your support of our fiscal year 2005 request for a 3.5 percent
    basic pay raise, for our efforts to transform our manpower structure in
    some fundamental ways, and for a reduction in average out-of-pocket
    housing costs from 3.5 percent to 0 will have a direct effect on our
    ability to properly size and shape the 21st century workforce that is
    our future.

                                   CONCLUSION

        I would like to express my deep appreciation to the members of this
    committee for your lasting support in sustaining this Nation's Navy. It
    is today the most capable Navy we have ever put to sea, maintaining
    persistent, flexible forces forward and the ability to surge
    significant combat power quickly, wherever required. It needs to be
    given the uncertainty of the future. We firmly believe that we made the
    right choices for fiscal year 2005, choices that will allow the Navy to
    control the world's oceans--and hence, our global economic and
    political interests--and deliver credible, persistent combat power from
    the sovereign expanse of the sea around the globe.
        Again, I wish to thank the committee for this opportunity to appear
    before you today. I am very happy to answer any questions you may have.

        Senator Ensign. Thank you.
        General Moseley.

       STATEMENT OF GEN. T. MICHAEL MOSELEY, USAF, VICE CHIEF OF
                     STAFF, UNITED STATES AIR FORCE

        General Moseley. Chairman Ensign, Senator Akaka, thank you,
    again, for this opportunity to appear alongside my joint
    colleagues to present this year's state of readiness.
        As the Air Force's Vice Chief of Staff, it's my privilege
    to report on our key programs. On behalf of airmen stationed
    around the globe, I want to thank the committee again for the
    continued focus on readiness and the challenges facing our
    airmen today.
        Whether operating here at home or simultaneously supporting
    joint-force commanders across the globe, our mission success
    has been a testament to the dedication and professionalism of
    our people and your continued help. Renewed emphasis on
    programs like spare parts, depot maintenance, and munitions
    stockpiles is welcomed and has laid the foundation for
    readiness in increasing mission-capable rates.
        In addition to equipment, your committee's increases to our
    flying-hour training and general operations and maintenance
    (O&M) funding made it possible for our force to remain the most
    efficient air force in the world. In my written testimony, I
    detail the truly monumental accomplishments of our airmen last
    year. In fact, almost 1 year ago, I was privileged to command
    the air component forces for OIF, as well as for OEF. Today,
    the global war on terrorism imposes on our airmen the
    requirement to be ready for tomorrow's challenges while
    adapting to the new steady state of operations in Operations
    Noble Eagle, Enduring Freedom, and Iraqi Freedom. Your airmen
    will meet these demands.
        High above our Nation, airmen protect our skies and cities
    through Operation Noble Eagle, or ONE. Every day, the total
    force team, comprised of active duty, Air National Guard, and
    Air Force Reserve airmen, have more than 50 dedicated to ONE.
    Conducting airborne early warning, air refueling, and combat
    air patrols costs the Air Force approximately $150 million per
    month. Since September 11, we've flown over 34,000 sorties.
    This is our new steady state, and we are totally dedicated to
    this homeland defense mission.
        Around the world in Afghanistan, remnants of Taliban forces
    continue to attack U.S., North Atlantic Treaty Organization
    (NATO), coalition troops, and others involved in the
    reconstruction. To defeat this threat, aid coalition stability,
    and support our ongoing operations, the Air Force flew more
    than 70 missions yesterday alone. Having already flown more
    than 90,000 sorties, the Air Force continues to perform
    intelligence, surveillance, reconnaissance, close air support,
    aerial refueling, and airlift missions in support of operations
    in Afghanistan. Currently, we're spending approximately $200
    million a month on this operation, and are committed to seeing
    it through.
        Ten days from now marks the 1-year anniversary of Operation
    Iraqi Freedom. That date marked the end of 12 years of
    continual air pressure in Southwest Asia for Operation Northern
    Watch and Operation Southern Watch, flown by a joint team--U.S.
    Air Force, U.S. Navy, Royal Air Force, and some others--
    signaled the beginning of America's most successful joint
    operation.
        Patrolling the no-fly zones in Northern and Southern Iraq
    had cost us roughly $67 million per month. Now we spend six
    times that amount for Operation Iraqi Freedom. We fly
    approximately 150 sorties per day in Iraq, and maintain more
    than 210 aircraft, crews, maintainers, and support personnel to
    fill joint-force requirements. Every day, we conduct close air
    support, use the intelligence, surveillance and reconnaissance
    sorties to monitor the porous borders of Iraq and provide
    situational awareness for our land component patrols and
    operations. Additionally, through our forward bases, air
    mobility forces, and air refueling assets, the Air Force
    provides a lifeline of supplies to all forces. We expect this
    mission and the redeployment of forces between Iraq and the
    U.S. to continue for some time. The bottom line, Mr. Chairman,
    all Air Force airmen are ready and committed to the successful
    accomplishments of this mission in Iraq.
        Preparing and maintaining a force that can adapt to the
    realities of the new security environment requires the Air
    Force to focus on three main areas: resetting and
    reconstituting capabilities, recapitalizing and modernizing our
    equipment, maintaining the readiness of our number-one weapons
    systems, our airmen. In resetting and reconstituting our
    capabilities, it is important to understand the Air Force must
    reconstitute some of our capabilities that were successful, not
    necessarily the same equipment. For the Air Force, we view
    capabilities as much more than just commodities. Beyond just
    equipment, our warfighting capabilities depend on training and
    a sustainable battle rhythm for the entire force. Synchronizing
    these aspects, eliminating duplicated capabilities, and
    capitalizing on technological advances will all ensure
    efficiency and, most importantly, combat readiness.
        Last fall, I testified, on behalf of the Air Force, that we
    planned to return to pre-OIF rotational cycles by March 2004.
    Unfortunately, we've only been able to return 90 percent of our
    forces to a sustainable battle rhythm. But with approximately a
    third of our combat forces deployed, we now project the Air
    Expeditionary Force, including the low-density, high-demand
    assets, will not be fully reset for at least another 10 to 12
    months. These low-density, high-demand capabilities--our
    expeditionary combat support, intelligence, surveillance,
    reconnaissance, security forces--will not meet the goal due to
    sustained combat operations and training backlogs.
        Restoring and replenishing our war Reserve stocks is also
    proving to take longer than expected, due to ongoing
    operations. This year, we estimate our total cost to replenish
    all war reserve materiel (WRM) requirements at $1.96 billion.
    The requested funding levels allow us to fully reconstitute our
    fuels, equipment, and vehicles within the next 24 months, and
    our base expeditionary airfield resources throughout the FYDP
    out to fiscal year 2007. Over the past 2 years, we've received
    a tremendous amount of support from this committee on this
    issue.
        While we have 41 percent of our expeditionary combat
    support capability ready for deployment, we still have sets
    serving on numerous new bases. Almost 18,000 personnel from all
    services are housed in Air Force tents. Other aspects of our
    expeditionary combat support and base operating support, like
    tactical vehicles, theater-deployable communications, weapons
    of mass destruction (WMD) response equipment, and force-
    protection equipment are, likewise, used by all services. For
    all of these base operating functions, base communications,
    environmental and quality-of-life missions, the Air Force has
    requested real property and day-to-day facility support at 95
    percent of the requirement.
        A $27.1 billion readiness request ensures that we remain
    ready to perform our wide-ranging global missions, from space
    support to global strike to global mobility and homeland
    defense. Our fully-funded flying-hour program pays for
    consumables, spare parts, fuels, and 1.7 million flying hours
    to maintain combat readiness and support joint operations and
    the worldwide mobility to ensure joint and coalition forces
    have the equipment and forces that they need.
        Our airmen have done some tremendous work, in terms of
    readiness. During the conflict last year, we enjoyed our
    highest active overall mission-capable rates in 6 years.
    Fourteen of 20 major weapons systems saw improved mission
    capable (MC) rates. At the time, we were flying more hours.
    Thanks to hard work by our airmen, proper funding, fleet
    consolidations, and transformation initiatives, we've hit many
    readiness milestones last year. Our aggregate MC rates for
    fiscal year 2003 were 75.9 percent. Our fighter fleet is up
    almost 2 percent since fiscal year 2001. Our B-1s produced the
    best MC rates and supply rates in history, spare-parts
    shortages were reduced to the lowest levels recorded across the
    entire fleet, our lowest aggregate cannibalization rates since
    1995, and a reduction in the number of aircraft in depot for
    maintenance--or even better said, over 25 percent more aircraft
    on the ramp for the warfighter--than in the year 2000. A
    portion of these successes can be attributed to our world-class
    depots. For fiscal year 2005, we've increased depot-purchased
    equipment-maintenance funding to $3.7 billion. While we've
    maintained the appropriate level of depot maintenance to ensure
    our aging fleet stands ready to deploy, fly, and fight
    anywhere, anytime, we also can count on our depots to surge
    repair operations and realign capacity during contingencies, as
    we've seen for Operation Enduring Freedom and Iraqi Freedom.
        Our depots can only do so much. Although MC rates were up
    during OIF, aging-aircraft issues continue to present us with
    the problem of fewer assets being available at ever-increasing
    costs. If we want to ensure air and space dominance in future
    engagements, we must recapitalize and modernize our assets.
    Today, our average fleet is approximately 23 years in service.
    Some, like our KC-135s, average as much as 43 years in service,
    with the oldest aircraft still flying being the KC-135 that was
    delivered on 28 October 1957.
        These types of challenges obviously require innovative
    solutions and our continued emphasis. Last year, we stood up
    the Aging Aircraft Program Office and the first-ever Fleet
    Viability Board to methodically focus our efforts even more.
        Mr. Chairman, our aging aircraft fleets are vulnerable to a
    myriad of problems, including technical surprises, vanishing
    vendors, and increased operational costs. These assets are
    invaluable in every service and joint operations, and, in the
    case of the tankers, since we tank the world, it is a vital air
    commander's asset, as well as a key enabler for our Navy,
    Marine, and coalition partners. In January alone, 36 percent of
    the KC-135 fleet was unavailable. These included both those in
    depot and those that were unit-possessed, but not mission-
    capable.
        The bottom line, Mr. Chairman, is the Air Force is
    dedicated to finding solutions on how we keep filling joint-
    force requirements for global strike and power projection. We
    are committed to an analysis of alternatives on future tankers,
    as we are to the recapitalization of our aging tanker fleet, in
    order to provide the necessary capabilities to the joint
    warfighting team. This process may begin through the normal
    procurement process for a KC-X replacement, or, depending on
    the outcome of the current reviews directed by the Secretary of
    Defense, through the lease-purchase program that was signed
    into law last year. In any case, the analysis of alternatives
    authorized in the same law will be critical in shaping
    decisions for the long-term recapitalization of the fleet.
        In addition to the air and space platforms, we must address
    our foundational support systems and growing deficiencies in
    infrastructure, such as deteriorated airfields, hangars, water
    lines, and electrical networks. Our investment strategy focuses
    on three simultaneous steps: one, disposing of excess
    facilities; two, fully sustaining our current facilities and
    systems through their expected life; and, three, establishing a
    steady and sustainable investment program to restore and
    modernize critical facilities and infrastructure systems.
        On another front, we have accelerated our housing
    investment, leading to the improvements of more than 3,600----
        Senator McCain [presiding]. General, I would like for you
    to summarize, since we usually have 5-minute opening
    statements. The remainder of your full statement will be made
    part of the record.
        General Moseley. Mr. Chairman, Senator Akaka, thank you for
    your support, and I welcome the opportunity to answer any
    questions you may have.
        [The prepared statement of General Moseley follows:]

              Prepared Statement by Gen. T. Michael Moseley, USAF

        Chairman Ensign, Senator Akaka, committee members, thank you for
    this opportunity to once again appear along side my distinguished
    colleagues to present the readiness status of the world's greatest Air
    Force. As the Air Force's Vice Chief of Staff, it is my privilege to
    report on the our key programs and on behalf of airmen stationed around
    the globe and those flying right now, I want to thank this committee
    for your continued focus on readiness and the challenges facing our
    airmen today. We are a ready force--expeditionary in nature--and global
    in execution. Whether operating here at home or supporting the
    simultaneous joint force commanders across the globe, our mission
    success has been a testament to our current state of readiness and your
    dedication. In terms of Air Force readiness, congressional attention,
    particularly from this committee, has paved the way for the substantive
    increases we saw in our ability to prosecute this Nation's National
    Security Strategy over the past few years. The renewed emphasis on such
    programs as spare parts, depot maintenance, and munitions stockpiles
    laid the foundation for readiness and mission capable rates that our
    Air Force has not seen in some time. At the same time, your committee's
    increases to our flying hour, training, and general operations and
    maintenance (O&M) funding made it possible for our force to remain the
    most proficient Air Force in the world. In short, because of the
    improvements that Congress supported over the past few years, enemies
    like the Baathist regime of Saddam Hussein could not have picked a
    worse possible time to confront the United States. They met a joint
    force composed of the best airmen, soldiers, sailors, and marines with
    the best equipment the world had ever seen. With this continued level
    of support we can reset the force, recapitalize our vital air and space
    capabilities, and bring technology to the warfighter--all while
    providing air and space power, one of this Nation's most lethal and
    responsive capabilities to the fight.

                              LOOKING BACK AT 2003

        The year 2003 marked another historic milestone for the U.S. and
    the Air Force in the global war on terrorism. Since September 11, 2001,
    air and space power has proven indispensable to securing American
    skies, defeating the Taliban, denying sanctuary to al Qaeda and other
    terrorist organizations, and most recently, removing a brutal and
    oppressive dictator in Iraq. This global war on terrorism imposes on
    airmen a new steady state of accelerated operations and personnel tempo
    (PERSTEMPO), as well as a demand for unprecedented speed, agility, and
    innovation in defeating unconventional and unexpected threats, all
    while bringing stability and freedom to Afghanistan and Iraq. The Air
    Force and its airmen will meet these demands.
    Operation Noble Eagle
        High above our Nation, airmen protect our skies and cities through
    air defense operations known as Operation Noble Eagle (ONE). The total
    force team, comprised of active duty, Air National Guard, and Air Force
    Reserve airmen, conducts airborne early warning, air refueling, and
    combat air patrol operations in order to protect sensitive sites,
    metropolitan areas, and critical infrastructure.
        This constant ``top cover'' demands significant Air Force assets
    above the pre-September 11 tempo. Since 2001, the Air Force has flown
    over 34,000 fighter, tanker, and airborne early warning sorties. Last
    year alone the Air Force scrambled nearly 1,000 aircraft, responding to
    800 incidents. Eight active duty, 8 Air Force Reserve, and 18 Air
    National Guard units provided 1,300 tanker sorties offloading more than
    32 million pounds of fuel for these missions. Last year, over 2,400
    airmen stood vigilant at air defense sector operations centers and
    other radar sites. Additionally, in 2003, we continued to
    institutionalize changes to our homeland defense mission through joint,
    combined, and interagency training and planning. Participating in the
    initial validation exercise Determined Promise-03, the Air Force
    illustrated how its air defense, air mobility, and command and control
    capabilities work seamlessly with other agencies supporting NORTHCOM
    and Department of Homeland Security objectives. The integration and
    readiness that comes from careful planning and rigorous training will
    ensure the continued security of America's skies.
    Operation Enduring Freedom
        Operation Enduring Freedom (OEF)--Afghanistan is ongoing. Remnants
    of Taliban forces continue to attack U.S., NATO, coalition troops,
    humanitarian aid workers, and others involved in the reconstruction of
    Afghanistan. To defeat this threat, aid coalition stability, and
    support operations, the Air Force has maintained a presence of nearly
    24,000 airmen in and around the region. Having already flown more than
    90,000 sorties (over 72 percent of all OEF missions flown), the Air
    Force team of active, Guard, and Reserve airmen continue to perform
    ISR, close air support (CAS), aerial refueling, and tactical and
    strategic airlift.
        While fully engaged in ONE and OIF, the men and women of the Air
    Force provided full spectrum air and space support, orchestrating
    assets from every Service and 10 different nations. Of these, Air Force
    strike aircraft flying from 9 bases flew more than two-thirds of the
    combat missions, dropped more than 66,000 munitions (9,650 tons) and
    damaged or destroyed approximately three-quarters of planned targets.
    In 2003 alone, Air Force assets provided more than 3,000 sorties of on-
    call CAS, responding to calls from joint and/or coalition forces on the
    ground.
        Last year, the Air Force brought personnel and materiel into this
    distant, land-locked nation via 7,410 sorties. Over 4,100 passengers
    and 487 tons of cargo were moved by airmen operating at various tanker
    airlift control elements in and around Afghanistan. To support these
    airlift and combat sorties and the numerous air assets of the coalition
    with aerial refueling, the Air Force deployed over 50 tankers. In their
    primary role, these late 1950s-era and early 1960s-era KC-135 tankers
    flew more than 3,900 refueling missions. In their secondary airlift
    role, they delivered 3,620 passengers and 405 tons of cargo. Without
    versatile tankers, our Armed Forces would need greater access to
    foreign bases, more aircraft to accomplish the same mission, more
    airlift assets, and generate more sorties to maintain the required
    duration on-station.
        Operations in Afghanistan also highlight U.S. and coalition
    reliance on U.S. space capabilities. This spanned accurate global
    weather, precise navigation, communications, as well as persistent
    worldwide missile warning and surveillance. For example, OEF relied on
    precision navigation provided by the Air Force's global positioning
    satellite (GPS) constellation, over-the-horizon satellite
    communications (SATCOM), and timely observations of weather, geodesy,
    and enemy activity. To accomplish this, space professionals performed
    thousands of precise satellite contacts and hundreds of station keeping
    adjustments to provide transparent space capability to the warfighter.
    These vital space capabilities and joint enablers directly leveraged
    our ability to pursue U.S. objectives in OEF.
    Operations Northern Watch and Southern Watch
        During the past 12 years, the Air Force flew over 391,000 sorties
    enforcing the northern and southern no-fly zones over Iraq. With the
    preponderance of forces, the Air Force, along with the Navy and Marine
    Corps, worked alongside the Royal Air Force in Operations Northern
    Watch (ONW) and Southern Watch (OSW). Manning radar outposts and
    established command and control (C2) centers, conducting intelligence,
    surveillance, and reconnaissance (ISR) along Iraq's borders, responding
    to almost daily acts of Iraqi aggression, and maintaining the required
    airlift and air refueling missions taxed Air Force assets since the end
    of Operation Desert Storm. Yet, these successful air operations had
    three main effects: they halted air attacks on the ethnic minority
    populations under the no-fly zones; they deterred a repeat of Iraqi
    aggression against its neighbors; and they leveraged enforcement of
    United Nations Security Council resolutions. Throughout this period,
    our airmen honed their warfighting skills, gained familiarity with the
    region, and were able to establish favorable conditions for OIF. For
    more than a decade, American airmen rose to one of our Nation's most
    important challenges, containing Saddam Hussein.
    Operation Iraqi Freedom
        On 19 March 2003, our airmen, alongside fellow soldiers, sailors,
    marines, and coalition teammates, were called upon to remove the
    dangerous and oppressive Iraqi regime--this date marked the end of ONW/
    OSW and the beginning of OIF. OIF crystallized the meaning of jointness
    and the synergies of combined arms and persistent battlefield
    awareness.
        In the first minutes of OIF, airmen of our Combat Air Forces (USAF,
    USN, USMC, and Coalition) were flying over Baghdad. As major land
    forces crossed the line of departure, Air Force assets pounded Iraqi
    command and control facilities and key leadership targets, decapitating
    the decisionmakers from their fielded forces. Remaining Iraqi leaders
    operated with outdated information about ground forces that had already
    moved miles beyond their reach. As the land component raced toward
    Baghdad, coalition strike aircraft were simultaneously attacking Iraqi
    fielded forces, communications and command and control centers,
    surface-to-surface missile launch sites, and were supporting Special
    Operations Forces, and ensuring complete air and space dominance in the
    skies over Iraq. Due to these actions and those during the previous 12
    years, none of the 19 Iraqi missile launches were successful in
    disrupting coalition operations, and not a single Iraqi combat sortie
    flew during this conflict. Twenty-one days after major combat
    operations began, the first U.S. land forces reached Baghdad. Five days
    later, the last major city in Iraq capitulated.
        The Air Force provided over 7,000 CAS sorties to aid land forces in
    the quickest ground force movement in history. Lieutenant General
    William S. Wallace, Commander of the U.S. Army V Corps said, ``none of
    my commanders complained about the availability, responsiveness, or
    effectiveness of CAS--it was unprecedented!'' As Iraqi forces attempted
    to stand against the integrated air and ground offensive, they found a
    joint and coalition team that was better equipped, better trained, and
    better led than ever brought to the field of battle.
        Training, leadership, and innovation coupled with the Air Force's
    recent investment in air mobility allowed U.S. forces to open a second
    major front in the Iraqi campaign. Constrained from access by land, Air
    Force C-17s airdropped over 1,000 paratroopers from the 173rd Airborne
    Brigade into northern Iraq. This successful mission opened Bashur
    airfield and ensured U.S. forces could be resupplied.
        Before 2003, the Air Force invested heavily in the lessons learned
    from OEF. Shortening the ``kill chain,'' or the time it took to find,
    fix, track, target, engage, and assess was one of our top priorities.
    This investment was worthwhile, as 156 time-sensitive targets were
    engaged within minutes, most with precision weapons. The flexibility of
    centralized control and decentralized execution of air and space power
    enabled direct support to JFC objectives throughout Iraq. Coalition and
    joint airpower shaped the battlefield ahead of ground forces, provided
    intelligence and security to the flanks and rear of the rapidly
    advancing coalition, and served as a force multiplier for Special
    Operations Forces. This synergy between Special Operations and the Air
    Force allowed small specialized teams to have a major effect throughout
    the northern and western portions of Iraq by magnifying their inherent
    lethality, guaranteeing rapid tactical mobility, reducing their
    footprint through aerial resupply, and providing them the advantage of
    ``knowing what was over the next hill'' through air and space-borne
    ISR.
        The Air Force's C2ISR assets enabled the joint force in Afghanistan
    as well. This invaluable fleet includes the RC-135 Rivet Joint, E-8
    JSTARS, and the E-3 AWACS. This ``Iron Triad'' of intelligence sensors
    and C2 capabilities illustrates the Air Force vision of horizontal
    integration in terms of persistent battlefield awareness. Combined with
    the Global Hawk unmanned aerial vehicle and Predator remotely piloted
    aircraft, spaced-based systems, U-2, and Compass Call, these invaluable
    systems provided all-weather, multi-source intelligence to commanders
    from all Services throughout the area of responsibility.
        OIF was the Predator's first ``networked'' operation. Four
    simultaneous Predator orbits were flown over Iraq and an additional
    orbit operated over Afghanistan, with three of those orbits controlled
    via remote operations in the U.S. This combined reachback enabled
    dynamic support to numerous OIF missions. Predator also contributed to
    our operational flexibility, accomplishing hunter-killer missions,
    tactical ballistic missile search, force protection, focused
    intelligence collection, air strike control, and special operations
    support. A Hellfire equipped Predator also conducted numerous precision
    strikes against Iraqi targets, and flew armed escort missions with U.S.
    Army helicopters.
        Space power provided precise, all-weather navigation, global
    communications, missile warning, and surveillance. The ability to adapt
    to adverse weather conditions, including sandstorms, allowed air, land,
    and maritime forces to confound the Iraqi military and denied safe
    haven anywhere in their own country. As the Iraqis attempted to use
    ground-based GPS jammers, Air Force strike assets destroyed them, in
    some cases, using the very munitions the jammers attempted to defeat.
    As Defense Secretary Donald Rumsfeld noted, this new era was
    illustrated by the coalition's ``unprecedented combination of power,
    precision, speed, and flexibility.''
        During the height of OIF, the Air Force deployed 54,955 airmen.
    Ambassador Paul Bremer, Chief of the Coalition Provisional Authority,
    pronounced, ``In roughly 3 weeks [we] liberated a country larger than
    Germany and Italy combined, and [we] did so with forces smaller than
    the Army of the Potomac.'' Led by the finest officers and
    noncommissioned officers, our airmen flew more than 79,000 sorties
    since March 2003. Ten thousand strike sorties dropped 37,065 munitions.
    The coalition flew over 55,000 airlift sorties moved 469,093 passengers
    and more than 165,060 tons of cargo. In addition, over 10,000 aerial
    refueling missions supported aircraft from all Services, and 1,600 ISR
    missions provided battlespace awareness regardless of uniform, service,
    or coalition nationality. This was a blistering campaign that demanded
    a joint and combined effort to maximize effects in the battlespace.
        Today, Air Force airmen continue to contribute to the joint and
    coalition team engaged in Iraq. At the end of the year, 6,723 airmen
    from the active duty, Reserve, and Air National Guard conducted a wide
    range of missions from locations overseas, flying approximately 150
    sorties per day including CAS for ground forces tracking down regime
    loyalists, foreign fighters, and terrorists. On a daily basis, U-2 and
    RC-135 aircraft flew ISR sorties monitoring the porous borders of Iraq
    and providing situational awareness and route planning for Army patrols
    in stability and support operations. Providing everything from base
    security for 27 new bases opened by the coalition to the lifeline of
    supplies that air mobility and air refueling assets bring to all joint
    forces, Air Force airmen are committed to the successful accomplishment
    of the U.S. mission in Iraq.
    Other Contingency Operations
        In 2003, the Air Force remained engaged in America's war on drugs
    and provided support to NATO ground forces in the Balkans. Since
    December 1989, Air Force airmen have been an irreplaceable part of the
    interagency fight against illegal drug and narcotics trafficking.
    Deployed along the southern U.S., in the Caribbean, and Central and
    South America, airmen perform this round-the-clock mission, manning 9
    ground-based radar sites, operating 10 aerostats, and flying
    counterdrug surveillance missions. The Air Force detected, monitored,
    and provided intercepts on over 275 targets attempting to infiltrate
    our airspace without clearance. Along with our interagency partners,
    these operations resulted in 221 arrests and stopped hundreds of tons
    of contraband from being smuggled into our country.
        In the Balkans, airmen are fully committed to completing the
    mission that they started in the 1990s. Today, Air Force airmen have
    flown over 26,000 sorties supporting Operations Joint Guardian and
    Joint Forge. These NATO-led operations combine joint and allied forces
    to implement the Dayton Peace Accords in Bosnia-Herzegovina and enforce
    the Military Technical Agreement in Kosovo. At the end of 2003,
    approximately 800 airmen were supporting NATO's goal of achieving a
    secure environment and promoting stability in the region.
        Additionally, the Air Force engaged in deterrence and humanitarian
    relief in other regions. While the world's attention was focused on the
    Middle East in the spring of 2003, our Nation remained vigilant against
    potential adversaries in Asia. The Air Force deployed a bomber wing--24
    B-52s and B-1s--to the American territory of Guam to deter North Korea.
    At the height of OIF, our Air Force demonstrated our country's resolve
    and ability to defend the Republic of Korea and Japan by surging bomber
    operations to over 100 sorties in less than 3 days. This deterrent
    operation complemented our permanent engagement in Northeast Asia. The
    8,300 airmen who are stationed alongside the soldiers, sailors,
    marines, and our Korean allies maintained the United Nations armistice,
    marking 50 years of peace on the peninsula.
        Our strength in deterring aggression was matched by our strength in
    humanitarian action. In response to President Bush's directive to help
    stop the worsening crisis in Liberia, we deployed a non-combat medical
    and logistics force to create a lifeline to the American Embassy and
    provide hope to the Liberian people. An Expeditionary Group of airmen
    provided airlift support, aeromedical evacuation, force protection, and
    theater of communications support. Flying more than 200 sorties, we
    transported and evacuated civilians and members of the Joint Task Force
    (JTF) from bases in Sierra Leone and Senegal. The 300 airmen deployed
    in support of JTF-Liberia reopened the main airport in Monrovia, and
    ensured the security for U.S. military and civilian aircraft providing
    relief aid.
    Strategic Deterrence
        The ability of U.S. conventional forces to operate and project
    decisive force is built on the foundation of our strategic deterrent
    force; one that consists of our nuclear-capable aircraft and
    Intercontinental Ballistic Missile forces, working with the U.S. Navy's
    Fleet Ballistic Missile Submarines. In 2003, these forces as well as,
    persistent overhead missile warning sensors and supporting ground-based
    radars, provided uninterrupted global vigilance deterring a nuclear
    missile strike against the U.S. or our allies. The dedicated airmen who
    operate these systems provide the force capability that yields our
    deterrent umbrella. Should that deterrence fail, they stand ready to
    provide a prompt, scalable response.

                              RESETTING THE FORCE

        Preparing and maintaining a force that can adapt to the realities
    of the new security environment requires the Air Force to reset and
    reconstitute the capabilities that brought us such outstanding
    successes in 2003. It is important to restate, the Air Force must
    reconstitute similar capabilities that were successful, not necessarily
    the same equipment. For the Air Force we view capabilities as more than
    just commodities. Beyond just equipment, Air Force warfighting
    capabilities depend on training and a sustainable battle rhythm for the
    entire force. Synchronizing these aspects, eliminating duplicative
    capabilities, and capitalizing on technological advances will all
    ensure efficiency and most importantly combat readiness. To frame our
    reset and reconstitution plans we must continue to look at three
    factors.
        First, we are still engaged with very dangerous enemies throughout
    the globe. We must replenish our stocks, our people, and our ability to
    project power around the world. Being prepared to deliver precise
    effects anywhere at anytime as part of a joint and/or coalition force
    is a top priority. Second, we must rapidly incorporate our lessons
    learned and implement those changes to maintain our combat edge. As we
    remain engaged, our current opponents, as well as would-be adversaries,
    are watching and learning from the new America way of war. The Air
    Force must ensure that we capitalize on our successes and our lessons
    from these recent conflicts. Third, stabilization operations and our
    ability to capitalize on our successes in OEF and OIF require
    significant assets and a robust American presence. After opening 38 new
    or expanded bases in support of OEF and OIF and shifting our focus and
    forces, we must ensure that our enduring presence is equipped to meet
    the challenges of their new environments.
    Air and Space Expeditionary Force
        Last year, I testified on behalf of the Air Force that we planned
    to return to pre-OIF rotational cycles by March 2004. Unfortunately, we
    now project the air expeditionary force (AEF)--including its integral
    low-density/high-demand (LD/HD) assets will not be fully reset until
    March 2005. Continued surge operations of several enabling capability-
    sets is creating new challenges for reconstitution efforts and
    extending the time to fully restore the readiness of AEF operations by
    more than 12 months. The previous plan to recover the AEF to
    sustainable operations (2.0 AEFs on 90-day rotations) have been
    complicated by growing global combatant commander requirements across
    the board. The AEF continues to be operating in higher than normal
    sustained pace, approaching four AEF's worth of capability in some
    stressed career fields which are committed at any given moment. The AEF
    has sustained an operational pace higher than planned to meet increased
    operational expeditionary air bases requirements in theater and
    especially the need for additional expeditionary support to meet other
    Service needs.
    Training
        I also testified that even with our aggressive efforts to reset
    certain LD/HD capabilities, our Expeditionary Combat Support,
    Intelligence Surveillance, and Reconnaissance assets, and security
    forces, will not meet the March 2004 goal. Due to sustained combat
    operations and training backlogs, this remains the case. Manpower and
    equipment shortages due to combat requirements have affected the
    training pipelines at most of our formal training units. Particularly
    harsh, training delays in our LD/HD assets have increased by several
    months. In some cases, training backlogs for major weapons systems have
    grown to over 200 days, with ``get well'' dates not until the fall of
    2005. In addition to manpower and equipment shortages, aging aircraft
    and scheduled fleet upgrades have also reduced available training
    assets, further aggravating training delays. Lastly, flying hours for
    training have been limited due to high deployment schedules for most
    weapons systems. One illustration of this problem can be found in the
    C-130 fleet. While they flew only 43 percent of the programmed training
    hours in fiscal year 2003; their high tempo of operations (OPTEMPO) in
    support of ONE, OEF, and OIF resulted in the C-130 fleet flying 218
    percent of their programmed ``customer-support'' hours.
    War Reserve Stocks
        Air Force war reserve stocks are comprised of consumables,
    vehicles, ammunition, and Basic Expeditionary Airfield Resources
    (BEAR). We estimate our total cost to replenish all war reserve
    material (WRM) requirements at $1.96 billion [wartime consumables ($131
    million); vehicles ($711 million for 4,700 vehicles; support equipment
    ($82 million); and BEAR ($1.035 billion including $331 million in the
    fiscal year 2003 supplemental)]. Fiscal year 2005 funding allows
    reconstitution of our fuels equipment and vehicles in approximately 24
    months. We plan for full reconstitution of our BEAR kits by fiscal year
    2007 and our four afloat preposition ships with ammunition aboard are
    all on station.
        With combat operations still ongoing, we fill requirements for
    significant expeditionary combat support and base operating support for
    all our joint forces and in some cases coalition partners. These
    systems are critical to our continued force projection capability. We
    are aggressively reconstituting our BEAR sets, which are used to
    provide basic infrastructure needed to beddown personnel and aircraft
    at austere locations anywhere in the world. Currently 41 percent of
    BEAR capability is ready for deployment (63/152 BEAR Sets). Over the
    next 24 months, readiness will continue to improve as BEAR sets
    deployed to OIF are reconstituted and new assets are delivered into the
    inventory due to the supplemental funding received.

                      MAINTAINING READINESS DURING WARTIME

        Our $27.1 billion readiness request ensures that the Air Force
    remains ready to perform our wide-ranging global missions, from space
    support to global strike to global mobility and homeland defense. Our
    fully funded Flying Hour Program funds consumables, spare parts, and
    fuels needed to sustain aircrew combat readiness. It requests funding
    for 1.7 million flying hours to maintain combat readiness and support
    joint operations around the world. It funds worldwide mobility to
    ensure joint and coalition forces have the forces and equipment they
    need. Our budget funds facility sustainment at 95 percent and meets the
    Defense Department's goal.
        A success story for Air Force readiness during wartime has been our
    aircraft availability. In fiscal year 2003, we enjoyed our highest
    active overall mission capable rates in 6 years--the largest
    improvements since the mid-1980s. Mission capable (MC) rates are
    perhaps the best-known yardstick for measuring the readiness of Air
    Force aircraft. MC rates reflect the percentage of aircraft by fleet
    that are capable of performing at least one of their assigned missions.
    Fourteen of 20 major weapon systems saw improved mission capable rates
    in fiscal year 2003, at a time when all of our systems were flying more
    hours.
        The fiscal year 2003 aggregate MC rate of 75.9 percent was the
    highest rate achieved since fiscal year 1997. Categorized by fleet, the
    current MC rate for our fighter fleet is 75.7 percent; well into the
    third year of increased MC rates and surmounting the fiscal year 2001
    low of 73.9 percent. The current fiscal year 2004 bomber fleet rate
    stands at 71.4 percent, and the tanker fleet rate at 77.8 percent, a
    drop from the fiscal year 2003 rate of 79.3 percent. Between January
    1999 and June 2003, we saw a dramatic 60 percent reduction in aircraft
    grounding parts-backorders. These gains were due to robust spares
    funding initiatives, fleet consolidation, and transformation
    initiatives across the entire fleet. Another measure, cannibalization
    (CANN) rates reflect the number of cannibalization actions that occur
    per 100 sorties for a particular weapon system. The aggregate CANN rate
    for fiscal year 2003 dropped 15 percent from the fiscal year 2002 rate
    of 9.4 actions per 100 sorties. The fiscal year 2003 rate of 8 CANNs
    per 100 sorties represents the lowest CANN rate since fiscal year 1995.
        Our engine availability rates reflected impressive gains as recent
    investments continued to pay dividends throughout fiscal year 2002. Our
    U-2s sustained their mission capable rate while flying their most hours
    since the Gulf War, 35 percent higher than fiscal year 2001. Our
    Predator fleet posted its best mission capable rates ever while
    averaging almost 200 hours per month. Our C-5s posted their best
    mission capable rates since fiscal year 1996 while flying the most
    hours since the Gulf War. The B-1 consolidation is paying dividends, as
    our B-1s posted dramatic gains in mission capable rates, with current
    rates at historical highs. All of our fighters are experiencing a
    steady decline in cannibalization. We have made great strides in
    reducing the number of aircraft in depot for maintenance, putting over
    25 percent more aircraft on the ramps for the warfighter since 2000.
    Fourteen of 20 aircraft major design systems improved their mission
    capable rates over the previous year, with Predator remotely operated
    aircraft improving by 11 percent and B-1 bombers achieving the best
    mission capable and supply rates in the history of the aircraft. Thanks
    to proper funding, fleet consolidation, and transformation initiatives,
    spare parts shortages were reduced to the lowest levels recorded across
    the entire fleet. We are providing the right tools and resources to our
    airmen.
        The Air Force continues to place emphasis on a solid depot
    maintenance program for DOD's weapon systems. For fiscal year 2005,
    we've increased Depot Purchased Equipment Maintenance (DPEM) funding
    over the previous budget position to ensure the proper level of support
    to the warfighter. Aging aircraft issues continue to make depot
    maintenance both expensive and challenging, and thus we are looking for
    innovative ways to guarantee the right mix of aircraft is available to
    the combatant commander at any given time.
        Within our depots, we continue to look for ways to transform,
    reduce depot costs, and meet the needs of the warfighter by ensuring
    that the depots have the capacity to accomplish the required workload.
    An extremely important facet of the depots is that during wartime or
    contingencies, the Air Force can surge repair operations and realign
    capacity to support the warfighter's immediate needs. We will maintain
    the appropriate level of depot maintenance to ensure our aging fleet
    stands ready to deploy, fly, and fight anywhere, anytime.
        Our depots have put some of these initiatives into place with
    exceptional results. In fiscal year 2003 our depot maintenance teams
    were more productive than planned, exceeding aircraft, engine, and
    commodity production goals and reducing flow days in nearly all areas.
    Implementation of ``lean'' production processes, optimized use of the
    existing workforce, and appropriate funding all contributed to this
    good news story. In addition, our spares support to the warfighter is
    at record high numbers. In 2003, supply rates and cannibalization rates
    achieved their best performance since fiscal year 1994 and fiscal year
    1995 respectively.
        Again, the fiscal year 2005 budget requests an increase in the
    operations/maintenance readiness funds from $25.4 billion to $27.1
    billion. This readiness funding includes increases for Space
    Operations, Mission Support and Flying Hours, and includes a fully
    funded Flying Hour Program and Depot Maintenance funded to preferred
    readiness levels. Where funding does affect readiness, we have budgeted
    for and are committed to provide the necessary resources to our airmen.
        In spite of continued funding increases in recent years, readiness
    indicators for the overall Air Force and the major operational units
    have continued to slowly decline, primarily due to higher OPTEMPO of an
    aging fleet since the global war on terrorism began--as we continue to
    reset and focus more on managing OPTEMPO, we expect readiness
    indicators to improve. As of 15 February 2004, overall readiness rates
    for major operational units (309) were at 63 percent. This figure
    represents a 7-percent decrease compared to readiness rates at the same
    time last year (prior to the start of Operation Iraqi Freedom). Overall
    readiness rates for major operational units dropped to their lowest
    point on 15 December 2003 (61 percent) but are now showing improvement
    during the last two months due to ongoing reconstitution efforts. Below
    is a snapshot of current readiness rates as of 15 February 2004 for
    each major operational community and the associated changes since
    February 2003. The arrow (trend) by each community represents recent
    readiness trends since December 2003.

          ISR--0 percent (down 9             LD/HD
           percent).
          Special ops--24 percent (down      LD/HD
           24 percent).
          C2--30 percent (down 8
           percent).
          Bomber--33 percent (down 29        in transition
           percent).
          Rescue--45 percent (down 1
           percent).
          Airlift--66 percent (down 11
           percent).
          Fighter--69 percent (down 7
           percent).
          Tanker--86 percent (down 2         in transition
           percent).
          Space and missile--100
           percent (up 7 percent).

                         RECAPITALIZING THE CAPABILITY

        With spreading technology and increasing parity of foreign nations,
    the mere maintenance of our aging aircraft and space systems will not
    suffice. Simply stated, our current fleet of legacy systems cannot
    ensure air and space dominance in future engagements. It is these risks
    and concerns that underpin our persistent advocacy of program stability
    in our modernization and investment accounts. Our capability-based
    planning and budgeting process is the foundation to accelerate
    modernization while maintaining gains in readiness and people. We are
    investing short-term and long-term across all of our task force
    capabilities, balancing modifications of existing systems with the
    development of new systems. Air Force modernization efforts are
    supporting our transformation goals while continuing to develop and
    field needed systems, with nearly half of our investment in research,
    development, test, and evaluation (RDT&E).
        The aging fleet presents the Air Force with the challenge of
    providing the joint force commanders assets from an ever-shrinking pool
    of available platforms that cost more and more to maintain. To counter
    this trend, we are pursuing a wide range of strategies that accelerates
    our modernization and recapitalization efforts. We are using an
    integrated and systematic risk assessment system, shorter acquisition
    cycle times, and improved program oversight. Our goal is to integrate
    our combat, information, electronic warfare and support systems to
    create a portfolio of air and space advantages.
        As the Air Force has testified, our average fleet age has
    approximately 23 years in service. With some manufactured as early as
    1955, our KC-135 fleet averages 44 years in service. We have never
    dealt with a force this old. Our aging aircraft are vulnerable to
    myriad problems, including technical surprises, vanishing vendors, and
    increased operational costs. Thanks to this committee, we have recently
    enjoyed a down payment on our recapitalization but require sustained
    funding to maintain the force capable of supporting the National
    Security Strategy and JV2020. Eventually, new acquisitions will have to
    replace these legacy systems. In the interim, we are finding innovative
    means to keep current systems operational in the near term and are
    taking advantage of new opportunities to employ old systems in new
    ways.

    Dealing With Aging Aircraft Issues
        This new OPTEMPO has demanded more of our entire fleet.
    Specifically, corrosion, high-cycle fatigue, and aging composites
    affect the Air Force's mission effectiveness and availability due to
    flight restrictions. Examples that epitomize the exact problem are
    found in a variety of fleets including the F-15Cs, A-10s, and KC-135s.
        Averaging 20 years old, our premier legacy air dominance platform,
    the F-15C, suffered approximately 30 incidents of partial wing,
    horizontal and vertical stabilizer loss and wiring bundle fires that
    have resulted in many operational restrictions. Additionally, their
    maintenance man-hours are up 150 percent in the past 12 years. With an
    average fleet age of 22 years, our A-10s, which provided invaluable
    close air support to the joint force commander, has recently undergone
    inspections for wing cracks that affected 247 aircraft. Both of these
    cases illustrate that these problems are across the fleets versus
    aircraft tail number specific.
        None of our aging aircraft fleets needs recapitalizing more than
    our tanker fleet. Previous Air Force testimony has continually stressed
    the importance of this fleet to the Air Force and to the Nation in
    terms of the global war on terror. The crux of our challenge is how the
    Air Force will continue to provide these irreplaceable assets to the
    joint warfighter considering their limited availability at ever
    increasing costs. At the beginning of January 2004, 36 percent of the
    KC-135 fleet was unavailable including those in depot and those unit
    possessed but not mission capable. Of those that are available, mission
    capable rates continue trending downward. In addition to the unknown
    technical ``surprises'' which the fleet may encounter, known severe
    corrosion of this Eisenhower-era asset continues to concern us. Organic
    programmed depot maintenance (PDM) and contract PDM prices to maintain
    the KC-135 continue to rise.
        As many of you know, the Air Force has been very active on this
    front in an attempt to continue to fill the joint force commander's
    requirements for power projection. The Air Force fully supports the
    latest decision by Secretary Rumsfeld to suspend the 767 Tanker Lease
    Program until all reviews are complete. We continue to work
    cooperatively with the DOD Inspector General to reach a speedy and
    definitive conclusion to their assessment.
        In testimony last week, I reemphasized the Air Force's requirement
    to recapitalize the tanker fleet and discussed the operational
    capabilities needed for a new tanker. The Air Force believes that
    whether this is accomplished through the normal procurement process for
    which over $4 billion of funding is already programmed across the FYDP
    for a KC-X replacement aircraft, or through the lease program, which,
    as authorized in the National Defense Authorization Act (NDAA) for
    Fiscal Year 2004, will accelerate the recapitalization process, will
    provide this Nation a vital capability. In accordance with the 2004
    NDAA, the Air Force will conduct the Analysis of Alternatives using a
    federally funded research and development center or other entity
    independent of the Department of Defense. This AOA is important in
    shaping decisions for future recapitalization, and we expect it to be
    complete in fiscal year 2005.
        Another important tool in shaping our decisions was implemented
    last May. The new Air Force Fleet Viability Board establishes a
    continuous, repeatable process for fleet assessment much like current
    Navy boards. Currently, the board is reviewing the C-5A. This ongoing
    assessment will likely report on or around 31 March 2004. Candidates
    for future boards will be reviewed annually to consider new concerns
    and should produce a comprehensive standardized approach to examining
    entire fleets of aircraft.

    Aging Infrastructure
        In addition to air and space platforms, we must address our growing
    deficiencies in infrastructure. Improvements we secure for our air and
    space systems will be limited without addressing our foundational
    support systems. Deteriorated airfields, hangars, waterlines,
    electrical networks are just some of the infrastructure elements
    warranting immediate attention. Our investment strategy, to enable and
    modernize our installation capabilities and provide quality working and
    living environments, focuses on three simultaneous steps. First, we
    must dispose of excess facilities. Second, we must fully sustain our
    facilities and systems so they remain effective through their expected
    life. Third, we must establish a steady investment program to restore
    and modernize our critical facilities and infrastructure systems, while
    continually advancing our ability to protect our people and resources
    from the growing threat of terrorism.
        We have accelerated our housing investment and expanded our
    privatization program. We have programmed projects to eliminate
    inadequate housing at all continental United States (CONUS) bases by
    2007, except at four northern-tier locations where it will be completed
    by 2008. We will improve more than 3,600 units at 26 bases and support
    privatization of 7,000 units at 7 bases. Committed to sustained
    improvements, the Air Force has increased this year's MILCON request by
    10 percent. The Air Force has embarked on a strategy for three world-
    class depots and has increased funding for essential depot facilities
    upgrades and equipment modernization as part of our ``Depot Maintenance
    Strategy and Master Plan.'' When you consider our level of effort
    across the entire infrastructure spectrum, we plan to invest more than
    $4.8 billion in fiscal year 2005.

                            A READY FORCE OF AIRMEN

        A ready force is founded on its people. The 700,000 men and women
    that comprise our Total Air Force--active duty, Guard and Reserve, and
    our civilians--are the best America has to offer. They are officers,
    enlisted, civilians, and contractors from every corner of the country
    and every walk of life. These world-class airmen are the key
    ingredients to sustaining our record of success. Without exception we
    have been and will always be dedicated to recruiting, training, and
    retaining professional airmen and wholeheartedly believe that the Air
    Force can make no greater investment and have no greater resource than
    in our people. They are our #1 weapon system.
        The bottomline on personnel readiness is that our people are ready.
    We are sustaining our personnel readiness rates in the face of higher
    OPTEMPO, manning shortages, and reduced training opportunities. ONE
    alerts and OEF/OIF deployments have left our operational units with
    less capability and opportunity to train. The Air Force fully funded
    the flying program in fiscal year 2004 and will continue to fly 100
    percent of the flying program. For the past 3 years, the Air Force has
    executed its budgeted O&M flying hours without requesting additional
    funding for contingency flying hours. Our airmen are gaining real-world
    experience you cannot create in a training environment. Today, over 70
    percent of our rated aircrew is combat experienced.
        However, many of our aircrew instructors have been pulled to
    fulfill priority operational requirements, making it difficult to train
    new aircrew to relieve the combat stress. This is especially true of
    our LD/HD assets which have been working at ``surge'' capacity. We
    recognize that some of the most significant detractors to unit
    readiness are lengthy, frequent deployments. Once airmen return from
    deployments they require up to a 90-day reconstitution period,
    primarily for personnel training. Maintaining our AEF rotation schedule
    helps stability and predictability, but most of our stressed career
    fields are exceeding the 90-day goal. While the Air Force has taken
    steps to mitigate the impact of lost training, sustained operations
    will remain a challenge. As long as the current OPTEMPO persists, we
    expect Air Force training to remain at current levels improve, if not
    decline, as training currencies and continuation training are harder to
    achieved.

    Recruiting
        We remain committed to an All-Volunteer Force. Our volunteer airmen
    are dedicated, experienced, smart, disciplined, and representative of
    our country as a whole. We recruit and promote the unique and diverse
    experiences and capabilities people from all backgrounds, all races,
    and all religions contribute to our combat capability.
        Last year the Air Force completed one of its best recruiting years
    ever. This year, we expect to meet our annual accession goal of 37,000
    by September 2004. With an increased advertising budget, enhanced
    hiring incentives and enlistment bonuses, and improved recruiter
    manning, the Air Force is making enlisted recruiting a priority, and it
    is paying off. The Air Force also continues to attract the country's
    best and brightest college graduates to join our officer corps. We have
    introduced additional incentives to recruit more students into Reserve
    Officers' Training Corps (ROTC), especially those with science and
    engineering proficiencies. We continually adjust our goals to meet new
    force requirements and the demands of a competitive marketplace.

    Training
        The Air Force requires sophisticated airmen who are trained to
    leverage technology and ready to perform in a fluid environment--air
    and space leaders for the 21st century. This will require targeted
    investments in the next generation of airmen, from the ground up and
    throughout their careers. To that end, the Air Force has introduced a
    coordinated effort to address all aspects of an airman's career
    development, professional education, and assignments in sum rather than
    individually. This deliberate force development effort generates
    policies tailored to the needs of the individual airman throughout his
    career. Comprehensive in scope, our training is doctrinally based and
    focused on three levels: tactical, operational, and strategic.

    Force Shaping
        Our number one personnel challenge is adapting to the new steady
    state--a higher tempo of operations and a shifting skill mix
    requirement. With a 30-percent reduction in manpower since 1990 and a
    significant increase in worldwide taskings over that same period, the
    Air Force is experiencing a dramatic jump in operations and personnel
    tempo. We have discovered that while the number of airmen is adequate,
    the mix of skill sets and the military/civilian/contractor ratio must
    be adjusted to reflect new realities.
        Recognizing the new demands placed on us by the war on terrorism,
    we initiated a comprehensive manpower review to determine relative
    stress amongst career fields and to explore options to alleviate that
    stress. Our analysis shows we need to shift manpower to stressed career
    fields to meet the demands of this new steady state, and we are in the
    process of doing this. We have realigned personnel into our most
    stressed specialties and hired additional civilians and contractors to
    free military members to focus on military duties. We have also made
    multi-million dollar investments in technology to reduce certain
    manpower requirements. We have redirected our training and accession
    systems and have cross-trained personnel from specialties where we are
    over strength to alleviate stressed career fields. Supporting the
    Secretary of Defense's vision of moving forces ``from the bureaucracy
    to the battlefield.''

    Retention
        We have found that our high OPTEMPO and uneven workload are major
    determinants in an airman's decision to leave the Air Force. Because
    the skill-sets of our airmen are not easily replaced, we expend
    considerable effort to retain our people, especially those in high-
    technology fields and those in whom we have invested significant
    education and training. In 2003, we reaped the benefits of an
    aggressive retention program, aided by a renewed focus and investment
    on education and individual development, enlistment and retention
    bonuses, targeted military pay raises, and quality of life
    improvements. Our fiscal year 2003 enlisted retention statistics tell
    the story. Retention for the first term airmen stood at 61 percent and
    exceeded our goal by 6 percent. Retention for our second term and
    career airmen was also impressive, achieving 73 percent and 95 percent
    respectively. Continued investment in people rewards their service,
    provides a suitable standard of living, and enables us to attract and
    retain the professionals we need.
        Retention of pilots, navigators, and air battle managers remains a
    major concern. Our flexible Aviator Continuation Pay (ACP) program is
    one important part of our broad-based solution. Encouragingly, the ACP
    long-term initial take rate rose sharply to 65 percent in fiscal year
    2003 from 47 percent in fiscal year 2002. Retention for high tech
    specialties is also a concern as the pull from industry is strong. This
    draw is exacerbated by long, frequent deployments in many of our high
    tech career fields.
        While high retention is in itself great news, we are faced with the
    fact that the Air Force is over its authorized end strength and our
    skill mix is out of balance. Being overstrength, however, serves as a
    mixed blessing that allows us to rebalance the skills without
    exacerbating manning problems in the stressed career fields as we draw
    down to authorized strength. Force shaping permits us to tackle these
    challenges smartly.
        The Air Force has reduced its civilian workforce by nearly 100,000
    since 1990, leaving only 10 percent of today's Air Force civilians with
    less than 10 years in service and over 40 percent eligible to retire in
    5 years. We must revitalize our professional occupations with new hires
    while minimizing the impact on the existing civilian employees. Force
    shaping initiatives to restructure the civilian work force and
    enactment of the National Security Personnel System (NSPS) to provide
    the department with some streamlined authorities.

    Future Total Force
        Like never before in the history of the Air Force, we are a total
    force. Mission success demands the interdependence of active duty, Air
    Reserve Component (ARC), civilian workforce, and contractors. The ARC
    continues to be an integral part of the AEF as a total force, and
    accounts for more than three-fourths of our tactical airlift
    capability, two-thirds of our strategic airlift capability, two-thirds
    of our air refueling capability, and one-third of our strike fighters.
    The Reserve component also makes significant contributions to our
    rescue and support missions, and has an increasing presence in space,
    intelligence and information operations. In all, the Reserve component
    provides a ready force requiring minimum preparation for deploying in
    support of worldwide operations. As such, they need compensation,
    benefits, and entitlements commensurate with these increased
    responsibilities. We are committed to using ARC volunteers versus
    mobilization whenever possible to allow the units and members the
    flexibility needed to meet combatant commander requirements.
        We are also reviewing our ARC manpower to minimize involuntary
    mobilization of ARC forces for day-to-day, steady state operations
    while ensuring they are prepared to respond in times of crisis. Since
    September 11, the Guard and Reserve have played a greater role in the
    country's defense than ever before. But there is a limit to how many
    demands we can place on our ARC forces in the current environment.
    Historically the ANG and AFRC gain nearly 25 percent of separating
    active duty members. Continued high OPTEMPO may threaten this source of
    recruiting and force the ARC to explore alternative options to make up
    the loss. We are also closely monitoring this situation and are taking
    steps to relieve the pressure on the Guard and Reserve.
        We are in the second year of our agreement to employ Army National
    Guard soldiers for force protection (FP) duties at Air Force
    installations, temporarily mitigating our FP shortfalls in security
    forces. We are executing an aggressive plan to rapidly burn down the
    need for Army augmentation by reducing our manpower requirements
    through the insertion of technology (to enable manpower avoidance),
    realigning current manpower within end strength limits, and maximizing
    use of ARC volunteers to replace departing Army National Guard
    soldiers. Coupled with civilian conversions and contracting options, we
    are expanding total force (civilian, contract, active duty, and ARC)
    involvement while at the same time reducing the stress on our forces
    and the associated risks to our resources.

                                   CONCLUSION

        The greatest testament to Air Force readiness is our continued
    success in projecting power around the globe and protecting America and
    her allies from potential enemies. The Air Force, along with each of
    the members of this joint team, is proud of our operational successes
    over the past 2 years, but we cannot rest on our accomplishments. When
    our President and this Nation called last year--we were ready. Within
    21 days, this joint team had effectively broken coherent resistance in
    Baghdad and collapsed the regime's control. Five days later, the joint
    and coalition team captured the last major Iraqi city, unseated a
    despotic government and liberated approximately 25 million Iraqis. The
    readiness that made the Air Force's air and space power contribution
    possible was the result of the hard work of the thousands of airmen and
    civilians of our total force. Our success was also a tribute to this
    committee's leadership and its staunch support at such a critical time
    in our Nation's history.
        We stand ready. Ready to project power to any point on the face of
    the Earth. Lethal and responsive, America's airmen stand ready to act--
    whenever and wherever they are called.
        Mr. Chairman, Senator Akaka, thank you for your support.

        Senator McCain. Thanks very much, General.
        General Huly.

    STATEMENT LT. GEN. JAN C. HULY, USMC, DEPUTY COMMANDANT OF THE
      MARINE CORPS PLANS, POLICIES, AND OPERATIONS, UNITED STATES
                              MARINE CORPS

        General Huly. Senator Akaka, Senator McCain, Senator
    Inhofe, Senator Nelson, and Senator Cornyn, thank you for the
    opportunity to appear here today.
        Let me start by thanking you, thanking the entire
    committee, for their continued and steadfast support for the
    issues and the programs that are of vital interest and
    importance to the readiness of your Marine Corps.
        I would ask that my prepared statement be placed in the
    official record.
        I am proud----
        Senator McCain. Without objection, your entire statement
    will be made part of the record.
        Thank you, General.
        General Huly. Thank you, sir.
        That concludes----[Laughter.]
        Senator McCain. Thank you very much.
        Go ahead, please, General.
        General Huly. I'm proud and honored to be representing the
    215,000 marines, both active and Reserve, in the Corps today.
    They are amongst the finest women and men America has to offer.
    Their performance in OEF and OIF, in support of the ongoing
    global war on terrorism, has been superb. But, rest assured,
    the Marine Corps is not resting on its laurels.
        Currently, we're in the process of deploying 25,000 combat-
    ready active-duty and Reserve component marines and sailors
    from the 1st Marine Expeditionary Force to Iraq, and 1,500
    marines and sailors from the 2nd Marine Expeditionary Force
    have recently been deployed to Haiti. Our Reserve units and
    individuals are combat-ready, and have rapidly integrated with
    the Active Force, demonstrating the effectiveness of the Marine
    Corps total force. We're set and ready to continue our role in
    securing the security and interests of our Nation with forward-
    deployed naval expeditionary forces tailored for the current
    operating environment.
        Our current success was possible because of the excellent
    training and equipping of our marines, active and Reserve,
    which you enthusiastically supported and generously funded. It
    was the coordinated, sustained integration of fires, both air
    and surface, in support of the Marine Expeditionary Forces
    (MEFs) maneuver that led to victory in OIF. Our ability to
    apply combined-arms doctrine was key as we integrated
    intelligence, command and control, armor, dismounted,
    motorized, and mechanizing forces, artillery, organic
    helicopters, and fixed-wing close air supports, along with our
    combat service support to produce combat power in tempo that
    the former Iraqi regime could not stop. Throughout, our
    training and equipment were clearly superior to that of our
    opponent. Again, your role in that cannot be overstated.
        Superior training is a hallmark of your Marine Corps. While
    we endeavor to keep the keen edge on our warfighting skills,
    the mission before us in Iraq requires an emphasis on support
    and stability operations, and we have adjusted our training to
    meet this challenge. We have carefully examined our experiences
    in combat and training in preparation for our upcoming
    deployment. Our Operation Iraqi Freedom-2 pre-deployment
    training takes full advantage of a broad survey of lessons
    learned, from convoy operations all the way to cultural
    sensitivity training.
        As a force, we are under some stress, due to increases in
    maintenance cycles and operational tempo, as are all of the
    Services; however, through careful and meticulous maintenance
    management, our material readiness has shown steady
    improvement. Owing to our commitment to quality of life,
    recruiting, and retention programs, our personnel readiness now
    remains high.
        In closing, let me say that you have every reason to be
    proud of the contributions and sacrifices of the young men and
    women of your Marine Corps and the families that support them,
    and to be confident in their continued success. Their readiness
    is directly attributable to the superior training resources and
    equipment made available through support of this committee.
        Thank you for your support and the opportunity to appear
    here today.
        [The prepared statement of General Huly follows:]

                Prepared Statement by Lt. Gen. Jan C. Huly, USMC

                                  INTRODUCTION

        Chairman Ensign, Senator Akaka, distinguished members of the
    committee; it is my privilege to report to you on the state of
    readiness of your Marine Corps. Your marines are firmly committed to
    warfighting excellence, and the support of Congress and the American
    people has been indispensable to our success in the global war on
    terrorism. Your sustained commitment to improving our Nation's Armed
    Forces to meet the challenges of today as well as those of the future
    is vital to the security of our Nation. On behalf of all marines and
    their families, I thank the committee for your continued support and
    commitment to the readiness of your Marine Corps.

                 RECENT OPERATIONS AND CURRENT STATUS OF FORCES

        Marine Corps readiness and warfighting capabilities have figured
    prominently in U.S. military operations since September 2001 and the
    beginning of the global war on terrorism. In Operation Enduring
    Freedom, sea-based marines projected power hundreds of miles inland to
    establish a stronghold deep in enemy territory. During Operation Iraqi
    Freedom, more than 76,000 marines (including reservists), their
    equipment, and supplies deployed to the Iraqi theater, using a
    combination of amphibious warships, Maritime Prepositioning Force (MPF)
    ships, and airlift. Once combat commenced, a Marine Corps combined-arms
    team advanced more than 450 miles from the sea, to Baghdad and beyond.
    In 2004, Marine Air-Ground Task Force (MAGTF) flexibility and agility
    continues to be demonstrated as our marines stabilize and help to
    rebuild Iraq and Afghanistan and maintain our commitments afloat and
    ashore in other world regions.
        United States marines are deployed around the world in 2004--from
    Iraq and Afghanistan to Northeast Asia, from the Republic of Georgia to
    the Horn of Africa, and from the Philippines to Romania. Marines
    deployed at sea on the warships of Expeditionary Strike Groups are
    conducting sustained operations ashore in support of U.S. security
    interests and commitments. Our top priority continues to be to maintain
    a high state of readiness and to provide forces capable of meeting the
    demanding needs of the unified combatant commanders and our Nation in
    the prosecution of the global war on terrorism.
        Since the end of major combat operations in Iraq, the Marine Corps
    has been setting the force in order to enhance warfighting readiness
    for future contingencies. We have reloaded combat equipment and
    materiel on the ships of the Maritime Prepositioning Force Squadrons
    while also ensuring that the requirements for Operation Iraqi Freedom
    II are fulfilled. With our modernization and transformation goals in
    mind, we are using the funds provided by Congress to repair, refurbish,
    and where necessary, replace equipment.
        Starting in January, and continuing through today, the Marine Corps
    is deploying forces to relieve the 3d Armored Cavalry Regiment and the
    82d Airborne Division in Western Iraq in support of Operation Iraqi
    Freedom II. In preparation for this new mission, we have made a major
    effort to analyze lessons learned from the Iraqi campaign, and are
    determining how best to apply them in the current operating
    environment. Included in this effort is participation in the Army's
    Improvised Explosive Device (IED) Task Force, a joint effort to share
    the technology, as well as the Tactics, Techniques, and Procedures
    (TTPs) of countering the IED threat.
        While the entire force is under some stress due to increases in
    unit operations tempo (OPTEMPO), individual deployment tempo
    (DEPTEMPO), and the effort to repair and maintain our equipment, we
    continue to meet our operational commitments. During 2004 Marine
    Expeditionary Units will still deploy as part of Naval Expeditionary
    Strike Groups in support of combatant commander requirements. Units
    will continue to deploy to Okinawa and Iwakuni, Japan. However, some of
    those forces will subsequently deploy from Okinawa in support of
    Operation Iraqi Freedom II. Marine Corps units continue to support
    exercises with our joint and coalition partners that are critical to
    supporting the combatant commanders' theater security cooperation
    plans, and counterdrug operations in support of joint and joint-
    interagency task forces. While the operational tempo remains high,
    recruiting and retention continue to meet our manpower goals. We are
    continually monitoring the health of our Service, and we are focused on
    ensuring that the Marine Corps remains ready for all current and future
    missions.
        People and leadership are the foundations of the Marine Corps'
    readiness and warfighting capabilities. Operation Iraqi Freedom
    demonstrated that the Marine Corps' recruiting, training, and continued
    emphasis on education of the force are extremely successful in
    maintaining the high standards of military readiness our Nation
    requires. The Marine Corps remains committed to taking care of our
    marines, their families, and our civilian marines.

                                    MARINES

        This past year demonstrated once again that the most important
    weapon on any battlefield is the individual marine. While the
    employment of precision weapons and advanced technologies provide us
    unique advantages over our adversaries, our key to battlefield success
    remains educated, highly skilled, and motivated marines. During
    Operations Iraqi Freedom and Enduring Freedom, our small-unit leaders'
    skills, adaptability, and flexibility produced victory on fluid,
    uncertain and chaotic battlefields. The Marine Corps will continue to
    recruit, train, and retain the type of individuals who brought us
    success in these and many other operations. Consequently, in the coming
    years some of our most important readiness efforts will revolve around
    individual marines and their families. This will be a challenge,
    especially in times of war, when we call upon our marines and their
    families to make significant sacrifices. We must, therefore, pursue our
    major quality of life priorities--pay and compensation, health care,
    bachelor and family housing, infrastructure and installation
    management, and community services--that contribute to maintaining the
    stability of the force, enhance personal readiness and family cohesion,
    and promote retention.

    Personnel Tempo (PERSTEMPO)
        As of February 27, 2004, the Marine Corps had 1,994 active
    component and 2,111 Reserve component marines who have exceeded the 400
    out of the preceding 730 days DEPTEMPO threshold. Currently, there are
    42,721 active component and 17,099 Reserve component marines who have
    accrued at least 1 day of DEPTEMPO. Prior to September 2001, the Marine
    Corps maintained a 2.7:1 unit-level rotation ratio. As a result of the
    current operational demands associated with the global war on
    terrorism, Marine Corps units are rotating at a higher rate. The
    increase in rotation rates will result in an increase in DEPTEMPO. The
    degree to which the increase in unit-level rotation will affect
    retention depends on the duration of the increased level of DEPTEMPO.
    To date, we have no evidence that the increase in DEPTEMPO has
    adversely affected retention.

    Recruiting
        Successful recruiting is essential to replenishing the force and
    maintaining a high state of readiness. Sustaining our ranks with the
    highest quality young men and women is the mission of the Marine Corps
    Recruiting Command. Recruiting Command has accomplished this mission
    for more than 8 years for enlisted recruiting and 13 years for officer
    recruiting. This past year the Marine Corps recruited over 100 percent
    of its goal with over 97 percent Tier I high school graduates. The
    Marine Corps Reserve achieved its fiscal year 2003 recruiting goals
    with the accession of 6,174 non-prior service marines and 2,663 prior
    service marines. This year, as force structures are developed to pursue
    the global war on terrorism, your support is essential in arming our
    recruiters with the resources they need to ensure the readiness of your
    Marine Corps.

    Retention
        Retaining our best and brightest marines is key to readiness.
    Retention success is partly a consequence of the investment we make in
    supporting our operational forces--giving our marines what they need to
    do their jobs in the field, as well as the funds required to educate
    and train these phenomenal young men and women. Our First Term
    Alignment Plan (first tour) has achieved its reenlistment requirements
    for the past 9 years. With just over one-third of the current fiscal
    year completed, we have achieved 76 percent of our first-term retention
    goal for the year. Furthermore, our Subsequent Term Alignment Plan
    (second tour and beyond) reveals that we have already retained 47
    percent of our goal for this fiscal year. Officer retention is at a 19-
    year high, continuing a 4-year trend of increasing retention. Despite
    increased retention overall, certain Military Occupational Specialties
    continue to suffer perennially high attrition, examples include
    Aviation Electronics Technicians, Electronic Maintenance Technicians,
    and Public Affairs. We are attempting to overcome this challenge by
    offering continuation pay for those marines with Military Occupational
    Specialties that are in short supply. Military compensation to all
    marines that is competitive with the private sector provides the
    flexibility required to meet the challenge of maintaining stability in
    manpower.

    Marine Corps Reserve
        Our Reserve marines are a vital and critical element of our total
    force. The training, leadership, and quality of life of our Reserve
    component remain significant Marine Corps priorities. In 2003, the
    Marine Corps Reserve rapidly mobilized combat ready marines to augment
    the active component. Marine Corps Reserve activations in support of
    Operation Iraqi Freedom began in January 2003, and peaked at 21,316
    Reserve marines on active duty in May 2003. Of the approximately 6,000
    reservists currently on active duty, over 1,300 Individual Mobilization
    Augmentees, Individual Ready Reserves, and retirees fill critical joint
    and internal billets. As of March 1, 2004, we had 5,398 marines
    mobilized; 4,114 in Selected Marine Corps Reserve units and 1,284
    individual augmentees, and we have an additional 7,500 marines that
    will be mobilized for our Operation Iraqi Freedom II requirements.
    Judicious employment of Reserve marines remains a top priority of the
    Marine Corps to ensure the Marine Corps Reserve maintains the
    capability to augment and reinforce the active component. Our Reserve
    units and individuals are combat ready and have rapidly integrated into
    Active Forces commands demonstrating the effectiveness of the Marine
    Corps total force.
        Marine Corps Reserve units maintain high levels of pre-mobilization
    readiness. Reserve Units consistently train to a high readiness
    standard. Ninety-eight percent of Selected Marine Corps Reserve (SMCR)
    marines called up for duty reported for mobilization and less than 1
    percent requested a deferment, delay, or exemption. The Marine Corps
    Reserve executed a rapid and efficient mobilization with units
    averaging 6 days from notification to being deployment-ready, and 32
    days after receiving a deployment order they arrived in theater.
        Similar to the active component, the challenge for the Reserve
    component is managing the high demand/low density specialties such as
    civil affairs, KC-130, military police, and intelligence. To date, 96
    percent of the civil affairs, 989 percent of the KC-130, 72 percent of
    law enforcement, and 69 percent of the intelligence marines have been
    activated as compared to 50 percent of Reserve infantry marines.
    Building on the important lessons of the last year, the Marine Corps is
    pursuing several transformational initiatives to enhance the Reserves'
    capabilities as an even more ready and able partner with our active
    component. These pending initiatives include: increasing the number of
    military police units in the Reserve component; establishing a Reserve
    Intelligence Support Battalion that includes placing Reserve Marine
    Intelligence Detachments at the Joint Reserve Intelligence Centers;
    returning some of our civil affairs structure to the active component
    to provide enhanced planning capabilities to the operational and
    service headquarters; and introducing an improved Individual Augmentee
    Management Program to meet the growing joint and internal requirements.

    End Strength
        The Marine Corps is assimilating last year's congressionally
    authorized increase in Marine Corps end strength to 175,000. The
    increase of 2,400 marines authorized by Congress addressed an urgent
    need to train and maintain enough marines for the long-term
    requirements associated with the global war on terrorism. It has been
    particularly important in enabling us to provide the Nation with the
    4th Marine Expeditionary Brigade (Antiterrorism), a robust, scalable
    force specifically dedicated to antiterrorism.
        As the Marine Corps is expeditionary by nature, we are accustomed
    to deploying in support of contingency and forward presence missions.
    We are structured in such a way as to satisfy our enduring requirements
    and meet operational contingencies as long as the contingencies are
    temporary in nature. We do not believe, at the present time, that an
    end strength increase is necessary.

    Quality of Life (QOL)
        As an expeditionary force, the Marine Corps conducts frequent and
    sometimes lengthy deployments, and our senior leadership is focused on
    understanding and mitigating the effects of these deployments on
    recruitment, readiness, retention, and family life. For example, in
    recognition of the importance of the transition home for both marines
    and their families, the Marine Corps developed a standardized return
    and reunion program in coordination with Marine Corps Community
    Services (MCCS) personnel, health professionals, and chaplains. The
    program was implemented in March 2003, and was specifically designed to
    ease the assimilation of service members back into family life
    following long periods of separation, as well as provide information on
    the additional support programs offered in support of deploying service
    members and their families. The program consists of a mandatory warrior
    transition brief for the returning marine, a return and reunion
    guidebook for marines and family members, a caregiver brief, and briefs
    designed for spouses.
        The Marine Corps will continue to look at our unique demographics
    (e.g., the youth of the force, number of children/ spouses, number of
    single parents, number of relocations/forward deployed marines) in a
    holistic manner and adjust QOL programs to provide the counseling and
    support needed before, during, and after deployments. The primary focus
    must be on prevention so that intervention requirements are decreased.
    The Marine Corps continues to monitor the attitudes and concerns of
    marines and family members relative to their QOL as we provide support
    during the global war on terrorism. We remain committed to improving
    the standard of living in the Corps and ensuring that the ``QOL
    benefit'' is clearly articulated to our marines and families.

                                    TRAINING

        Superior training has always been a hallmark of your Marine Corps.
    Our training with the resources you provide enables us to maintain the
    high state of readiness demanded of your Nation's expeditionary force
    in readiness. In terms of operational deployments, 2003 was the busiest
    year since 1991. Consequently, most service exercises were cancelled
    and participation in exercises throughout the world was reduced, with
    the exception of the Pacific region. In that area, marines embarked
    onboard the U.S.S. Fort McHenry (LSD 43) participated in the
    Cooperation Afloat Readiness and Training (LF CARAT) exercise sponsored
    by the Commander, U.S. Pacific Command, engaging in a series of
    bilateral training exercises in the Southeast Asian littoral region. At
    home, the Marine Corps resumed service exercises as forces began to
    deploy for training within the continental United States. Combined Arms
    Exercises (CAX) at Twentynine Palms, California; Mountain Warfare
    Training Center (MWTC) courses in Bridgeport, California; Weapons and
    Tactics Instructor (WTI) courses in Yuma, Arizona; and MEU special
    operations capable (SOC) workups began in earnest to prepare recently
    redeployed forces for scheduled or emergent deployments. These
    exercises also served to evaluate individual and unit proficiency, and
    ultimately to maintain the readiness and operational primacy of Marine
    Air-Ground Task Forces across the spectrum of operations.

    Operation Iraqi Freedom II Pre-deployment Training
        While we endeavor to keep a keen edge on our warfighting skills,
    the mission before us in Iraq requires an emphasis on Security and
    Stability Operations (SASO). We have adjusted our training to meet this
    challenge. In preparation for Operation Iraqi Freedom II, I Marine
    Expeditionary Force has analyzed lessons learned from their experiences
    in conducting security and stability operations from March to September
    2003, and from recent Army lessons learned. As they did last year, I
    Marine Expeditionary Force is working closely with the Army forces in
    Iraq. They have conducted a number of liaison visits with the Army
    units they will soon relieve. They have drawn lessons from the tactics
    of the British in Iraq, which reflects many years of experience in low
    intensity conflicts and peacekeeping operations; procedures used by the
    Los Angeles Police Department for neighborhood patrolling in gang
    dominated areas; as well as study of the Marine Corps' own extensive
    ``small wars'' experience. Our deploying units have applied these
    lessons through a comprehensive training package that includes tactics,
    techniques, procedures for stability and counter-insurgency operations.
    We have conducted rigorous urban operations training and exercises.
    Over 400 marines are receiving Arabic language immersion training, and
    all deploying marines and sailors are receiving extensive cultural
    education. Our supporting establishment is focused on the equipment,
    logistics, and training requirements of this force--paying particular
    attention to individual protective equipment, enhanced vehicle and
    aircraft hardening, and aviation survivability equipment and
    procedures. Marine aviation elements have worked closely with Army
    aviation and their recent Iraq experience. This exchange facilitated an
    advanced aviation tactics exercise focused on mitigating the threats in
    the current operating environment to tactical aviation. This type of
    training and support is critical as we send marines back to war in a
    volatile, dangerous, and changing situation.

    Training at Eglin Air Force Base
        Training at Eglin Air Force Base (AFB) is envisioned to provide a
    near term pre-deployment training capability for East Coast Navy
    Amphibious Ready Groups/Expeditionary Strike Groups and Marine
    Expeditionary Units (Special Operations Capable), with the potential to
    be part of the long-term solution. The training concept was designed
    for up to two 10-day training periods per year. The long-term objective
    is that during each 10-day period, the Expeditionary Strike Groups will
    be able to conduct training across the full spectrum of operational
    requirements. The Marine Corps has invested approximately $4.2 million
    in environmental assessment/mitigation and infrastructure development
    required to establish an initial training capability at Eglin AFB.
        In December 2003, the Marine Corps completed its first 10-day
    training period at Eglin AFB. The Marine Corps is assessing the quality
    of the training available at Eglin AFB to determine whether training
    there merits the expenditure of additional effort and resources.
    Meanwhile, we continue to explore and develop other options, both
    within the United States and abroad. While Eglin AFB has the potential
    to meet Naval Expeditionary Force training requirements, full
    development of this capability on a major range and test facility base
    will require a significant investment by the Department of the Navy and
    Department of Defense to upgrade existing facilities, as well as
    changes to existing regulations governing test facilities.

    Range Modernization
        Rigorous, realistic training is crucial to combat readiness. We are
    building a comprehensive plan to sustain, upgrade, and modernize our
    ranges and training areas. Virtual and simulated training scenarios and
    technology are increasingly important and add great value to the
    complete training program for marines. However, live-fire combined arms
    training and maneuver forms the core of our combat training programs.
    The program to modernize our live-training capabilities will provide
    both operating forces and installations the management tools and
    resources to better plan and execute training and to honor our
    commitments as good stewards of our training lands. The goal of our
    range modernization program is to preserve and enhance the live-fire
    combined arms training capabilities of Marine Air-Ground Task Force
    Training Command, Twentynine Palms and Marine Corps Air Station, Yuma,
    and to preserve the unit-training capabilities of the Nation's two
    premier littoral training areas, Camp Lejeune and Camp Pendleton.

                                EQUIPMENT STATUS

        The Marine Corps objective in setting the force for Operation Iraqi
    Freedom and global commitments is to maintain a high state of
    preparedness. This will take time and resources. Aviation units
    deploying or deployed in support of the global war on terrorism are
    maintaining mission capability rates above 85 percent. The remaining
    units are operating at slightly lower levels due to the aircraft parts
    priority being established for our forward deployed squadrons. Our four
    divisions are currently making steady improvements in equipment
    readiness because of the remarkable maintenance and repair efforts of
    our marines, depot workers, and the support of Congress.
        During Operation Iraqi Freedom, the Marine Corps offloaded two
    Maritime Prepositioning Squadrons (11 ships). Our equipment offloaded
    from Maritime Prepositioning Ships Squadrons 1 and 2 had equipment
    readiness ratings of 98 percent and 99 percent respectively. After
    combat operations much equipment was worn and broken, and the
    assessment of that equipment is ongoing. In 2003, we had approximately
    2,000 marines in Iraq working to inspect, and where feasible, repair
    equipment in order to bring it back up to an operational capability.
    The equipment for back load is operationally capable, i.e., able to
    shoot, move, and communicate. The equipment used to support the
    reconstitution of the Maritime Prepositioning Force losses was pulled
    from assets left behind in the CONUS by deploying units, Norway Air-
    Landed Marine Expeditionary Brigade (NALMEB) assets, and from global
    war Reserve stocks. It will take time to return the Maritime
    Prepositioning Force program to pre-Operation Iraqi Freedom employment
    capability, and the use of Maritime Prepositioning Squadron assets in
    support of Operation Iraqi Freedom II may extend reconstitution. One
    squadron is essentially complete and ready to respond to any
    contingency. Several ships in the other two squadrons had completed
    reconstitution, but those ships have since been used to support the
    Marine forces deploying for Operation Iraqi Freedom II. The current
    schedule has one Maritime Prepositioning Squadron completing its
    scheduled maintenance cycle in April 2005, and the second squadron
    concluding its scheduled maintenance cycle in April 2006. The time it
    will take until we have all three squadrons back up will be a function
    of additional equipment requirements in support of Operation Iraqi
    Freedom II, Corps-wide equipment readiness, and the condition of the
    equipment that returns from Operation Iraqi Freedom II. In any case,
    reconstitution of our forces and Maritime Prepositioning Squadrons will
    be a challenge for at least a couple more years.
        We have used assets from the NALMEB Prepositioning Program in the
    reconstitution of our Maritime Prepositioning Ships Squadrons, and
    expect to tap further into the assets stored there as we progress in
    the overall Maritime Prepositioning Force reconstitution as well as in
    support of Operation Iraqi Freedom II. Norway continues to demonstrate
    its role as a critical and valuable ally to the U.S. through their
    tremendous support regarding use of our geographically prepositioned
    assets in their nation. Specifically, their forces have affected
    several equipment draws, provided local security and in-country
    transportation for those assets, and executed the loading of that
    equipment onto military sealift command (MSC) shipping in support of
    our overall Operation Iraqi Freedom requirements.

    Depot Maintenance
        Returning our operating and Maritime Prepositioning Force equipment
    to full mission capabilities is one of our highest priorities, and that
    priority is reflected in the fiscal year 2004 supplemental requests for
    depot maintenance funding. However, we have constrained our request for
    equipment throughput at our two Marine Corps depots in order to
    preclude a significant investment in new facilities or production line
    tooling.
        The single greatest constraint on the ability of the Marine Corps
    to execute depot maintenance funds in the near term (1-2 years) is
    asset availability. Asset availability describes the ability to
    initiate the maintenance process by designating a particular asset as
    available for induction and the transportation of that asset to a depot
    maintenance activity.
        Marine Corps ground equipment assets are found in one of two
    primary locations' with the operating forces, or in a preposition
    location (afloat or ashore). The current operational tempo and our
    requirement to rapidly reconstitute the Maritime Prepositioning Force
    make the scheduling of assets for depot maintenance problematic. The
    Marine Corps chose to strike a balance between the need to have a
    Maritime Prepositioning Ship and its associated equipment available to
    the combatant commander and the need to conduct depot level
    maintenance. This balance is reflected in the planning of Maritime
    Prepositioning Ship Maintenance Cycle (MMC) 8. MMC 8 began in early
    2004. It is a 36-month cycle that will systematically rotate the fleet
    of Maritime Prepositioning Ships through the Blount Island facility to
    accomplish the necessary maintenance activities (including depot
    maintenance), which may have been deferred.
        We will continue to evaluate options to accelerate our depot
    maintenance throughput in order to return mission essential equipment
    to the operating forces as expeditiously as possible.

                                 INFRASTRUCTURE

        Marine Corps bases, facilities, training areas, ranges,
    laboratories, buildings, and Navy hospitals provide the essential
    framework for ensuring our force readiness at home and overseas. Marine
    Corps infrastructure consists of 15 major bases and stations in the
    United States and Japan. We continue to implement programs that
    maintain and improve our infrastructure while using only those
    resources that are absolutely necessary to accomplishing our goals. The
    Marine Corps' Long-range Infrastructure Vision, Installations 2020
    (I2020), provides a roadmap for the future of this critical support
    element of our warfighting capability. One of the subjects that I2020
    deals with is encroachment control.

    Encroachment Control
        The Marine Corps strives to be a good steward of the resources
    entrusted to it. We are grateful to Congress for providing a tool to
    manage incompatible developments in close proximity of military-use
    lands. Monitoring, evaluating, and responding to encroachment is
    critical to ensuring bases and ranges are available to support mission
    readiness now and into the future. Many Marine Corps installations were
    constructed 60 or more years ago in then-rural areas. Some of these
    areas are now urban in nature due to regional development. The result
    is encroachment and readiness challenges for the Marine Corps. We are
    working with Federal, state, and local governments, to provide ``win-
    win'' solutions to encroachment pressures to ensure compatible land use
    which will not degrade mission readiness. Several potential partnership
    acquisitions are in the conceptual phase at four installations: Marine
    Corps Base Camp Lejeune, Marine Corps Air Station Beaufort, Marine
    Corps Mountain Warfare Training Center Bridgeport, and Marine Corps
    Base Camp Pendleton. Marine Corps Base Camp Lejeune, Marine Corps Air
    Station Beaufort, and Marine Corps Base Camp Pendleton have established
    conservation forums as a framework to address military requirements,
    and to collaborate with Federal, state, local, and private entities in
    the region to achieve mutual goals and objectives in compatible land
    use plans. Other installations are also considering the need to
    establish conservation forums, such as Marine Corps Base Hawaii, Marine
    Corps Air station Yuma, Marine Corps Air Ground Task Force Training
    Center Twentynine Palms, and Marine Corps Base Quantico. In addition,
    an encroachment mitigation plan will be developed to monitor and
    contain internal and external development threats to Blount Island's
    long-term mission capability. These initiatives provide the opportunity
    to develop a long-term vision for our installations for maintaining
    training readiness.
        Urban encroachment and environmental issues impact our ability to
    maintain an acceptable level of access to valuable training areas, and
    test ranges. Access restrictions have affected testing and the training
    of our forces, sacrificing rigor and realism. This trend has stabilized
    as a result of the previous 2 years' legislative efforts. The Marine
    Corps supports the Resource Conservation and Recovery Act and the
    Comprehensive Environmental Response, Compensation, and Liability Act
    provisions that seek to codify prevailing regulatory policies and
    practices of EPA and the states regarding munitions on operational
    ranges; and protect us from negative judicial decisions that could
    drastically undermine readiness.

    Blount Island Facility
        The Marine Corps will complete the acquisition of the Blount Island
    facility in Jacksonville, Florida, in 2004. Upon ownership transfer to
    the Marine Corps, Blount Island Command becomes responsible for the
    stewardship of the land, buildings, and environment. To ensure a smooth
    transition, efforts are in progress to establish facility management
    processes for base operating support and services, capital
    improvements, facilities sustainment and restoration, and antiterrorism
    force protection.
        The acquisition of the Blount Island facility in Jacksonville,
    Florida, is critical to our Nation and to our Corps' warfighting
    capabilities. Blount Island's peacetime mission is to support the
    Maritime Prepositioning Force. Its wartime capability to support
    massive logistics sustainment from the continental United States gives
    it strategic significance. The Blount Island facility has a vital role
    in the National Military Strategy as the site for maintenance
    operations of the Maritime Prepositioning Force. The Marine Corps
    thanks Congress for your role in supporting this acquisition project.

                                     SAFETY

        Safety programs are vital to force protection and operational
    readiness. Marine leaders understand the importance of leadership,
    persistence, and accountability in the effort to reduce mishaps and
    accidents. The fiscal year 2003 off duty and operational mishap rates
    were driven upward by the mishaps that occurred during and post
    Operation Iraqi Freedom, while the aviation mishap rate decreased. To
    meet the Secretary of Defense's challenge to all Services to reduce
    mishaps by 50 percent in 2 years, the Marine Corps is focusing on
    initiatives that deal particularly with the development of strategies
    and specific interventions to preclude mishaps. The Marine Corps is an
    active participant of the Defense Safety Oversight Committee. Our
    leadership at every level understands the challenge, and we are
    actively involved in the effort to safeguard our most precious assets--
    marines and sailors.

                    OPERATIONAL READINESS OUTLOOK--NEAR TERM

        We are preparing our marines and equipment for continued operations
    in Iraq. We are hardening about 3,000 vehicles, including both large
    vehicles and the smaller high-mobility multipurpose wheeled vehicles
    (HMMWVs), against small arms, fragmentation, and improvised explosive
    devices. We have enough body armor for every single marine, not only in
    Iraq, but also in Afghanistan, to have sufficient protection. Working
    with the Army, we are developing technical means to detect and defeat
    improvised explosive devices. In our operation Iraqi Freedom II pre-
    deployment training, we have sent our maneuver battalions through an
    extensive 1-week course in southern California. All of our aircrew went
    through a 2-week course in Yuma, Arizona, geared toward tactics and
    survivability in the current operating environment in Iraq, including
    convoy escort and manportable (MANPAD) surface-to-air missile
    countermeasures and avoidance training. Each of our aircraft deploying
    for Operation Iraqi Freedom are undergoing modification to install the
    most modern aircraft survivability equipment (ASE) to mitigate their
    susceptibility to the MANPAD threat. All deploying combat support and
    combat service support marines have completed an extensive combat
    training course, ensuring that we adhere to our fundamental tenet,
    ``Every marine a rifleman.''
        Your marines deploying for operation Iraqi Freedom II will deploy
    in two rotations of 7 months each. This rotation policy will result in
    the least disruption to the long-term health of the Marine Corps. We
    believe that this rotation policy is our best course to minimize stop-
    loss/stop-move orders, interruptions in recruit training, ensure career
    progression and development, professional military education, and to
    allow flexible force applications for other deployment requirements.
    The first force rotation, from March until September 2004, will be
    composed of approximately 25,000 combat-equipped marines, including
    almost 3,000 Reserve component marines. A second force rotation, from
    September 2004 to March 2005, of like size and composition, will
    overlap the first and ensure a smooth and stable transition.
        Our single greatest concern as we look beyond Operation Iraqi
    Freedom II is setting the force for subsequent training and operations.
    When we refer to setting the force, we are addressing our ongoing
    efforts to maintain the combat readiness of your Marine Corps. In our
    preparation for current global operations, OPTEMPO, PERSTEMPO, and the
    maintenance, repair, or replacement of equipment are our focus; but as
    we set the force, we also have modernization and transformation in
    mind.

                        MODERNIZATION AND TRANSFORMATION

        Achieving our vision for the future of the Marine Corps while
    maintaining near-term readiness will require the upgrade and
    modernization of current systems until they can be replaced, while we
    carry out key modernization and transformational programs. Our top
    acquisition priorities, such as the MV-22 Osprey, the KC-130J, the
    Expeditionary Fighting Vehicle, the Short Take Off Vertical Landing
    Joint Strike Fighter, the Lightweight 155mm Howitzer, the High Mobility
    Artillery Rocket System, and the CH-53X and UH-1Y/AH-1Z are the
    cornerstone of the Marine Corps future capabilities. Initiatives like
    the family of Navy and Marine Corps Mine Countermeasures systems,
    concepts such as Tactical Air Integration, Logistics Modernization and
    Command and Control, and improvements in Intelligence and Information
    Operations are equally essential to our transformation effort, and we
    are exploring technology and processes that facilitate our
    transformation.
        Most important of all to our future readiness are our Sea Power 21
    initiatives in partnership with the Navy. We hold a deep and abiding
    conviction that Sea Basing initiatives hold the greatest promise for
    transforming your Marine Corps-Navy team into a more ready, flexible,
    and responsive force--able to project sustainable power across the full
    spectrum of operational capabilities anywhere in the world. More than
    just an alternative to current capabilities, operations conducted from
    a sea base may well become the preferred method for national crisis
    response in the 21st century. Naval forces will be strategically and
    operationally agile, projecting power from a fully networked sea base
    while operating within the security derived from the Navy's command of
    the sea. Sea Basing will provide national decisionmakers with
    unprecedented versatility, because naval forces can exploit the freedom
    of the high seas as maneuver space, relatively unconstrained by
    political, geographic, or diplomatic restrictions. Navy and Marine
    Corps warfighting capabilities, thoroughly integrated across all sea-
    based systems and assets, will provide our Nation and regional
    combatant commanders the combat ready forces necessary to fight and win
    in the conflicts of the 21st century.
        Several new ship classes are coming on line within the next few
    years that are important to the readiness of the Navy and Marine Corps
    team. The operational capability and flexibility of the naval
    expeditionary fleet will be significantly enhanced with the fiscal year
    2005 delivery of U.S.S. San Antonio, the first of 12 new landing
    assault ships with advanced characteristics for amphibious warships.
    LHA(R) concept designs are being evaluated within the context of Joint
    Sea Basing and power projection. This ship will be the centerpiece of
    the Expeditionary Strike Group, a contributor to the Expeditionary
    Strike Force, and will carry expeditionary warfare through the middle
    of this century. LHA(R) will greatly enhance command and control
    capabilities and at sea training for embarked forces. The resulting
    design is planned to provide a transformational capability that is
    interoperable with future amphibious and Maritime Preposition Force
    ships, high-speed vessels, and advanced rotorcraft like the MV-22 and
    CH-53X, and the Joint Strike Fighter. The Littoral Combat Ship will be
    a networked, agile, mission focused, stealthy surface combatant with
    capabilities optimized for responsiveness to threats in the littorals.
        This year, the Marine Corps continues to refine plans for the
    Marine Expeditionary Brigade of 2015, in concert with our concept for
    sea-based operations. Similarly, the analysis of alternatives for our
    Maritime Prepositioning Force (Future), a critical component of Sea
    Basing, will provide valid choices for achieving Sea Basing
    capabilities. These initiatives will complement, rather than replace,
    the amphibious lift and forcible entry capacity of the LHA(R), LPD-17,
    and LHD, and will provide the Nation a deployment and employment
    capability unmatched in the modern world.

                                   CONCLUSION

        In conclusion, I would like to again thank the members of the
    committee for their continuing support of the Marine Corps, and for the
    opportunity to discuss our readiness issues. The young men and women of
    your Corps are doing an exceptional job in Operations Enduring Freedom
    and Iraqi Freedom. Their accomplishments are a direct reflection of
    your continued support and commitment to maintaining our Nation's
    expeditionary warfighting capability. We go forward with confidence
    because marines have the best training and equipment in the world,
    thanks to the support of this committee, and the Nation we proudly
    serve.

        Senator Ensign [presiding]. Thank you, General. I
    apologize, earlier, for mispronouncing your name. I think I
    said Holy; I meant Huly. People mispronounce mine all the time,
    by the way.
        We're going to start, if the committee doesn't mind,
    Senator McCain has a very limited time frame, so I'm going to
    start the questioning with Senator McCain, and we'll have a
    round of questioning based on the early-bird rule, other than
    that, we'll have rounds of 6-minute questioning.
        Senator McCain. Thank you very much, Mr. Chairman.
        General Moseley, you testified before the House Armed
    Services Committee, and I quote from your statement--you said,
    ``The options of contracting is not operationally viable. The
    option of re-engining old 707s gives us a re-engined 50-year-
    old Eisenhower-era tanker, not viable, from my perspective. Or
    the ability to go look at something out there that is outside
    the boundaries of a 767 airplane, so it''--it goes on to say--
    ``it takes a 767-class airplane.''
        General, are you aware of the DOD guidance issued on
    February 24, 2004, concerning the analysis of alternatives?
        General Moseley. Senator, thank you for the question. Yes,
    I am aware of that.
        Senator McCain. Are you aware of what the options are, as
    described in that----
        General Moseley. Yes, Senator----
        Senator McCain.--direction? You are.
        General Moseley.--I'm fully aware of that.
        Senator McCain. It's totally, then, in contradiction to
    your statement before the House Armed Services Committee,
    because it says ``options.'' It lists the options, ``retain,
    re-engine, and make required modifications to convert remaining
    KC-135Es to KC-135Rs, retire remaining KC-135Es, purchase a
    commercial derivative aircraft.'' It goes on and lists those
    aircraft, ``purchase military derivative aircraft, minimum
    consider C-130J and C-17''--in other words, the Secretary of
    Defense has ordered an analysis of alternatives to examine a
    number of options, which you preclude in your statement before
    the House Armed Services Committee.
        General Moseley. Sir, could I address that for you?
        Senator McCain. Yes.
        General Moseley. Sir, I understand the analysis of
    alternatives, and I understand and fully support the decision
    by Secretary Wolfowitz. I was asked my personal opinion in the
    testimony, and responded as the commander of OEF and OIF, that,
    as we look through this, the operational feasible nature of a
    767-class airplane will play out, in my opinion. But the
    analysis of alternatives will be the deciding factor in that.
        Senator McCain. General, I read your statement here.
    There's no request for your personal opinion. This request was,
    ``That's the last question, I thank you folks for''--et cetera,
    et cetera. He didn't ask for your personal opinion, General.
    You volunteered it.
        General Moseley. Sir, I took that as a request for my
    personal opinion, as we were talking about operational
    necessities of the new tanker.
        Senator McCain. I've been on this committee for 18 years,
    General, and I've never heard of someone volunteering their
    personal opinion. You come over here representing the
    administration, unless your personal opinion is asked for. Your
    personal opinion was not asked for in that hearing.
        But, more importantly, you state that the maintenance is
    low, and that you're having more difficulty--let's see--you
    state in your statement here before the committee--here's where
    it is--before this committee, that, ``36 percent of the KC-135
    fleet was not available, including those in depot and those
    unit-possessed, but not mission-capable.'' That's according to
    your statement to this committee. The B-1 has a higher--a lower
    availability rate than the KC-135, as does the B-2?
        General Moseley. Yes, sir, I do know that. But the----
        Senator McCain. Do you know, also, that--go ahead. Please
    respond.
        General Moseley. But the KC-135 fleet is a key enabler for
    everything that we do with global strike and global mobility.
    Senator, we have to have the tankers to be able to provide
    support for the Navy, for the Marines, and for global strike
    and mobility in any of these theaters.
        Senator McCain. Yet the availability is less than the B-1
    and B-2 bomber. Also, the information that we received from the
    United States Air Force--and I'd be glad to give you that--
    it's, ``Headquarters U.S. Air Force Integrity, Fiscal Year
    2003--quick look, aircraft performance trend''--according to
    this, the availability rates are up from 2002 to 2003. Now,
    maybe they've gone down between 2003/2004, but the availability
    went up from the year 2003. Yet you state that the mission-
    capable rates continue trending downward.
        General Moseley. Sir, they still don't meet air-mobility
    commands' established----
        Senator McCain. But the rates are not downward; they're
    upward.
        General Moseley. Sir, we still could not deploy the KC-
    135E----
        Senator McCain. General, are the trends downward or upward?
        General Moseley. Sir, they are still not leading air-
    mobility commands' standard----
        Senator McCain. I'd like an answer to the question,
    General. Are the trends downward or upward, as far as
    availability is concerned?
        General Moseley. I would like to provide for the record
    each fiscal year in each of the----
        [The information referred to follows:]

        Aircraft Mission Capable (MC) rates are defined as the percentage
    of a fleet that is unit possessed (not depot possessed) and capable of
    performing at least one assigned mission. The aircraft availability
    rate is the percentage of a fleet's Total Active Inventory (TAI) (unit
    and depot possessed) that is MC.
        The KC-135 fleet MC rates are trending downward and decreased by
    10.8 percent between 1991 and 2004. In fiscal year 2002, KC-135 MC
    rates were 79.6; in fiscal year 2003, MC rates were 78.9; to date in
    fiscal year 2004 MC rates are 76.9. The prime drivers leading to
    decreased MC rates for KC-135s include scheduled inspections and fuels
    systems repairs.
        Both the B-1 and B-2 have shown improving MC rates. In fiscal year
    2003, the B-1's 70.7 MC rate was the fleet's best MC rate ever
    achieved. The B-2's MC rate of 43.9 was also its best MC rate recorded.
    The improvements for both bomber fleets are primarily a result of
    improved spares funding since fiscal year 1999.
        Although the B-1 and B-2 MC rates are the ``best ever'' they are
    lower than the KC-135 rates for a number of reasons. The KC-135 fleet
    is a military derivative of the commercial Boeing 707; a relatively
    simple design without the sophisticated combat systems of the B-1 or B-
    2 aircraft. On the other hand, the B-1 and B-2 are military-specific
    integrated combat weapon systems, employing an array of highly
    sophisticated and often cutting-edge technologies. These additional
    systems must all be functioning properly for the aircraft to be
    considered MC. Therefore, there are more systems on the B-1 and B-2
    aircraft (fire control radar, weapons delivery, low observables) that
    can cause a lower availability rate than on the KC-135.
        The long-term availability rates for KC-135 have trended downward
    and decreased by 9.4 percent between 1991 and 2004. However, in the
    short term, the KC-135 availability rate improved from a low of 33.6 in
    fiscal year 2001 to 62.9 in fiscal year 2004, primarily as a result of
    depot process improvements leading to fewer depot possessed aircraft.
    Both the B-1 and B-2 availability rates are also trending upward with
    fiscal year 2004 availability rates of 57 and 33.7 respectively. The
    bomber improvements are primarily a result of increasing MC rates.

        Senator McCain. Sir, I have that information right here----
        General Moseley. Sir, I----
        Senator McCain.--presented by the United States Air Force,
    which is in contradiction to your statement.
        General Moseley. Sir, I'm not familiar with what you have
    there, but I would be happy to look at it.
        Senator McCain. I'm getting very weary of the United States
    Air Force coming over here, giving us doctored information,
    making statements, which are contradicted by their own data,
    and particularly comments that you made. You weren't asked for
    your personal opinion before the House Armed Services Committee
    about it, ``the 767 being the only option.'' You're supposed to
    be representing the Department of Defense, the United States
    Air Force. You are not doing that in your statement. Certainly
    your statement before the House Armed Services Committee is in
    direct contradiction to the direction given by the Under
    Secretary of Defense.
        I don't have any more questions, Mr. Chairman.
        I'm getting very weary of it, General. A lot of us are.
    You're harming the credibility of the United States Air Force
    rather dramatically, in my eyes, and that of and members of the
    committee and the American people.
        Thank you, Mr. Chairman.
        Senator Ensign. Care to respond?
        General Moseley. No.
        Senator Ensign. Senator Akaka.
        Senator Akaka. Thank you very much, Mr. Chairman.
        I want to raise an issue to all of you that I believe will
    pose a continuing challenge to readiness, and get your thoughts
    on the best ways to address it. Each of your budgets includes
    significant increases to pay for growth in contract costs
    beyond normal inflation. At the same time, DOD continues to set
    policies and issue guidance that suggests increased reliance on
    contractor support as you seek to return service members to
    jobs more closely aligned with their military specialities.
    While I am completely empathetic with that goal, my concern is
    that we will find ourselves in a situation where we are forced
    to pay higher and higher contract costs to keep the military
    functioning, and that these must-pay bills will crowd out our
    funding for training, spare parts, and possibly investment in
    transformation accounts.
        My question to all of you on this issue is--and on this
    problem--what do you see as possible alternatives to help
    mitigate contract-cost growth?
        General Casey.
        General Casey. A tough question there, Senator. As you
    acknowledge, the trend is toward contractors, and we have
    already talked, in the chairman's opening statement, about
    military-to-civilian conversions, and to moving more toward
    that to free up our military members to do military tasks. In
    all candor, Senator, I need to think on that one a little bit
    and get back to you with an answer.
        Senator Akaka. That's fine.
        [The information referred to follows:]

        To a significant extent, base support contract cost growth is
    inevitable so long as our missions and commitments continue to grow,
    while the number of military personnel available to perform base
    support missions continues to shrink because of greater training and
    deployment requirements. If we increase the scope of most any contract,
    we must expect to pay for the increase. Performance of base support
    services by military and government civilian personnel is in many cases
    more affordable, or at least more predictable, because the costs and
    resources necessary to pay for such services are determined by law, and
    grow relatively slowly. Costs for acquisition of contractor support, on
    the other hand, are primarily driven by competition, or, rather, in
    many cases, the lack of competition. For a variety of reasons, military
    base support work is oftentimes not as attractive as it might be to the
    broadest spectrum of contractors, which might compete for our work and
    thereby yield lower costs. We will therefore continue our efforts to
    make this aspect of government business more appealing to our
    contractor community.
        We can and will continue our efforts to promote competition through
    encouraging broader small business participation in services
    contracting. We must make use of the most successful contract types
    such as performance-based contracts that better distribute risk between
    the government and the contractor, and reward efficient and effective
    performance. When appropriate, using fixed price contracts also reduces
    cost growth over the term of the contract. We might pay a little more
    initially depending on the competitive marketplace, but we will know in
    the fixed price environment what we are obligated to pay for a
    specified product or service, and can better plan and budget for those
    costs. These solutions only work when the required goods and services
    can be described and specified in enough detail and with enough
    certainty that contractors can compete and where they can determine
    that assumption of all cost risks is acceptable.
        Imperative in this business is the need to change to what works.
    Evolving from the days of the low bid contracts to the best value, from
    time and materials to fixed price, and from cost plus to payment for
    performance must happen on an accelerated pace such that we can
    maximize our purchasing power.
        In addition, we must change our working relationship with our
    contractors. The new OMB Circular A-76 fundamentally changed the
    process for comparing government versus contractor performance. When
    fully implemented, it should better restrain cost growth by, among
    other things applying Federal Acquisition Regulation-type procedures to
    government as well as private competitors. By leveling this playing
    field, we hop to attract more private competitors to these
    procurements.

        General Casey. Good question.
        Senator Akaka. Any other?
        Admiral Mullen. Senator Akaka, there are lots of different
    kinds of contractors.
        Senator Akaka. Yes.
        Admiral Mullen. Are you speaking of contractors with whom
    we are engaged, in terms of purchasing equipment, our weapons
    systems, or other kinds of contractor support?
        Senator Akaka. Yes, these would be contracting such as on
    base supports.
        Admiral Mullen. I, like my compatriot here, would like to
    get back to you with a more detailed answer.
        [The information referred to follows:]

        Traditionally, many service contracts such as base support
    contracts were cost reimbursable. Since the major cost driver of these
    contracts was labor, and labor rates generally increase from year to
    year, the costs associated with performance also increased. As a
    result, it was necessary to budget additional dollars for the same
    services. As a consequence, the contractor would continue to perform
    the services in the same way, from year to year, often in accordance
    with Government specifications, and with no improvements in efficiency.
        Based on recent legislation, the Departments of Defense and Navy
    have established clear guidance mandating the use of performance based
    service contracting and the training of those who originate
    requirements for contracts to develop the necessary performance work
    statements. In performance based contracts, the Government requirement
    is laid out not as a specification, but as a statement of desired
    outcomes. Based on the desired outcomes, clearly defined metrics are
    used to determine whether or not the contractor is achieving the
    desired level of service. The metrics are in turn tied to contract
    incentives: the service contractor earns more when desired outcomes are
    achieved, less when they are not. Incentives can also be tied to
    efficiencies and contract price reductions. For example, in a
    competitive environment, a solicitation could require a 5-percent price
    reduction during each year of the contract. Or, a solicitation might
    request the contractor to propose price reduction targets as a factor
    for consideration during source selection. Following award, contractor
    compensation is tied to achievement of price reduction goals.
        In particular, Commander, Naval Installations is aggressively
    implementing performance based service contraction including the use of
    contractor incentives as an important tool to ensure that service
    contract costs do not squeeze out spending for training, spare parts,
    and investment.

        Admiral Mullen. But I will say that one of the--I mentioned
    in my opening statement, we have, in particular, in base
    support, and, I think we've put in place, this last year,
    starting 1 October, the Commander of Navy Installations. That
    is meant to be an enterprise-wide effort to much more clearly
    understand the cost of doing business, including those who are
    contracted to do whatever they might do on bases, or wherever.
        From a headquarters perspective, we are challenged with the
    tools, or the lack of financial tools, in order to track that
    very carefully. We're challenged, in terms of being able to see
    it across the enterprise. So it's really through this standup,
    in particular, in that area, that we've taken that on. In fact,
    in this budget, in 2005, we've actually reduced some of the
    dollars that we would normally allot to that requirement, as a
    risk mitigator, with the challenge, internally to the Navy, to
    go out and make sure we generate those savings in contracts to
    which you refer. So there's a considered effort to make that
    happen. It's not just in base support--we're doing that across
    the enterprise--but in particular in area that Commander of
    Navy Installations has that charge.
        Senator Akaka. Thank you.
        General Moseley.
        General Moseley. Senator Akaka, I would only add that the
    other piece of this, for us, is we attempt to return
    warfighters to warfighting billets. There are some
    opportunities to reach out into the contracting world in some
    of our base support and some of our home-station base support.
    We are looking at that. We share the concern that you have
    about under--stressing the cost of this, as well as being able
    to surge that piece of the workforce, may be a bit of a
    challenge.
        Please let us get back to you with a more detailed
    breakdown of the total force and where that lies.
        [The information referred to follows:]

        In response to the National Defense Authorization Act for Fiscal
    Year 2002 (PL 107-107 Section 801) the Air Force instituted the
    Management and Oversight of Acquisition of Services Process to increase
    leadership's awareness of issues with services contracts to a level
    similar to that we have in place to oversee major weapons systems
    acquisitions. The process implements two major initiatives. The first
    deals with how we acquire required services and mandates that requiring
    activities and acquisition officials ensure services requirements are
    performance based, contain incentives to ensure potential contractors
    maximize effectiveness and efficiency, and set forth metrics against
    which performance will be tracked. The second initiative requires all
    services contracts with a total planned value in excess of the
    simplified acquisition threshold ($100,000) to be reviewed annually by
    a designated official. The intent is to ensure leadership, at the
    appropriate level, is aware of any issues such as cost growth, schedule
    slips, or problems with performance, and appropriate action is
    addressed. By delegation from the Assistant Secretary of the Air Force
    for Acquisition, the Air Force Program Executive Officer for Combat and
    Mission Support is responsible for this oversight for any services
    acquisition in excess of $100 million and is the Air Force-designated
    official to ensure all commands have an effective management and
    oversight process in place.
        We are also working diligently to ensure we fully identify the
    requirements and cost baselines and understand the impact that outside
    influences, such as Department of Labor Wage Determinations and
    Collective Bargaining Agreements, have on services contracts cost
    growth. As the Air Force continues to identify positions that have
    military personnel performing commercially available functions, we will
    maximize the use of competition to ensure we acquire the most
    economically advantageous business arrangements to assume those duties.

        General Moseley. But we are trying to use some of that as
    tools to return warfighting uniformed members into those
    stressed Air Force Specialty Codes (AFSCs) out there in the
    expeditionary Air Force.
        Senator Akaka. General Huly.
        General Huly. Senator Akaka, a great question. As a matter
    of fact, the Commandant had a good sit-down with us about 2
    weeks ago, and we addressed this very issue.
        To us, in the Marine Corps, it's a matter of, how many
    marines can we return to the foxhole? That's what it's all
    about. We have had some great successes already, in some of the
    areas--in contracting, in returning marines to the foxhole, and
    to be able to improve their training and their commitment to
    the job that they came in the Marine Corps to actually perform,
    while simultaneously improving the service that they were in
    before. A good example are our mess halls. For instance, we
    have contracted the preparation and serving of meals. In some
    instances, we're getting a lot better nourishment out of that.
    So there's a great deal for improvement there, and we're
    starting to realize some of it.
        Not all of our contracting has proven to work out in the
    long run, and we are taking a good, hard look at all of that,
    just to see where it does make sense. We're trying to limit the
    number of marines on active duty that we have. We want to hold
    our current strength, because the largest expense that we have
    is our manpower costs.
        Senator Akaka. The reason I asked that question was, at a
    hearing that we had with the combatant commanders, General
    Abizaid and General Jones, it was mentioned that about $800
    million had already been spent on contracting, and that
    surprised me, to hear that amount. So that's the reason for my
    question.
        Mr. Chairman, thank you.
        Senator Ensign. Thank you.
        I'm going to allow Senator Inhofe to go, and then I'll take
    my turn in the next round of questions.
        Senator Inhofe. Mr. Chairman, I appreciate that very much.
        Let me, real quickly, just cover four things. General Huly,
    it's very rare that I would ever criticize the Marines. You're
    optimistic. You're upbeat. But I want to caution you about--
    when you're talking about, ``Yes, we do have this superior
    manpower, but we don't always have superior equipment''--and I
    think you said that a couple of times in your opening
    statement--I would suggest to you that the Paladin is something
    that you have used in the Marines, as well as the Army, and
    it's an artillery piece that is--there are five countries,
    including South Africa, that make a better one than--in terms
    of rapid fire and all the characteristics you look for in
    artillery. So I'd always be a little bit cautious, because
    there are people, none of whom are in this room right now, but
    those members who really don't believe that we need to continue
    modernization, use statements that, ``We already have the very
    best of everything,'' in opposition to modernization programs.
    I thought I'd just mention that.
        General Moseley, I had mentioned something when we had the
    chiefs in, I think last week or the week before, in defense of
    Tinker Air Force Base, because it had been alleged by several
    individuals, but primarily Senator McCain, that when two
    staffers went out there, that things were--that they doctored
    up some of the exhibits that were used, and all that. I would
    suggest in that--in fact, they're both here in the room with us
    right now--in defense of Tinker, it could very well have been--
    and I think we all understand this--that they were talking
    about Tinker's experience. When you talk about the corrosion
    incidence in bulkhead fittings, yeah, it's 5 percent. But
    that's Tinker. While the overall is 11.5 percent. But if you
    skip on down to fuselage, if they intentionally let point
    number five off to try to deceive somebody, they would not have
    left it off of the fuselage, because, in that case, the
    occurrence rate is 22 percent, as opposed to 18 percent
    service-wide. I just wanted to make that comment, that I
    thought that they were acting appropriately out there.
        For General Huly and Admiral Mullen, you know that we
    fought and lost the battle of Vieques. We tried to keep it
    open. We tried to keep that integrated training open. It's the
    only place where we could do the things that had to be done. I
    spent 2\1/2\ years of my life on that, and I don't like to
    lose, but I did lose on that one.
        I'd like to know, in terms of readiness--that is what this
    hearing's all about, hearing from each of you--have we
    adequately replaced the live-fire capability that we enjoyed in
    the integrated training that we enjoyed on the Island of
    Vieques?
        Admiral Mullen, why don't you start?
        Admiral Mullen. Yes, sir, Senator.
        I'd say that we've adequately replaced it at this point.
    When we--or, to answer that question, when we moved out of
    there, Admiral Natter headed up a recommendation to the CNO and
    the Secretary, but particularly to the CNO, in his training
    hat, as a way ahead in what we call the ``training resource
    track,'' to move forward. That was an investment over several
    years to figure out, with the loss of that capability, how we
    were going to train in the future. We're not--we're clearly not
    there yet. We're moving in that----
        Senator Inhofe. Well, I think what you're saying is, if we
    change our method of training, that perhaps we can go into
    other alternatives and maybe do the same thing at three or four
    different sites that we used to do at one site. My feeling has
    always been that the one site is better, in terms of the
    readiness for the troops.
        Do you have any comments on that, General Huly?
        General Huly. Yes, sir. One site provides us the
    opportunity to practice our combined arms--surface fires,
    artillery and mortars, dropping aircraft ordnance, and, if
    possible, naval gunfire support. We lost that when we lost
    Vieques. We're attempting to replace that at Eglin Air Force
    Base. We have conducted one training exercise there so far. We
    have to work with the United States Air Force. That's an Air
    Force range, and it's an experimental or a test range right
    now, and that's different than a training range. We're working
    through that cultural difference. It also has some significant
    costs that have been associated with it to get us on that range
    to be able to use----
        Senator Inhofe. Yeah, and also there are a lot of airspace
    problems that you have. You're going through civilian airspace,
    so you have requirements that you would not have had elsewhere.
        I remember so well, Admiral Mullen, that, in talking to
    some of your sailors and some of the aviators, that you can
    have the very best quarterback, and the very best end, and the
    very best center, and the very best running back, all this, but
    if they've never played together, you lose the game. That was
    my feeling, and their analogy, or metaphor, that they used to
    try to explain that we are having a problem.
        General Casey, something I've been active in, I like the
    idea that--General Jones, I think, has been the one kind of
    heading this up--about looking at the problems we're having in
    training in Western Europe, about the idea that we have some
    40,000 families that are very, very expensive. All of the costs
    that go with that make it very difficult. Perhaps a better idea
    might be, instead of having 2- or 3-year deployments would be
    to have 2- or 3-month deployments, go out to Eastern Europe. I
    just came back from Romania, Bulgaria, Ukraine, places where
    they really want us. They don't have the environmental
    encroachment problems there. It just makes sense to me. It's a
    lot cheaper way of doing it. Do you have any comments about
    that?
        General Casey. We'd agree, Senator. I actually commanded
    the 1st Armored Division over in Germany, and had the
    opportunity to go to some of those countries and look at the
    training areas. We are actively working with General Jones to
    look at training areas and develop some rotational plans to put
    units in there for both presence and training.
        Senator Inhofe. Well, I appreciate that very much.
        Thank you, Mr. Chairman, for letting me go. My time is
    expired.
        Senator Ensign. Thank you.
        I want to ask just a couple of quick questions here. Not
    necessarily quick, but as far as the answers are concerned. We
    know that we are resetting, reconstituting, right now, our
    forces coming back from both of the operations, and there's a
    lot involved--we all know that there's a lot involved in that.
    We're seeing some of the costs in this year's budget.
        One of the questions that I had in regard to that is, first
    of all, just making sure that you all feel comfortable, and
    adequate in what you're doing, and that you have adequate
    funding; but the other is that--how the funding should be
    allocated. In other words, we passed a $67 billion
    supplemental, just the military part, last year. It would seem
    to me that if we're trying to reflect--we have a ``peacetime''
    budget and a wartime budget--it would seem to me that the part
    of reconstituting is wartime, and that the costs should be
    reflected in that and, if it isn't--in other words, if 100
    percent of that is reflected, I'd like to hear from that--but
    if it isn't, I think that that's something you all should
    consider, into the future for next year's supplemental that you
    send us up here, so we truly reflect the cost of the war versus
    a peacetime budget, because if it's a war, then it's a one--
    maybe a 1- or 2- or 3-year expenditure, or whatever it's going
    to be; if it's something else, then it's building into the
    baseline costs and budget for the military. Part of it, I
    understand, is that it's been built up--or some of it is--
    because you all are trying to get to the level that you should
    have been; and, in years past, that had been--it had been too
    low in the budget to be able to refit a lot on the maintenance,
    on a lot of the equipment, was not where you wanted it to be,
    and so you're kind of using this time to bring things up to
    where you want to be, not to where it was before. So instead of
    being where we were a few years ago, you want to be at the
    level that you all feel that you need to be. So if I could just
    have each one of you address that----
        General Casey. Okay. As you mentioned, Senator, we are
    working on the fiscal year 2004 base President's budget and
    then supplemental. Right now, we believe that with that funding
    we can accomplish what we need to accomplish in fiscal year
    2004. However, some of the costs of resetting the force that
    redeployed, and will redeploy in 2004, will obviously continue
    off into 2005 and will become part of our 2005 supplemental
    budget.
        As I mentioned in my opening statement, the President's
    budget covers our base plan, recapitalization, training
    programs; it does not cover the war-related costs of
    Afghanistan and Iraq, or the recovery costs, as you point out.
    Those will be captured and will be rolled up in the 2005
    supplemental as we develop these costs.
        Senator Ensign. Just to further clarify, did your
    reconstituting part, at least throughout this year, though, get
    covered in the supplemental from last year?
        General Casey. We were about----
        Senator Ensign. Or are you going to be----
        General Casey. Right. About $1.2 billion of what we
    requested did not get funded, but we are executing--we are
    funded for everything we can execute, in terms of depot-level
    maintenance, in the 2004 supplemental, so those costs will roll
    over into 2005.
        Senator Ensign. Okay.
        Admiral.
        Admiral Mullen. Sir, when I testified over on the Hill last
    fall--and I think this is true for all the Services--one of the
    issues we addressed was the setting of the force, or the
    resetting of the force, after the war. The Navy was fortunate,
    in that throughout most of the end of last year, of 2003, we
    were bringing our ships home, and we were doing that with the
    thought of getting them reset as quickly as possible. The
    target was mid-2004, and we're still basically on track.
    Between the money that we had in 2003 and the supplementals
    that we had there, the money that we have in the baseline
    budget, plus the supplemental money that we received in 2004,
    we're able to keep that target. I mentioned, in my opening
    statement, we've also implemented this Fleet Response Plan,
    which makes a much more ready force over a longer period of
    time. So forces that come back, for instance, don't stand down
    like they used right away.
        One of the baselines that the Navy has to work on is--
    Admiral Clark, since he's been CNO, in his first couple of
    years here, he put $7 billion straight into readiness accounts,
    and so that filled up magazines, spare-part bins, allowed us to
    do depot and maintenance both on ships and aviation that really
    brought us to a very high level that allowed us to perform as
    the country called in both Afghanistan and Iraq.
        So we clearly are--there are some shortfalls that we see.
    There's about a half-a-billion-dollar shortfall in
    transportation costs, moving the marines to Iraq for this
    unanticipated pulse, if you will. So we're working with DOD
    right now to see how that will be resolved. But right now we're
    in pretty good shape, and we're on target for resetting, as we
    had said before.
        Senator Ensign. Okay.
        General Moseley.
        General Moseley. Mr. Chairman, I would say as we execute
    2004, the funding that OSD provided was based on being able to
    execute in this period, and we're okay with that. We can
    execute what we have. We will have some shortfalls, and we're
    mitigating that and working that, as you would expect us to,
    either in the supplemental or in the resubmission, and we're
    working those with OSD.
        For 2005, I will tell you that we are able to stabilize
    some of our contingency operations for the 2005 submission.
    Basically, Operation Noble Eagle, since that has manifested
    itself over time with the number of locations and the number of
    aircraft, that ONE is much easier for us to predict than
    operations in Afghanistan or Iraq. So we've made a step forward
    in the contingency tasking to stabilize Operation Noble Eagle,
    and then we'll go forward with the rest of the contingency
    business.
        Senator Ensign. General Huly.
        General Huly. Thank you, sir.
        We've had some unforeseen commitments. In addition to OIF-1
    this year, we have prepared for OIF-2 and some of the other
    contingencies that we're currently facing, as well as OEF, that
    we weren't originally planning for. I can tell you that right
    now we're about $800 million shy, unfunded, of what we think
    our commitments--our requirements are going to be this year. As
    you would expect, we have shifted money around. The long-term
    impact of that on our accounts is, it's going to come out of
    our modernization efforts.
        Senator Ensign. Okay.
        Senator Nelson.
        Senator Ben Nelson. Thank you, Mr. Chairman.
        General Casey, I've been concerned about the rotation of
    the troops and the reliance on the National Guard and Reserve
    units, particularly in theater. We know this past January
    marked the 30th anniversary of the all-volunteer force. We
    know, from our own experience now, that we've never before, in
    the history of this nation, relied so heavily on our Guard and
    Reserve units for missions around the world. It's a great
    challenge that the Army National Guard has overcome since the
    days of the Gulf War, when, then, three Army Guard brigades,
    intended to supplement the active-duty, were deemed unfit for
    combat. Much has changed since then.
        I understand that, by summer, National Guard and Reserve
    troops will represent nearly 40 percent of the 105,000
    projected U.S. military men and women to be in Iraq. It's an
    amazing accomplishment, and the leadership and men and women
    all need to take great pride in where they are today.
        But, General Casey, in your opinion and that of your
    commanders, do you believe that these National Guard and
    Reserve troops know exactly what they're going to be up
    against? Are they prepared for the commitment that they are
    about to make, or, in some cases, are currently making?
        General Casey. Senator, short answer is, yes, I do believe
    they have been extremely well prepared, well equipped, and well
    trained.
        You mentioned the levels of the Guard and Reserve will
    approach 40 percent of the force in theater. That is correct.
    When this rotation of OIF-2, which is ongoing right now, when
    those reservists and guardsmen get over there, we will have
    mobilized about 50 percent of the Guard and Reserve since
    September 11. We could not have done what we're doing without
    them.
        Senator Ben Nelson. As part of the transformation, we're
    seeking to rely on the Guard and Reserve units with different
    skill sets in the future so that we would be less likely to
    have to over-rely on them as we, I think, by our own admission,
    have had to in this theater. Is that accurate?
        General Casey. Absolutely. I mentioned, in my opening
    statement----
        Senator Ben Nelson. Right.
        General Casey.--about what we're doing to balance about
    100,000 spaces across the Army, between the Guard and Reserve
    and the Active Force, to put low-density, high-demand
    capabilities into the Active Force so that we will not keep
    going to the well here and calling up our Guard and Reserve
    soldiers for specialized skills.
        Senator Ben Nelson. Well, because of the differences
    between active-duty troops and Guard and Reserve units, whereas
    the Guard and Reserve units leave their families behind, as do
    the active-duty troops, but they also leave their employers on
    hold, their careers on hold, their education, in some case, all
    these things that are left on hold put them in a very difficult
    situation, because I think, in fact, 41 percent face pay
    reductions while activated, versus what they would be if they
    were at home. Based on this, I'm concerned about being able to
    sustain--even with transformation and changing the reliance--
    about the long-term impact on our Guard and Reserve units. I'm
    getting to my question now.
        The Army National Guard recruiting is funded at only 83
    percent of the requirement. Apparently the Army cut the Army
    National Guard recruiting budget by $18 million. The National
    Guard says that that budget request doesn't adequately fund
    recruiting to achieve its accession goals, and the Army
    Reserves' budget was cut by $13.7 million. Are you concerned
    that these cuts, these underfunding circumstances, will
    negatively affect our ability to recruit Guard and Reserve
    units in the future?
        General Casey. Senator, they will obviously impact on that.
    I will tell you that right now the Guard is retaining at a rate
    of about 130 percent of what they expected they would. The
    Reserve is well above 90 percent, in terms of attaining their
    fiscal year 2004 goals.
        That said, we are concerned, and we're watching this very
    carefully through the spring here as the units return. We think
    we have the right incentives in place, and we'll watch this
    carefully. If we need more money to help them out, we'll make
    sure that they get it.
        Senator Ben Nelson. Will we take it from the Air Force? I
    suspect General Moseley won't like that.
        I'm a little concerned about how we're going to balance out
    2004 and 2005--even before we look at a supplement that's
    already been projected and predicted for this budgeting cycle.
    It won't be part of this budget, because it never is; but it'll
    be part of this budgeting cycle. Are we robbing Peter to pay
    Paul? Are we robbing Peter to pay Peter? It's a loaded
    question; you don't have to answer that. I just----[Laughter.]
        General Casey. Thank you.
        Senator Ben Nelson. I'm only trying to make point, not put
    you on the spot, that we have to be certain that as we fully
    fund the requirements of the combined units--Guard, Reserve,
    and active duty units--that we not do something that will put
    us in arrears in our goals to have a full-capacity Guard and
    Reserve set of units with the right skill sets to do the job in
    the future.
        General Casey. I think, you may know, we have a very
    aggressive program working closely with the Guard and with the
    Reserve to reshape themselves to the modular configurations
    that the active Army is going to. We feel very positive about
    that, and I would be happy to come up and talk you through the
    details of that at your convenience.
        Senator Ben Nelson. I appreciate that, General. You've
    always been very cooperative and very open and frank, and I
    appreciate your response. Perhaps as this goes along, we might
    want to sit down and talk about--make sure that we're not
    making, in short-term considerations, long-term implications
    that aren't good. Thank you.
        Thank you, Mr. Chairman.
        Senator Ensign. Senator Cornyn.
        Senator Cornyn. Thank you, Mr. Chairman. Gentlemen, thank
    you very much for being here.
        I also--I want to take up on Senator Nelson's line of
    questioning, with maybe a little bit different twist, and talk
    about the impact of budgets on readiness, on deferred
    acquisitions and deferred maintenance, and ask you to comment
    on what seems to me to be a true proposition, but I'd be
    interested in your comments. That is, a significant amount of
    what the Department of Defense budget today is seeking to do is
    to make up for lack of funding that the military--that the
    Department of Defense received in the 1990s. I know there have
    been various proposals over time to phase out, one I'm familiar
    with, two Army light divisions back in the middle of 1995, on
    top of some significant budget cuts through the Department of
    Defense.
        But my question really relates to more recent events, and
    that is, a number of us are concerned, of course, with the
    deficit, but we also realize we're a nation at war. I want to
    make sure, and I think ultimately this Senate will make sure,
    that the commander in chief's budget request for the Defense
    Department is met, but we are having difficulty addressing that
    this week as we debate the budget resolution.
        Can you just comment, perhaps starting with General Casey
    and then coming down the line, about if you do not receive--if
    the Department of Defense does not receive what the President
    has requested, in terms of funding for the Department of
    Defense, what that means, in terms of your readiness, the need
    to defer acquisitions, or possibly even defer maintenance?
        General Casey, could you address that first, please?
        General Casey. Yes, Senator, thank you very much.
        As I mentioned in my opening statement, we have over
    300,000 soldiers deployed worldwide, about 165,000 of those on
    unaccompanied short tours, primarily in a CENTCOM area of
    responsibility (AOR). So we are--our readiness challenges
    really are resetting the folks that come back, preparing the
    next rotation to go--and that is about 45 percent done--and
    then going on with our continued recapitalization plans to
    ensure that we deal with readiness for the future, as well as
    just the present. We have laid that out fairly precisely. It's
    not fully funded in all of the areas. So if we don't meet the
    President's budget, I think our ability to continue to provide
    trained and ready forces to combatant commanders for these
    ongoing missions can't help but be affected.
        Senator Cornyn. I might just supplement my question for
    Admiral Mullen, and that is that I know that the proposed
    budget resolution calls for, or projects, a $30 billion
    supplement request, that, obviously, is not built into the
    baseline, or intended to be, but just for current operations in
    Iraq and Afghanistan. Does a projected supplemental request
    address your needs, or is that better met, more appropriately
    met, in your view, by your annual budget request?
        Admiral Mullen. Senator, as far as we're able to anticipate
    the 2005 needs, and that--both the size of it and the etches of
    it are important unknowns at this point. But, from my point of
    view, this administration has treated us exceptionally well
    with respect to the supplemental requirements that come on top,
    the unanticipated needs. In the case of the Navy, there is an
    awful lot of deployment capability that resides within the
    normal budget. So I talked--the impact of a reduction, even
    this year, in accounts like the readiness accounts. We took an
    awful lot of risk in setting up our readiness accounts this
    year. We really are trying to put a lot of pressure on
    ourselves to more efficiently execute those accounts and
    understand them better, and that's been a real priority for
    Admiral Clark. We now have this new surge construct. I talked
    about the Fleet Response Plan, which gets us--and we're pretty
    close to there, to six available shortly, with two follow-on
    carrier battle groups, carrier striking groups. If we took a
    big whack out of those accounts, we could go to four-two or
    two-zero very quickly, in terms of available resource,
    available combat resources, to meet the needs. What that means
    from an operational commander's standpoint is, that while we
    are focused heavily in Iraq and in that part of the world right
    now, that there are other parts of the world where the
    President could choose options that would include those
    resources that we might very well be short of, based on the
    kind of decrement that was laid on us if what you postulate is
    possible occurred.
        Senator Cornyn. General Moseley, would you care to comment?
        General Moseley. Yes, Senator Cornyn. Let me agree with my
    two colleagues, and add a bit of an Air Force perspective to
    that.
        At the peak of Operation Iraqi Freedom, we had eight
    equivalents of our ten air expeditionary forces deployed. We
    now have three deployed. We've come down from eight to three.
    But our steady-state requirement, or our steady-state desire,
    is for two. So we are still stressing the system while we're
    trying to reconstitute and recapitalize.
        We're working the challenges of resetting the people, which
    gets us to the training, that gets us to the munitions, the
    training munitions; it also gets us to the notion of refitting
    the vehicles, things such as fuel bladders, tents, our
    expeditionary combat support, et cetera. We are still in the
    business of reconstituting. Some of that, I mentioned in my
    opening statement, will even take us out to 2007. So any
    serious degradation in the budget that allows us to
    reconstitute and recapitalize would have impacts on us.
        Senator Cornyn. General Huly.
        General Huly. Yes, sir. The Marine Corps has an active
    component of about 175,000 active-duty marines. Today, about
    50,000 of them are forward-deployed, and that includes about
    5,000 reservists, give or take a couple of hundred, one way or
    the other. Our annual budget, peacetime, is about $16 billion.
    We have not compiled all the costs for OIF and where we are
    with Iraqi Freedom-2 right now, but probably somewhere in the
    neighborhood of about $2.5 billion is what that will cost us
    per year. That does not include such unforeseen contingencies
    as Haiti or other events like that.
        The importance of that supplement is that it will pay for
    that $2.5 billion additional price tag that we weren't
    expecting. If we didn't get that, which is the crux of your
    question, what would that effect? It would affect our
    procurement of the replacements for the aging aircraft, the
    weapons systems, the communications that we need to continue to
    invest in to keep ourselves modern on the battlefield, the
    training and the quality-of-life initiatives. We would be just
    barely--we would be making our investment in the operations and
    maintenance to sustain that.
        Senator Cornyn. Mr. Chairman, if you'll permit me a
    concluding question, let me just ask General Casey to comment
    on this. Last year, Congress passed an $87 billion supplemental
    which included funds for force-protection items like up-armored
    high-mobility multipurpose wheeled vehicles (HMMWVs) and
    advanced body armor. Can you give this subcommittee an idea of
    what this funding has meant, in terms of the safety of our
    troops, in terms of providing the resources that our troops
    have needed in order to accomplish the objectives that the
    commander in chief has asked of you?
        General Casey. Senator, I can. It has enabled us to
    significantly increase the protection for our soldiers
    throughout the theater, Afghanistan and Iraq.
        Senator Cornyn. Is it true that that came in the nature of
    improved-armor HMMWVs and body-armor protection, things as
    basic as that?
        General Casey. Absolutely, Senator. In fact, I think it's
    been reported here in the hearings over the last week or so,
    that there is sufficient body armor, with the special
    protection plates, in the theater now to equip every soldier.
    There's some distribution to Afghanistan to fill out about a
    thousand, but everybody in Iraq has the body armor with the
    small arms protective inserts (SAPI) plates in it, and every
    soldier crossing the border in this new rotation will cross the
    border wearing the SAPI plates, the complete outfit.
        With respect to the up-armored HMMWVs, we started off, last
    November, with the requirement of about 35- or 3,600. The
    requirement's up to 4,100 now. We have over 2,100 hard HMMWVs
    in theater. We're also, with the money that you provided,
    actively pursuing armored kits. Our intent is to provide
    armored kits for 8,400 HMMWVs, and we expect to have those kits
    available by August.
        Senator Cornyn. Finally, is it fair to conclude if the
    Congress had not stepped up and funded this $87 billion
    supplemental, that it would have meant, or resulted in,
    increased casualties on the battlefield as a result of the
    failure to provide those up-armored HMMWVs and body armor?
        General Casey. Either that, Senator, or we would have had
    to gut the Army budget to find the money to do this. We're
    committed to making sure our soldiers have the right equipment,
    one way or the other.
        Senator Cornyn. Thank you, Mr. Chairman.
        General Casey. Thank you.
        Senator Cornyn. Thank you, sir.
        Senator Ensign. Senator Pryor.
        Senator Pryor. Thank you, Mr. Chairman. I want to thank all
    of you all for being here, and join my colleagues in telling
    you how much we appreciate your service.
        General Casey, let me ask you a couple of questions about
    this budget. First, with regard to fiscal year 2004, Secretary
    Brownlee testified last week that he had a commitment from the
    Office of the Secretary of Defense (OSD) that they will provide
    additional funds to the Army to get them through the remainder
    of the fiscal year. Are you aware of that commitment?
        General Casey. I saw the tape of the hearing, but we have
    the same commitment from the people we work with.
        Senator Pryor. Okay. How much money do you expect the Army
    will need? What is your understanding of where that money will
    come from?
        General Casey. Senator, we're going through our mid-year
    review cycle starting next month, and so I'll have a much
    better feel for how much that we'll require here to get through
    2004. So I can get back with you when we're doing that and give
    you a better idea of what it is.
        Senator Pryor. Yeah, I wish you would.
        [The information referred to follows:]

        As part of the mid-year review process, we are looking at our
    execution and our requirements for the remainder of the year. We will
    conduct our internal Army review over the next 6 weeks in preparation
    for our review with the Office of the Secretary of Defense (OSD). When
    we complete our review, we will know what we need for the remainder of
    the year, and OSD has committed to addressing our needs during their
    review. I do not know the source of additional funds, but I understand
    OSD has some assets left in the Iraq Freedom Fund.

        Senator Pryor. Do you have a preliminary number, or just a
    ballpark?
        General Casey. I don't right now. No, Senator.
        Senator Pryor. Second, for the next fiscal year, 2005, by
    my calculations the Army's current budget request is for $26
    billion in O&M. If the spending continues next year at the rate
    you've been going in recent years, I think the Army will run
    out of O&M dollars within 6 months, in about March. In your
    judgement--and, first, am I correct in that assumption? Second,
    in your judgement, how long can the Army wait for a
    supplemental before you either start having to increase the
    price tag on the supplemental or you have to cut into other
    programs in a harmful way?
        General Casey. Senator, I'm tracking about $30 billion to
    $32.5 billion in O&M for 2005. But the gist of your question
    is--we think we can cash-flow the first two quarters of 2005 in
    the O&M, and probably run out of money around the end of March.
    That's what we're projecting.
        Senator Pryor. Okay. Do you--and I'm assuming it's way too
    early for this, but do you have any sense of what your
    supplemental request might be?
        I mean, it sounds like, if I understand what all of you all
    are saying, is that you're coming in with this budget, but you
    all anticipate the probability that you'll have a supplemental
    request. Am I correct in that?
        General Casey. We know we will have a supplemental request.
        Senator Pryor. I guess what I'm trying to get a handle on
    is just a general sense of how large you think those
    supplemental requests will be for your various Services. Do you
    have any sense of that, or is it just too early to know?
        General Casey. Sir, I don't, other than going back and
    looking at last year, or going back and adding up the monthly
    burn rates. Those are the best projections that we have right
    now.
        Senator Pryor. I assume there are some variables right now
    you just don't know. But it is fair to say that you all
    anticipate needing a supplemental. Is everybody in agreement
    with that?
        Admiral Mullen. Yes, sir.
        General Moseley. Yes, sir.
        General Huly. Yes, sir.
        Senator Pryor. Let's see. Again, General Casey, not to keep
    you in the hot-seat, but Arkansas, of course, has the National
    Guard unit, 39th Infantry Brigade, that's about to head that
    direction. In fact, I've been down to Fort Polk and Fort Hood
    to see them do their training. I cannot tell you how many
    family members have contacted our office, in one way or
    another, about personal body armor. So I'm glad to hear you say
    that they all will have it as they cross into the theater. But
    I must tell you that Secretary Brownlee, back in November of
    last year, testified before the committee that they would
    receive it by December 31, and that didn't happen. Then I went
    down to Fort Hood, Texas, to see the Guard troops down there,
    and they were assured, at that time, that they would receive it
    at Fort Hood, and that didn't happen. But are you telling me
    and telling the subcommittee today that you are confident, a
    hundred-percent sure, that they will all receive their body
    armor by the time they actually go into Iraq?
        General Casey. Senator, you can tell those families that
    I'm a hundred-percent sure that they will all receive their
    body armor before they go into Iraq.
        Senator Pryor. Great. That's good news. We've been assuring
    them, because the Army's been giving us the assurance, but
    that's good to know.
        General Casey. So, I've seen e-mail traffic where the
    commander of the brigade sent a note to someone on his forward
    party, who said, ``Is it really there?'' and the note came
    back, said, ``Yeah, it is.''
        Senator Pryor. Good, great. Well, that's good news. I
    believe it is. But, again, I just wanted to ask that for my
    constituents' sake.
        Another thing is, if I can sort of jump tracks here just a
    little bit, we all have the base realignment and closure (BRAC)
    round coming up, and there's something that we're aware of in
    Arkansas, and that's white phosphorous production. I assume all
    of you all, in some capacity, use white phosphorous. It's my
    understanding that the--there's only one place that produces it
    for us, and that's the Pine Bluff Arsenal in my State, and it's
    my understanding that the private sector does not want to
    produce white phosphorous because they don't do enough volume,
    and also there are liability issues. It's very dangerous
    material. My question is, If we do close the Pine Bluff
    Arsenal, do you have any sense of where we might get white
    phosphorous for military uses? General Casey, I'll just ask you
    first. Have you given that any thought, has that hit your radar
    screen yet?
        General Casey. No, sir, it has not, Senator. I wouldn't
    even want to speculate. I'll look at it and see if there's
    other alternatives, but----
        [The information referred to follows:]

        Pine Bluff Arsenal (PBA) is our only source for loading white
    phosphorous into munitions. The PBA buys the white phosphorous from
    commercial manufacturers.
        The Army owned industrial base for producing ammunition is
    inefficiently configured for current and future production
    requirements. Our strategy is to use the joint, comprehensive and
    capability-based fiscal year 2005 Base Realignment and Closure (BRAC
    2005) analysis to define and implement an efficiently-sized Government-
    owned industrial base. In order for the BRAC 2005 analysis to truly be
    comprehensive, Pine Bluff Arsenal and all other Army industrial
    installations are being analyzed. The Office of the Secretary of
    Defense has given us clear guidance not to discuss specific ``what if''
    scenarios.

        Senator Pryor. Would any of you all have any comment on
    that? That's just something that we're certainly aware of in
    Arkansas, because, they do produce it. It's very dangerous
    stuff. Senator Inhofe mentioned, a few moments ago, about some
    of the environmental concerns, encroachments concerns, around
    the facilities, and I can assure you around that arsenal there
    is no concern, even though they produce very dangerous material
    in the Pine Bluff Arsenal.
        If I also, General Casey, I promise you, I don't want to
    just----[Laughter.]
        General Casey. Can I introduce my colleagues? [Laughter.]
        Senator Pryor. I don't want to pick on you, I'm sorry, but
    it just so happens that my first few questions are for you.
        But as I understand the fiscal year 2005 budget, you've
    asked for 108 PAC-3 missiles. The contractor, as I understand
    it, is facilitized for 144 missiles a year. I believe, in years
    past, we've authorized 144 or more per year. If we could find
    the money in this fiscal year, would you be willing to accept
    144, in terms of, is there a need for that many? Or is the
    previous authorization just too high? Do you know?
        General Casey. Senator, the 108 we've asked for will allow
    us to backfill what we've used and give us some hedge for the
    future, so we think that's what we need.
        Senator Pryor. Okay. 108.
        General Casey. 108, yes, sir.
        Senator Pryor. Is 144 too many? Is that excess?
        General Casey. It's more than we need right now, yes, sir.
        Senator Pryor. Okay. It's more than you'll anticipate that
    you'll need, I assume from your answer.
        Mr. Chairman, I have one last question for General Casey,
    if that's okay; there's the line-of-sight anti-tank weapon,
    called LOSAT. I understand LOSAT is something that has a lot of
    promise and has proven effective and it appears to be a weapons
    system that is very good and will be very helpful to our light
    divisions, especially. But I also notice that you're fielding
    only one LOSAT battalion in this budget. My question is why?
    Part of my question is, I know there is an untested, unproven
    technology system called the compact kinetic energy missile
    (CKEM) system that is still, sort of, in process of being
    developed, and I was curious if you're going to kind of do a
    technology leap, so to speak, and maybe try to go for this
    newer technology if it proves doable, or if there's another
    reason why you've only funded one LOSAT battalion.
        General Casey. That system, the one battalion that we're
    fielding, is designed to go to the 82nd Airborne Division to
    improve their anti-tank capability.
        I have to be candid with you, Senator, as we go to this
    concept of modularity that I discussed in my opening statement,
    one-of-a-kind units like that are not necessarily what we're
    looking for. Add to that the Javelins, up in Cincinnati, that
    has come online and really gives the infantry soldier a great
    anti-tank capability. We're actively looking at the LOSAT and
    asking ourselves the questions about whether that is the system
    that we still need.
        Senator Pryor. Is one of the problems with LOSAT is that it
    is not flexible enough? Is that right? It's got a limited
    usefulness for military purposes, and maybe the Javelin and
    other systems have more flexibility?
        General Casey. There are other systems that are available.
    Again, we're trying to get away from funding one-of-a-kind-like
    units, and so that all of our units are more deployable and
    more packageable.
        Senator Pryor. Thank you, Mr. Chairman.
        Senator Ensign. I think what we'll do is maybe have another
    brief round of questions for those who want to stay, but we'll
    try to get the generals out here as quickly as possible.
        I just want to follow up. First of all, I want to thank
    you. In that round of BRAC, we're going to preserve Pine Bluff,
    but I understand some other bases in Arkansas are going to
    close, so I appreciate your offering that. [Laughter.]
        Just joking. But, anyway, what I want to follow up on
    because I think we always have to remind ourselves--and the two
    meetings that I had earlier this week, we talked a little about
    this--we have to constantly remind ourselves that the
    taxpayers' deserve good stewardship. The primary function of
    the Federal Government is the defense of our country. To that
    end, we need to do everything that we can to fund the Services
    in the way that they need to be funded, but I just want to
    constantly remind all of you, when you bring things to us, that
    you have scrubbed it in every possible way that you can scrub
    it. Admiral Mullen, this is just a reminder, because you did
    say you--I remember, earlier in your testimony, where you said
    that there is no fat in readiness. There's fat in everything.
    Okay? The total number may not be fat, but there's fat in every
    kind of program that we have within the Federal Government,
    just like there is in the private sector. We constantly have to
    be looking and challenging ourselves, ``How can we do it
    better, more efficiently, less money?'' Sometimes we need to
    spend more money, but we constantly need the reminder that
    these are the taxpayers' dollars that they worked hard for, and
    we want to do our best with them. That's just a brief
    commentary.
        I do want to follow up just a little bit along the lines of
    the followup--what Senator Cornyn talked about, because there
    were some statements made in the press this last week that we
    sent our military into Iraq without being prepared. Matter of
    fact, the--well, what was the quote here? Yeah, just basically,
    we're not, ``not prepared for the present conflict in Iraq.'' I
    had a little trouble with that statement, considering how
    extraordinarily well our military did. But could each of you--
    if they weren't prepared, and then we don't give them the
    money, the $87 billion and the $67 billion--we found some--
    there's always deficiencies. I mean, no matter what. We go in
    right now--if we go in 10 years from now, we're always going to
    find areas of weakness. I mean, that's part of a military
    conflict, in doing analysis, where were we weaker and where we
    could have been stronger.
        But could each of you address the following. First of all,
    did you feel that the services were doing their utmost, along
    with Congress--whether we were prepared for the conflict in
    Iraq. Could you each provide just a brief comment on that.
        General Casey. Senator, first of all, I believe that we
    were very well prepared in all of the Services. The comment I
    think you're referring to came out of Secretary Brownlee's
    testimony. I reviewed the tape, and you may have the transcript
    there, but that was taken out of context. He was replying to a
    question on the up-armored HMMWVs, and he was talking
    specifically about that aspect of the preparations, not about
    the whole force.
        Senator Ensign. So that comment was taken out of context,
    from the Secretary of the Army.
        General Casey. Yes, sir.
        Senator Ensign. Okay.
        Admiral.
        Admiral Mullen. Mr. Chairman, the Navy was better prepared
    than I have seen it throughout my career. That gets back to the
    readiness investment I talked about, and clearly we were ready,
    and the troops performed consistently with that readiness.
        Senator Ensign. Thank you.
        General Moseley.
        General Moseley. Mr. Chairman, I would have to tell you
    that the Air Force, or all airmen, whether they were Navy,
    Marine, or Air Force, were exceptionally well prepared. The
    United States Air Force, 70 percent of our force is combat-
    experienced. We went into OEF and OIF fully understanding what
    was expected of us. So I believe that that was certainly taken
    out of context, and I would take issue with anyone that
    criticized our magnificent airmen, whether they are sailors or
    marines or U.S. Air Force.
        Senator Ensign. General.
        General Huly. Sir, we fought the Iraqis some 12 years ago.
    We learned our lessons, and we trained. We had sufficient
    indications and warnings that we were going to go into this
    conflict, and I believe we were very well prepared to go do
    that. I think that's evidenced by the fact that we exceeded our
    expectations, accomplished the mission in a shorter period of
    time, with far fewer losses than we even anticipated ourselves.
    That's not to say that we haven't learned some lessons. We're
    applying those lessons that we've learned now; in future
    conflicts we'll even be better prepared.
        Senator Ensign. Thank you. Thank you, all of you, for the
    service that you provide for our country, as well as the men
    and women who are serving out there. I'm going to make one last
    comment, and then I'll turn it over to Senator Akaka for a
    second round.
        I visited Iraq in December. I happened to be fortunate
    enough to be there the day that they captured Saddam Hussein,
    and it was quite an extraordinary experience for this Senator.
    While you're there, what struck me the most was the missions
    that our military men and women were doing that weren't part of
    their normal duties. The extraordinary risks that they were
    taking on their own to try to win the hearts and the minds of
    the Iraqi people. When they're out there amongst the Iraqi
    people, they're taking risks, and when they were painting
    schools and building some of the things on their own, just
    doing little projects on their own, especially up in the Tikrit
    region, which was obviously still one of the more dangerous
    regions, there was risk. If I thought I was proud to be an
    American before I went there, I came away appreciating more
    what our service men and women do than ever before. So I just
    wanted to let you know that anytime I address them, and anytime
    I see somebody in uniform today, or who had served in uniform,
    I want to say thank you to you and to all of them for their
    service.
        Senator Akaka. Mr. Chairman, I have questions here, and
    after hearing the statement you just made, I want to put my
    questions in the record. [Laughter.]
        Also I want to say that his statement is one that makes us
    proud of what's happening there. Our military people are taking
    on jobs that are more diplomatic today, in working with the
    people wherever they are, as he mentioned, and so I want to end
    with what he just said, praising our military forces for what
    they're doing.
        Thank you very much.
        Senator Ensign. Okay.
        Senator Cornyn.
        Senator Cornyn. Well, I know I'm taking some risk asking
    questions after that, but I certainly concur. But I would be
    remiss if I didn't ask you about the Base Realignment and
    Closing Commission. I know the vice chiefs play a key role in
    that process. Of course, the Secretary came out with some
    guidelines in December, and held those up for public comment.
    Of course, we've known for a long time that joint warfighting
    capability is key to our military in this new kind of
    environment that we are in. But, of course, the guidelines were
    pretty bare bones, and I know we'll put some meat on them as
    time goes by. But I'd just like to hear from each of you
    gentlemen, who are the key players in this process. As far as
    you're concerned, what is your definition, or what do you
    believe the appropriate approach to joint warfighting training
    and readiness--what does that mean, from your standpoint?
        Starting with General Casey.
        General Casey. Senator, I've been being told, since I came
    in the Army as a lieutenant, that you have to train the way you
    fight. It's clear to all of us at this table, and our bosses,
    especially after watching what happened in Afghanistan and
    Iraqi Freedom, that we are going to fight jointly when we fight
    in support of this Nation. So we are working initiatives with
    each of the Services here to improve our ability to schedule
    our training together, to ensure that the right pieces of our
    force are supporting Air Force training, and vice versa.
        We are also, as part of this, of the BRAC processes in the
    building, working very closely to ensure that we are leveraging
    all of the joint bases for all of the Services. We are all part
    of the BRAC leadership here in the building, as you mentioned.
        Senator Cornyn. Mike? Admiral Mullen?
        Admiral Mullen. Senator, as we have been going through this
    over many months now, and will for the foreseeable future,
    through the rest of this year, certainly, it is dominantly a
    joint perspective, and that is very significantly a guiding
    principle for us. The criteria to which you referred, I think,
    were the recently-published-for-comment military value
    criteria. As I have immersed myself in this process over the
    last several months, I recognize the responsibilities I have
    this year, there probably is not one that's more significant,
    in terms of making sure it comes out right. I see it, at this
    point, as an extremely fair way to go. I recognize that it is
    challenging for lots of reasons.
        In the end, we want the best military capability, and I
    would say joint-military capability, to be the result of what
    the outcome of this is. I have felt, for many years, that it's
    heroic--it has been heroic on the part of Congress to set this
    Commission up, or this process up. From what I've seen so far,
    it's a very fair process. There's a lot of data. This is going
    to be a data-intense, very well analyzed process, from what I
    can tell so far.
        I also am convinced that we do have some excess capacity
    that we are paying for, between 20 and 25 percent, and that
    that is costing us resources that we could better well-spend on
    the kinds of capabilities that we're talking about today that
    we need for the future.
        Senator Cornyn. General Moseley.
        General Moseley. Senator Cornyn, let me add, to my two
    joint colleagues, that I echo the notion that joint training is
    absolutely required.
        I would also add to that, joint rehearsals are absolutely
    required, which takes you to the notion of having the ranges
    configured properly and having the ability to get on the range
    into layout scenarios, a lot like we did prior to Operation
    Iraqi Freedom in the ranges out in Nevada that Chairman Ensign
    is familiar with. We went out multiple times with the joint
    team and set the conditions out there to rehearse exactly what
    we were looking at relative to specific mission areas. Those
    ranges are very critical, and the ability to do that is
    essential to a commander.
        I would also say the ability to do home-station training,
    the blocking and tackling, prior to being able to go do this
    serious joint training is also a fundamental requirement.
    Whether those are artillery ranges, whether those are rifle
    ranges, whether those are just vehicle operating areas, or for
    the Navy to be able to steam and to sail, that the blocking and
    tackling that leads up to those fundamental joint excursions,
    rehearsals, and training are absolutely essential to us. We
    have to find ways to better set those conditions, and we have
    to find ways to better train.
        Senator Cornyn. General Huly.
        General Huly. Sir, we've just completed the most
    significant operational joint evolution that the Armed Forces
    of the United States have ever gone through. Having said that,
    we were very successful, but there's still room for
    improvement. Those improvements will be made on the training
    fields, and those training fields will not only give us the
    opportunity to train as we fight, as General Casey said, but
    it'll also point out where we need to improve upon the
    development of our joint equipment and our joint processes of
    doctrine and coming up with how we're going--our tactics and
    techniques and procedures of the future.
        We need the opportunity to do that, and that is on the
    bases that are becoming more and more limited. Now, I recognize
    that there is probably some excess capacity out there. We, in
    the Marine Corps, certainly support, ardently support, the BRAC
    process. We don't have anything to contribute at this time to
    that process, but we look, fondly, at how the other Services
    are doing in opportunities that will still be out there for us
    to train with them on their installations, as well as ours.
        Senator Cornyn. Well, in closing, let me just say I want to
    commend each of you. The wide-open spaces of Texas----
    [Laughter.]
        --it's a great place to train, wonderful quality of life
    for our military, and not as many problems as other places,
    with encroachment of populations. With that, I'll stop the
    commercial, Mr. Chairman, turn it back to you.
        Senator Ensign. Second only to Nevada, we appreciate----
    [Laughter.]
        Well, thank each and every one of you for your testimony. I
    know the duties you have keep you very busy, just like ours,
    but these oversight hearings and getting information from you
    so that we can help you do your jobs the best and keep that
    best-prepared, best-trained, best military in the world, I
    think, is a very important part of the process. So thank you
    very much.
        The hearing is concluded.
        [Questions for the record with answers supplied follow:]

                   Questions Submitted by Senator John Ensign

     JUSTIFICATION FOR REAL FUNDING GROWTH INCREASES FOR READINESS PROGRAMS

        1. Senator Ensign. General Casey, Admiral Mullen, General Moseley,
    and General Huly, the President's fiscal year 2005 budget request for
    the operation and maintenance accounts of the Services totals
    approximately $103 billion. This represents more than 5 percent real
    growth in funding for accounts directly related to the near-term
    readiness of the Armed Forces. While there are many that have strong
    opinions about increasing budgets for defense programs, I also know
    that we are receiving reports highlighting potential readiness issues.
    For example, a December 2003 review by the General Accounting Office
    reported their concerns with the condition of more than half of the
    weapons systems that they analyzed. What is your assessment of how the
    fiscal year 2005 budget request will support critical readiness
    programs and enable the men and women of your Services to successfully
    prepare for and accomplish their missions?
        General Casey. We believe that the Army's fiscal year 2005
    President's budget request fully supports the readiness of the Army's
    units to prepare for execution of wartime missions. We are a Nation at
    war. As such, we have adjusted our priorities to allocate funding to
    ensure that our soldiers are well prepared to succeed on the
    battlefield. Based on the funds available to us, we have provided
    financial support to programs in direct support of the soldier. As a
    result, overall real program growth in operations and maintenance, Army
    is over $1 billion--4 percent real growth beyond inflation and other
    pricing adjustments. Much of this growth is in accounts that directly
    support readiness, such as operational tempo, training ranges, training
    support, military exercises, and depot maintenance. In addition, we
    needed to rectify serious under funding of Army installation
    operations, and have begun to do so in this budget. Even so,
    shortcomings in base support persist because of overall budget
    constraints. While very few budget programs are fully financed, we
    believe we have enhanced our critical readiness programs and have
    balanced the risk in support areas such as facilities and base support.

        Admiral Mullen. I am confident that our critical readiness programs
    are properly funded within our fiscal year 2005 budget request,
    delivering the right readiness at the right cost to the taxpayer. The
    fiscal year 2005 Navy budget proposal was crafted through a rigorous
    and analytically-based review with Navy leadership heavily involved.
    This was a complex but important process designed to achieve the
    required high level of operational readiness. We took a more integrated
    review of these accounts to balance our investment in them, taking
    well-considered trade-offs only after reviewing the risks and
    balancing, on the whole, our current readiness needs with future
    readiness investments. The lessons learned from Operation Iraqi Freedom
    (OIF) thus far reaffirm that the capabilities-based investment
    strategy, new warfighting concepts and enabling technologies we are now
    pursuing in our Sea Power 21 vision are on the right course. This
    allows us to support our overall critical readiness programs and ensure
    our naval personnel are properly trained and equipped to carry out
    their assigned missions now and in the future.
        General Moseley. Delivering precise combat power anywhere at
    anytime remains a top priority for the Air Force. To this end, we
    continue to pay close attention and place necessary resources in all
    readiness programs as we transform and retool to meet global threats.
    For example, in the fiscal year 2005 President's budget request, we
    have added resources to keep pace with our aging weapon systems. As a
    result, we've increased depot maintenance, contractor logistic support,
    and field maintenance to allow our forces to remain the most proficient
    in the world.
        General Huly. During fiscal year 2004, the United States is
    responding to a wide range of challenges across the globe, including
    fighting the long-term global war on terrorism, rebuilding Iraq into a
    peaceful, productive member of the world community, and preventing the
    spread of weapons of mass destruction. In this era, the Nation needs
    forces that are highly mobile, flexible, and adaptable.
        These characteristics define the Marine Corps, and they must
    continue to do so in the future. The fiscal year 2005 Operation and
    Maintenance budget supports critical readiness programs within the
    Marine Corps Operating Forces, comprised of three active Marine
    Expeditionary Forces (MEFs). Each MEF consists of a command element,
    one infantry division, one air wing, and one force service support
    group. This budget provides critical training and equipment maintenance
    funds to Marine Corps Force Commanders so they can provide combat ready
    forces to the combatant commanders.
        MEFs provide a highly trained, versatile expeditionary force
    capable of rapid response to global contingencies. The inherent
    flexibility of the MEF organization, combined with Maritime
    Prepositioning Force (MPF) assets, allows for the rapid deployment of
    appropriately sized and equipped forces. These forces possess the
    firepower and mobility needed to achieve success across the full
    operational spectrum in either joint or independent operations.
    Embedded within each MEF is the capability to source a Marine
    Expeditionary Brigade (MEB).
        These funds also support the 4th MEB Antiterrorism (AT), whose
    mission is to detect, deter, defend, and conduct initial incident
    response to combat the threat of worldwide terrorism. The 4th MEB (AT)
    is the only MEB that has permanently dedicated structure. The budget
    also supports the readiness posture of Marine Operating Forces and
    continues the fielding of improved combat equipment and clothing for
    the individual marine, enabling them to successfully prepare for and
    accomplish their mission.

        2. Senator Ensign. General Casey, Admiral Mullen, General Moseley,
    and General Huly, why is this level of funding necessary to sustain the
    readiness of your Services?
        General Casey. Because we are at war, we cannot risk being unready.
    While we rely on supplemental funding to finance the incremental costs
    of combat operations, we owe it to our soldiers and our citizens to
    maintain the tough realistic training, necessary maintenance, and
    adequate support to personnel that a baseline operations and
    maintenance Army budget provides. We believe this budget reflects an
    appropriate balance among many competing demands and should receive
    your full support.
        Admiral Mullen. The funding we are requesting for readiness is the
    result of a lengthy, analytically-based and detailed review of
    integrated requirements, balancing our current readiness needs with our
    future readiness investments. In developing our fiscal year 2005 budget
    request, we started from a common framework that readiness at any cost
    is not the answer. As we built our request, we took an integrated look
    across all of our readiness accounts to find efficiencies and, in some
    cases, took some well-considered risk to balance current readiness
    needs with our future readiness investments. These efforts will not
    affect our ability to meet our assigned missions. Since these readiness
    accounts are at the appropriate levels; however, any reduction to these
    accounts would lower our readiness below requirements. In the end, I am
    confident that our fiscal year 2005 budget request delivers the Nation
    the right readiness at the right cost to our taxpayers.
        General Moseley. Air Force warfighting capabilities depend on solid
    training and a sustainable battle rhythm. While we've increased funding
    in our flying operations areas, costs are rising to maintain our aging
    systems (i.e., KC-135 engine struts, F-15 horizontal material
    replacement, A-10 wing refurbishment, etc.). We believe the funds
    provided in the fiscal year 2005 President's budget request is at the
    level needed to provide trained forces to our combatant commanders
    while sustaining readiness.
        General Huly. All of the Services are challenged with balancing
    competing priorities within readiness, training, and supporting
    establishment accounts in a fiscally constrained environment. The
    Marine corps uses the Program Objective Memorandum (POM) process to
    determine funding levels for all programs. Our requested funding level
    to sustain Marine Corps readiness is necessary based on requirements
    submitted from the Operating Forces weighed against all other Marine
    Corps programs and priorities.

        3. Senator Ensign. General Casey, Admiral Mullen, General Moseley,
    and General Huly, what are the potential implications that could result
    from reducing funds for these readiness programs?
        General Casey. In this budget, we already accept risk in areas such
    as base operations and facilities; therefore these programs have very
    little capacity to absorb additional reductions. As a consequence, they
    cannot buffer readiness programs from the adverse effects of
    unspecified or general budget reductions. If training, operational
    tempo, depot maintenance, or other critical readiness programs were to
    be reduced, it would send a message to our soldiers and our adversaries
    that we cannot fully support our top priority. Reductions in these
    programs would have a direct impact to the Army's ability to
    successfully prosecute the global war on terrorism, impairing our
    preparations that are necessary to fight and win future actions.
        Admiral Mullen. Navy's budget submission is already lean. Through
    the Navy's analytically-based and detailed Integrated Requirements
    Capability Assessment (IRCA) process, we've developed a well-defined
    readiness requirement that, through consideration by senior Navy
    leadership, already takes some well-studied risk in the readiness
    accounts to meet future readiness investment requirements. Since our
    budget is already programmed at the appropriate level for the risk we
    are willing to accept, any significant reduction in readiness accounts
    poses a higher, unacceptable and unplanned risk to our combat
    capability.
        General Moseley. Reduced program funding will create an inevitable
    decline in Air Force readiness levels. Significant reductions in
    readiness resulting from greatly increased commitments and burdensome
    tempo beginning in fiscal year 2002 and continuing through today were
    mitigated through increased funding. The increased flying operations
    budget, with associated funds for consumables, spare parts, fuels, and
    training, offset the adverse effects of high tempo and an aging fleet.
        By reducing funds to these programs, readiness will continue to
    decline throughout the Air Force's reconstitution efforts similar to
    readiness degradation experienced prior to and after Operation Enduring
    Freedom/Operation Iraqi Freedom. Supplemental authorization increases
    were a key component for mitigating the effects of high operations
    tempo.
        General Huly. The fiscal year 2005 budget request for Marine Corps
    readiness programs is adequate considering the need to balance those
    programs against competing priorities of maintenance, modernization and
    infrastructure within a fiscally constrained environment. Any reduction
    in operation and maintenance, Marine Corps funding would have real
    programmatic impact on our readiness, training, and supporting
    establishment accounts. Reductions to the readiness accounts would
    impact our essential operations and maintenance efforts that are
    focused on maintaining unit readiness, such as organic, intermediate
    and depot maintenance of our combat and support equipment. Other items
    impacted could be corrosion control and purchase of secondary reparable
    components for Marine Corps vehicles and equipment. Such reductions
    therefore lead to greater inefficiencies as those efforts must be
    delayed or deferred, with the attendant result of higher future year
    operations and maintenance costs.

                    REBALANCING ACTIVE AND RESERVE MANPOWER

        4. Senator Ensign. General Casey, Admiral Mullen, General Moseley,
    and General Huly, I believe that Secretary Rumsfeld is moving in the
    right direction with the rebalancing initiative to make the current
    levels of Active and Reserve Force manpower more accessible, usable,
    and available to meet national security requirements. How are each of
    your Services progressing on rebalancing active and Reserve manpower?
        General Casey. The Army is aggressively rebalancing capabilities
    within, and between, its active and Reserve components. These efforts
    will increase high demand capabilities, such as military police and
    civil affairs, decrease reliance on Reserve component units early in an
    operation, and divest of cold war structure that is no longer relevant
    for our current security environment. However, there is no current or
    planned rebalancing of manpower strengths between components. Although
    the active component is temporarily increasing its ranks by 30,000
    soldiers to restructure its formations while fighting the global war on
    terrorism, it is important to note that we are not altering the
    programmed strength of our Reserve components.
        Admiral Mullen. As an important element of the total force, the
    Navy's Reserve supports routine fleet operations and provides critical
    surge and sustainment capabilities to meet real world contingencies.
    Providing a more tightly integrated force creates the opportunity for
    reservists to train, deploy, and operate alongside their active
    counterparts using current doctrine, concepts, and tactics, as well as
    the most modern equipment in the Navy's inventory.
        To support active-Reserve integration, the CNO and senior fleet
    leadership have taken ownership of their Reserve, from recruiting and
    training, to equipment and readiness. The fleet is identifying the
    capabilities it will require the Navy Reserve to provide an input that
    the Active and Reserve components together will use to design and shape
    the force. This new sense of ownership will build closer day-to-day
    operational relationships and allow for the seamless connection of
    total force capabilities in the right place, and at the right time.
        The near term goal for the Navy is to provide a Reserve force
    shaped by fleet requirements and driven by SeaPower 21. To achieve this
    goal, we will continue to align, measure risk, present options, and
    rapidly move ahead with assignment of units and personnel to match
    requirements with capabilities. These assessments will be driven by the
    question: What resources can we apply that will enhance effectiveness
    and efficiency, and will contribute to warfighting wholeness? If the
    analysis indicates that the number of reservists should be adjusted to
    meet current requirements and future capabilities, we will make that
    happen. If that means that some equipment must be retired or realigned
    to support the Active Force, then we will ensure that the Navy's
    Reserve is integrated with the fleet and trains on and operates the
    Navy's newest, most capable platforms and systems.
        For the first time ever, one fleet commander acting for all other
    Navy commanders, is conducting a Zero Based Review (ZBR), where every
    Reserve unit and billet is being reviewed for capability relevance and
    alignment with fleet requirements, and then forwarded to CNO for
    inclusion in future budget deliberations and requests. The Navy Reserve
    will continue to provide mission capable units and individuals to the
    Navy-Marine Corps team throughout the full range of operations, from
    peace to war, and will do so in a much more efficient and integrated
    manner. The Navy has taken charge of its Reserve Force to further
    enable it to provide predictable and effective support to the fleet,
    ready and fully integrated, in the most efficient manner possible.
        To fully realize SeaPower 21, and under the guidance of Commander,
    Fleet Forces Command, the Navy and its Reserve will align, organize,
    integrate, and transform around the four warfighting pillars of Sea
    Strike, Sea Shield, Sea Base, and FORCEnet. To provide sufficient
    operational range and depth to many of these capabilities, and to
    efficiently and effectively meet its requirements as part of the Joint
    Force, Navy must leverage its investment in the extraordinary
    capabilities, critical skills, innovative nature, and entrepreneurial
    spirit of its Reserve personnel. The active component is currently
    engaged to clearly articulate requirements for the Navy Reserve. CFFC's
    Reserve integration cell will soon recommend the future Reserve Force
    structure necessary to meet these fleet capability requirements.
        We are embedding key full-time support staff in headquarters, fleet
    and type commands. We have developed strategic linkages between Reserve
    Forces Command and Fleet Forces Command with tangible results, and
    continue to build new bridges throughout the Navy. This was done to
    more closely align Reserve and Active Forces and to improve combat
    effectiveness and efficiency. These actions will strengthen ties
    between the Navy's Active and Reserve Forces and are the first steps in
    an overall initiative that seeks to define, and subsequently forge a
    cohesive ``total force'' team that can more effectively satisfy the
    Navy's operational requirements. We will continue to identify and
    propose practical ways to better integrate reservists and equipment
    with the fleet, and have taken steps to accelerate and solidify our
    integration efforts.
        General Moseley. The Air Force is reshaping its total force mix and
    is on target to meet peacetime and contingency requirements. We do not
    need to extensively rebalance to solve a spike in requirements due to
    major contingency operations. We will continue to review our force
    balance against the backdrop of current and future contingency and
    peacetime operations as we go through our program review for the
    Program Objective Memorandum 2006.
        The Air Force leverages the Reserve component to be fiscally
    responsible and cost effective. We use that capability only at the
    right time and in the right amount. Prior to September 11, mobility
    operations did not require the extensive Reserve call-ups that were
    characteristic of Operations Iraqi Freedom, Enduring Freedom, and Noble
    Eagle (OIF/OEF/ONE). The OEF/OIF efforts are not a new steady state as
    evidenced by our gradual reduction in operations tempo over the last 2
    years. During OIF, we selectively mobilized the Reserve component to
    fulfill combatant commander requirements that could not be met by a
    combination of Active Forces, Reserve full-time personnel, and
    volunteers. We deactivated many of these forces as soon as the
    requirements were met. Since last August, we have demobilized over
    15,000 of our mobility personnel. These are smart, cost effective
    business practices that work well for the Air Force and our Nation.
        The Air Force continues to aggressively pursue rebalancing
    initiatives as discussed with the Secretary of Defense. We call this
    the Future Total Force. We have created a Future Total Force office
    within our headquarters to explore new organizational constructs that
    will strive to integrate active, Guard, and Reserve units. We continue
    to explore integration opportunities to maximize capability and
    efficiency through innovative organizational constructs; for example,
    blended wing, associate program, and aircraft, manpower and mission
    conversions. Further, as we continue to work on redefining our Manpower
    Requirements Determination process, it will incorporate all components
    of our workforce. By achieving integration of some units, we will
    increase available manpower and take advantage of Reserve component
    experience during surge operations, while keeping overhead lean during
    peacetime. As we divest legacy weapon systems, we will increase
    investments in unmanned aerial vehicles; space capabilities; and
    intelligence, surveillance, and reconnaissance systems. These
    investments translate into roles and missions that are ideally suited
    for the Guard and Reserve. Our developing concepts of operations put
    many Guard, Reserve, or blended units into front-line combat roles
    while reducing the need to mobilize.
        General Huly. The mission of the Marine Corps Reserve is to augment
    and reinforce active component (AC) units during war and other
    operational contingencies. Selected Marine Corps Reserve (SMCR) units
    are assigned in the Secretary of Defense' Forces for the combatant
    commanders memorandum and are included in all the war plans. To
    effectively augment and reinforce the AC, SMCR units maintain the same
    training standards as AC units. It is important to note that the
    Reserve component (RC) in the Marine Total Force structure plays a
    unique role that is distinct from the RC of other Services. Typically
    mobilization of Reserve Forces is only necessary for large-scale
    contingencies pursuant to the warfighting requirements of combatant
    commanders. To date, the Corps has incorporated transformational
    changes as a result of the global war on terror. The 4th Marine
    Expeditionary Brigade (Anti-Terrorism), Air-Naval Gunfire Liaison
    Companies, and Reserve Intelligence Battalion are all examples of
    structure the Corps has added, or in the case of the Reserve
    Intelligence Battalion, will add, to get us to the appropriate
    capabilities with the right mix of active component and Reserve
    component marines and assets. The Corps remains committed to
    rebalancing efforts that optimize our ability to carry out our mission
        In the spring of 2004, the Marine Corps conducted a comprehensive
    review to determine how we needed to modify our force structure to
    better prosecute the global war on terrorism and meet national security
    requirements. As a result of this review, the Marine Corps approved
    numerous changes to both our Active and Reserve Force structure; these
    changes are being implemented in the fiscal year 2005-2008 time frame.
        In the active component, the USMC is establishing two additional
    Infantry Battalions, three Light Armored Reconnaissance (LAR)
    Companies, two Force Reconnaissance Platoons and an additional Air-
    Naval Gunfire Liaison Company (ANGLICO). We will also augment our
    existing EOD, Intelligence, Aviation Support, Civil Affairs, C4, and
    Psychological Operations assets.
        In the Reserve component, we are establishing an Intelligence
    Support Battalion, a Security/Anti-Terrorism Battalion, and two
    additional LAR companies. We will also augment existing capabilities in
    the areas of civil affairs and command, control, communications and
    computers (C4). In addition, we are restructuring some Reserve units
    converting them to Individual Mobilization Augmentee (IMA) Detachments.
    This allows us easier and more timely access to these Marine reservists
    to support contingency operations. The Marine Corps will continue to
    evaluate our force structure to ensure that it provides needed
    capabilities in a timely manner to support our national security
    requirements.

        5. Senator Ensign. General Casey, Admiral Mullen, General Moseley,
    and General Huly, are their any particular challenges as you execute
    your plans and how do you propose to resolve those challenges?
        General Casey. The largest challenges will undoubtedly center on
    sustaining required force levels for future operations in Iraq,
    Afghanistan, Bosnia, Kosovo, and other parts of the globe while
    restructuring our formations. If force requirements increase, it will
    delay Army efforts to transform. Our ability to access the Reserve
    components for rotational overseas missions and homeland defense will
    also prove challenging if current mobilization levels persist. For
    those capabilities required to support current operations, the Army
    will continue to seek relief through contracts, indigenous forces, and/
    or from other Services.
        Admiral Mullen. There are challenges to completing active-Reserve
    integration (ARI). These issues are being addressed head-on by the CNO
    and senior fleet and Navy Reserve leadership. Availability and
    accessibility of both active and Reserve capabilities are the
    functional drivers behind Navy's ARI. To gain combat effectiveness and
    economic efficiency, the Navy is fully integrating its Reserve under
    the Fleet Response Plan (FRP) through both unit level and individual
    augmentation during day-to-day operational support. Under FRP, we will
    also maintain the ability to mobilize reservists and equipment to
    support expanded surge operations around the globe. The fundamental
    construct of FRP is a surge-ready fleet, able to sail to any troubled
    spot in the world, swiftly defeat the enemy, and then reconstitute in
    minimum time. Therefore, the Navy and its Reserve will continually be
    in a surge status requiring minimum time to reset. Experienced and
    trained Reserve personnel are ideally suited for this surge capability.
    The basic 24 drill days per year and 14 days of annual training are
    provided at about 20 percent of the cost of full time personnel, and
    they leverage prior Navy investment in training while maintaining a
    continuum of service. Most reservists have both fleet experience and
    critical civilian skills to contribute to this concept of efficient
    utilization, and will fit perfectly into the unique surge mission
    requirements of the Navy Reserve as envisioned in Seapower 21.
        Full integration will ensure that Navy reservists in aviation Fleet
    Response Units (FRU) will be able to quickly activate and support
    global operations under FRP. The result is a Reserve Force that is
    better prepared and more capable for both unit and individual
    mobilization requirements. Co-locating our Reserve personnel and
    hardware with their supported fleet units streamlines the activation
    process enabling individuals to train alongside, and be more familiar,
    with the units they will augment, training and operating state-of-the-
    art equipment, as well as leveraging Active Force tactics and doctrine.
        Realizing some total force objectives will aid in overcoming the
    challenges of ARI.

         Service Predictability: Every sailor in the Navy Reserve
    wants to make a difference and needs to know with reasonable advance
    notice, when and where they will train or perform fleet operational
    support, whether mobilized, on active duty orders or on routine drills.
    As part of a fully integrated force, reservists will train or perform
    meaningful work that provides or enhances capabilities required by the
    fleet. Additionally, individual reservists will be able to anticipate
    drills and periods of active duty through processes that will track and
    match necessary skills to appropriate billets or orders.
         Periodicity: Individual reservists' availability varies
    during the year and with each employer. These periods of availability
    can be leveraged to enable each sailor to provide meaningful fleet
    support. ``Flexible drilling'' is encouraged to allow reservists to
    combine traditional drill weekends to serve for a week once a quarter,
    two weeks every 6 months, or even for several weeks once a year to
    satisfy participation requirements. If a unit or individual is called
    to mobilize, reservists will receive as much notice as is possible,
    with a target of 30 days, to help minimize potential employer or family
    conflicts.
         Pay and Benefits: Whether drilling, performing active duty
    for training or mobilized, reservists should be confident of receiving
    pay and allowances commensurate with benefits earned by the active
    sailors with whom they are working. They should be assured that their
    benefits will appropriately address their individual and family needs,
    whether serving at home or abroad. Development of a single pay and
    benefits system continues to be a priority to standardize the
    administration of both active and Reserve personnel in all services.
    Navy is pushing to accelerate introduction of DFAS' Forward Compatible
    Pay System (an interim step toward DIMHRS) that will eliminate pay
    problems associated with changes in service status and shorten
    mobilization timelines.
        General Moseley. There are a host of challenges that we must
    address to allow us to successfully reshape the Air Force to meet the
    ever-changing demands of our Nation for air and space power. These
    issues run the gamut of law, policy and procedures, but they can be
    remedied. First, weld like to thank the Members of Congress for
    assisting us in overcoming some of the Title 10 and Title 32
    limitations through recent changes to those laws, allowing us to create
    a unique unit at Robins Air Force Base, Georgia. By addressing the
    obstacles to integration as a Total Force, we were successfully able to
    integrate two different units and forge a blended unit in which our
    active-duty and Reserve personnel train like they fight, as one team.
    We may require your additional assistance in the future as we begin to
    explore and expand this blended unit concept within the Air Force.
        Our efforts to optimize the synergies of integration have
    introduced a new set of challenges. By studying the intricacies of
    integrated force constructs we are separating myth from fact and
    identifying the most challenging aspects of true co-operation. While
    recognizing the unique cultural aspects of our Active, Guard, and
    Reserve Forces we must work towards developing a common culture that
    relies on the strengths of all three components and shares the positive
    aspects of each culture to maximize our capabilities. To do this, our
    next generations of leaders, military and civilian, are being educated
    to sharpen their awareness of the legal aspects, policies and
    procedures of each component. Where the active component provides a
    guaranteed, on-call resource pool, the Reserve component brings an
    invaluable experience base and a 72-hour contingency response. Having
    highly experienced personnel working side-by-side with our young airmen
    saves countless dollars in training, seasons our more junior active
    personnel, and ensures training pipelines continue to flow during
    normal deployment rotations.
        More challenges remain, such as our aircraft recapitalization
    efforts. The average age of our aircraft fleet is 23 years. Some of our
    oldest aircraft are well  over 40 years in age. When it comes to
    hardware, time is the enemy. As part of our effort to recapitalize our
    aircraft, we need not only to divest the older airframes but also re-
    invest any manpower savings from divested aircraft. In this way, we can
    reduce or avoid maintenance costs associated with older airframes,
    while simultaneously increasing availability of newer airframes through
    increased number of aircrews and maintenance personnel. Naturally, our
    efforts will be impacted by the impending Base Realignment and Closure
    process which will allow us to shed excess infrastructure in order
    achieve greater operating efficiencies while avoiding unnecessary
    operating costs. A final set of challenges is generated as we examine
    legacy missions performed by the Reserve component and consider the
    Reserve component's potential for new roles in emerging missions, such
    as homeland security.
        General Huly. As alluded to in response to questions #4 the Corps'
    approach to utilization of the Reserve component mitigates the problems
    faced by the other Services. Specifically, the mix of Active Component-
    Reserve Component (AC-RC) marines are relatively well balanced. The
    Corps' AC-RC mix has effectively minimized the amount of stress placed
    on Reserve units that need to mobilize in order to carry out the
    mission that the AC is unable to cover. It should be noted that the
    Corps continues to look for ways to improve upon its current
    utilization of AC-RC units as we strive to maintain the right balance
    of forces to accomplish present and future missions.

      COST MODEL FOR DETERMINING ESTIMATES TO REPAIR/REPLACE OIF EQUIPMENT

        6. Senator Ensign. General Casey, you testified before the House
    Armed Services Committee last fall that the Army's estimates for
    repairing and maintaining equipment used to date in Iraq, the basis for
    the fiscal year 2004 supplemental request to Congress, was calculated
    from a model that relied on information developed from recovering from
    the 1991 combat operations in Iraq. Has the Army made any changes to
    this cost model since you testified before the House?
        General Casey. We modeled our requirement to reconstitute the Army
    units, based largely on our experiences in Operations Desert Shield and
    Desert Storm. The model that we used to develop our fiscal year 2004
    supplemental requirements is actually owned by Office of the Secretary
    of Defense (OSD), so I will have to defer to the OSD Comptroller's
    office to answer the fine details of the algorithms, but I understand
    that the cost factors are regularly updated. Because of our experiences
    following Operations Desert Shield and Desert Storm, we knew that our
    equipment was sustaining far more wear and tear that it would have in a
    more normal environment. Army assessment teams estimated that we would
    need about $1.2 billion more than the model estimated, along with $1.5
    billion for depot maintenance, entirely outside of the model.

        7. Senator Ensign. General Casey, have the unfunded requirements
    for repairing and maintaining equipment been updated to reflect those
    changes?
        General Casey. The cost factors have not been updated since we
    built our supplemental request, but as I said, they are updated
    regularly. We will use the data and experience we collect from
    maintaining and repairing our Operation Iraqi Freedom (OIF) 1 equipment
    to improve our estimates and methods for maintaining and funding
    subsequent OIF rotations.

                            ``RESETTING'' THE FORCES

        8. Senator Ensign. General Casey, Admiral Mullen, General Moseley,
    and General Huly, one of the challenges for each of you has been to
    ensure that forces that have returned from deployments overseas in
    support of Operation Iraqi Freedom and Operation Enduring Freedom have
    adequate resources for recovery and repair. Resetting or
    reconstituting--as it is referred to by the Services--includes a
    variety of recovery actions, including taking time for personnel to
    recover and to sharpen their military skills, as well as repairing or
    replacing any equipment that was damaged during the deployment. What is
    the status of resetting forces in your Services?
        General Casey. Resetting the forces, which includes personnel,
    equipment, and training is ongoing and will continue as units redeploy.
    The Army is on track, with the exception of aviation, to meet our reset
    goal of 6 months for active units and 1 year for Reserve Forces.
    Aviation reset has slipped to the right due to long lead-time repair
    parts and repair parts availability. An assessment is ongoing to
    determine the impact of the slippage. U.S. Army Forces Command, U.S.
    Army Europe, and U.S. Army Pacific units are maximizing continental
    United States and outside the continental United States based
    installations, depots, and commercial repair facilities to execute
    equipment reset. To the extent possible, Headquarters, Army Materiel
    Command (AMC) is resetting equipment in theater to support current
    operations and future requirements. Additionally, AMC and Headquarters,
    Department of the Army, are working to identify excess to be used as
    ``seed'' assets to prime the repair line.
        Simultaneously with equipment reset is personnel and training.
    Soldiers are receiving regeneration training to acclimate from a combat
    environment to peacetime as well as incorporating lessons learned into
    individual and collective combat tasks. Additionally, to evaluate and
    validate combat readiness units conduct a certification exercise at one
    of the combat training centers.
        Admiral Mullen. I have made a point of using the term constitute
    vice reconstitute as we are truly leaning forward while undergoing a
    transformation as we set the force. Through this operational
    transformation, we will be fully ready to provide combat forces on par
    with the OIF effort later this year.
        General Moseley. Approximately 90 percent of the Air Expeditionary
    Force (AEF), including its integral low density/high demand assets has
    been able to reset. However, a continued high operations tempo
    (OPTEMPO) is having an impact on our reconstitution efforts and
    extending the time to fully restore our personnel and equipment to pre-
    OIF levels. Given this continuing OPTEMPO, it will be difficult for the
    remaining 10 percent of the AEF to begin reconstitution before March
    2005. Our objectives for resetting the force fall into three main
    categories which include: (1) restoring our equipment to the combat
    effective state required to fight in the future; (2) incorporating
    lessons learned to enhance existing platforms and integrate valuable
    new technologies, and (3) properly equipping our forces currently
    engaged in stability operations to accomplish the mission. As we focus
    on these objectives, we emphasize that our goal is to reconstitute
    warfighting capabilities, not specific equipment items.
        We maintain our focus on these objectives while supporting
    combatant commander requirements across the full spectrum of
    operations. The Chief of Staff of the Air Force has emphasized our most
    valuable asset, our people, be given the opportunity to recover at home
    after lengthy and difficult deployments. He's directed our major
    commands to implement a post-deployment stand-down program as another
    quality of life initiative. The reconstitution that follows will have a
    major focus on training. The emphasis will be on task proficiency as
    opposed to training event currency. We are transforming our training
    programs to better provide ready and capable forces to the combatant
    commanders.
        General Huly. We have established a methodology to track the
    accelerated usage of equipment in order to make prudent decisions to
    maintain Marine Corps capability in the future. Because of the stress
    OIF I placed on our equipment, we are evaluating critical life cycle
    degradation and the need to match shortfalls with our Total Life Cycle
    Management Plan. In resetting the force we are evaluating the condition
    of our equipment returning from Iraq and then making prudent decisions
    regarding what needs to be replaced, refurbished, repaired or deferred
    until a new capability is available. In some instances deferring
    equipment replacement until the next generation capability is available
    is the smart choice. Since we have not yet completed our evaluation of
    equipment items returning from Iraq and assessed all of the options
    available, a definitive list of replacement items or alternate
    procurement is not yet available.
        Maritime Prepositioning Force (MPF): We've fully reconstituted 1 of
    11 Maritime Prepositioning Ships. The remainder are being reconstituted
    in accordance with the MPF Maintenance Cycle 8 (MMC-8).
        The AV-8B Harrier aircraft: We experienced increased operational
    tempo and the loss of a Harrier during operations. Since that aircraft
    is no longer being produced, we plan to wait until the successor
    aircraft, the Joint Strike Fighter VSTOL variant, begins delivery in
    fiscal year 2008.

        9. Senator Ensign. General Casey, Admiral Mullen, General Moseley,
    and General Huly, how are you managing the resources that have been
    provided by Congress for resetting your forces?
        General Casey. As units begin to redeploy from the Iraqi and
    Afghanistan theaters of operation, the Army will continue to reset or
    set the force to meet future requirements. The goal is for all
    returning active component units to achieve a sufficient level of
    combat readiness within 6 months of equipment arrival at home station.
    Reserve component units will likely take longer to achieve the desired
    readiness level, and the working assumption is that Reserve units will
    take 1 year to reestablish pre-deployment readiness after equipment
    returns to home station.
        Readiness involves three essential components--people, equipment,
    and training. It is only by addressing our soldiers' needs,
    reconstituting our organizational equipment, and training to standard
    on our collective combat tasks that units will return to an acceptable
    readiness level. Army units will also be reorganizing during the reset
    period. The culminating event of these intense reconstitution efforts
    should be a certification exercise at one of the combat training
    centers. By adopting such an aggressive approach, the Army will
    continue to ensure its ability to meet the combatant commanders' near-
    term requirements. The intent is to return units to pre-hostility
    readiness levels while continuing to support the warfight, transform,
    modernize, and recapitalize.
        The Army standards established for setting the force are: (1) bring
    all equipment to 10/20 standards; (2) where sensible, upgrade
    capability implementing Operation Iraqi Freedom/Operation Enduring
    Freedom lessons learned; (3) replace obsolete equipment in pre-
    positioned stocks; and (4) reconfigure Army pre-positioned stocks to be
    more strategically relevant and responsive. The requirements were
    broken into two major sections, maintenance/repair and equipment
    investment. To prioritize requirements, the Army developed a tiering
    methodology based on timing and associated risk.
        Admiral Mullen. In my fall 2003 testimony, I illustrated several of
    the largest challenges to set the force. In that testimony, I discussed
    spares, depot maintenance, precision-guided munitions, EA-6B wing
    panels and F/A-18 ancillary equipment. The fiscal year 2004
    supplemental funding provided by Congress was applied to the immediate
    needs of these critical capabilities; we thank you for approving the
    supplemental last fall. The emergency war supplemental also financed
    $2.1 billion of Navy depot maintenance. These funds were used to
    maintain and restore our ships, aircraft, equipment and materiel to a
    high level of readiness. The scope of many planned availabilities were
    expanded to quickly improve ship and aircraft readiness levels to
    support the continued prosecution of the global war on terror. We have
    used your support to achieve, and crafted our fiscal year 2005 budget
    request to now maintain, the Navy's force constitution; our fiscal year
    2005 budget request keeps us on track for the future.
        General Moseley. The Air Force is extremely appreciative of the
    fiscal year 2004 Reconstruction of Iraq and Afghanistan Supplemental.
    In terms of readiness, the funds are providing great dividends in
    paving the way for us to prosecute this Nation's National Strategy
    without unduly impeding our peacetime efforts and programs. Our
    combatant commanders have been balancing requirements and resources to
    ensure the most effective use of taxpayer's dollars. As our units and
    equipment returned from their tour of duty in the desert, we are
    revaluating the equipment that should be left at the base in case of
    future contingencies and the materiel that can be moved to active
    bases. Equally important, we are also evaluating equipment in terms of
    the best place to fix. As aircraft and similar equipment return, we
    determine whether we fix locally or send to depot. Our men and women
    are constantly examining out fleet to make smart decisions on the
    proper source and type of repair. While reconstituting equipment is
    important, we are also reconstituting capabilities. With our fighter
    and bomber forces ready to resume normal rotations, the Air Force is
    beginning to return to pre-Operation Iraqi Freedom rotational cycles.
    In large part, the funds supported by your committee allowed us to
    ensure we maintain combat readiness in light of our rapid pace of
    global activities.
        General Huly. Managing the resources for resetting the force is
    perhaps the most challenging aspect of global war on terrorism. Our
    principle focus continues to be on funding current operations and in
    providing force protection gear to our marines. Because of vehicle
    combat losses, higher operating tempo and the harsh environment, a
    significant portion of our ground equipment inventory used in Iraq and
    Afghanistan has experienced accelerated usage or may be uneconomical to
    repair and must be replaced. Decisions on whether or how best to
    repair/replace this equipment, or accept a certain level of attrition,
    requires careful evaluation. The Marine Corps is participating in the
    Stress on Equipment analysis that will help us to determine the correct
    strategies for major equipment repair/replacement. That effort is
    integral to making informed and prudent resource decisions for
    resetting the force. Meanwhile, the Marine Corps continues to use the
    supplemental funding provided by the Congress to fund replacement
    equipment in support of our MPS squadrons, depot maintenance for
    repairs to our land vehicles and aircraft, and to replace ammunition
    expended. Such efforts help to reduce the time it will take to reset
    the force back to pre-OIF/OEF levels.

        10. Senator Ensign. General Casey, Admiral Mullen, General Moseley,
    and General Huly, have adequate resources been provided to ensure that
    units have recovered from their deployment and are prepared for future
    missions?
        General Casey. The Army requires $1.2 billion to fully fund the
    reset of Operation Iraqi Freedom (OIF) 1 and Operation Enduring Freedom
    (OEF) 4 units to ensure combat capability is restored. The fiscal year
    2004 Emergency Supplemental funded approximately $2 billion of a $3
    billion unit-level repair requirement and $1.2 billion of a $1.4
    billion depot maintenance requirement. Additionally, the Army staff is
    developing cost estimates for reconstitution of OIF-2/OEF-5 units and
    sustainment of our forces while deployed in the theater of operations.
    However, it is too early to state these estimates with a high degree of
    confidence.
        We believe that the fiscal year 2005 President's budget request
    will adequately fund our peacetime operational tempo. However, without
    reset funds, we will be forced to take risk and support the reset
    effort from within the base budget.
        Admiral Mullen. Yes, adequate resources have been provided to
    constitute the fleet after OIF and the Navy will be able to field
    forces on par with the OIF effort later this year, culminating the
    fleet-wide implementation of one facet of the Navy's organizational
    transformation, the Fleet Response Plan (FRP).
        In the CNO's Guidance for 2004, one of his major action items was
    to ``deliver the right readiness.'' It was clear in responding to OIF
    that the Navy could not best meet the long-term global war on terrorism
    force requirements using its traditional employment methods; we are
    truly involved in transforming how we get our develop ready forces. The
    FRP is among the most important of those transformations and is the
    real reason we can provide such an immediate surge capability close on
    the heels of major combat operations.
        The FRP strengthens the Navy's commitment to provide combat-ready
    forces to combatant commanders overseas in areas of vital U.S.
    interest. The Navy has been, is now, and will always be a rotationally
    deployed force. FRP fundamentally changes the way we get the fleet
    ready. While continuing to rotationally deploy forces overseas, FRP
    institutionalizes a higher level of force employability and provides
    the surge capability necessitated by the global security environment.
    At the same time, we respond more flexibly by deploying for a purpose
    and add to the security of our forces by becoming less predictable to
    those that would do us harm.
        The ramp-up to support OIF, permitting the extended arrival window
    of five Carrier Strike Groups at the outset, was impressive but we
    cannot count on a passive competitor in the future. The 21st century
    presents our Nation with varied and deadly new threats, including
    regional adversaries armed with growing anti-access capabilities and
    international terrorist and criminal organizations. Countering such
    enemies and consistent with guidance espoused within our National
    Security Strategy, Navy reviewed the best way to transform its fleet
    employment policy. Last May, the Chief of Naval Operations approved
    FRP, redefining our readiness process, and in doing so, provided a more
    responsive force to meet our defense and military strategies, and
    presenting the President with more force employment options. A premium
    is placed on ready, flexible forces able to pulse rapidly either to
    augment forward-deployed forces or respond to crises in remote and
    widely separated locations.
        By refining our maintenance, training and manning schedules, we
    have institutionalized the capability to provide six Carrier Strike
    Groups (CSG) within 30 days and an additional two CSGs within 90 days,
    more commonly known as ``Six plus Two.'' CSGs are highlighted here
    because they are the most complex components to prepare for deployment,
    but FRP applies to the entire fleet. With the implementation of FRP,
    half of Navy forces could be ready to provide homeland defense and be
    either forward deployed or ready to surge forward with overwhelming and
    decisive combat power.
        We are now focusing our readiness efforts on achieving rapid
    deployability once a strike group has emerged from an extended
    maintenance period. This is a significant mind-shift change from the
    old way of achieving deployment readiness on the verge of the scheduled
    deployment date. The result is a period of extended readiness that
    nearly doubles former readiness windows. Though the time that platforms
    are available for employment will increase the total time sailors are
    deployed will not.
        General Moseley. We believe the fiscal year 2004 Reconstruction of
    Iraq and Afghanistan Supplemental was properly sized at the time to
    address our immediate needs for prosecution of the war and
    reconstitution efforts. The Air Force, like our sister Services, is
    first balancing its wartime requirements within available funding
    levels. Where possible, less urgent requirements are deferred to a
    later time without jeopardizing the state of readiness and our ability
    to meet our wartime mission requirements. At the pace and demands of
    operations to date, we believe we can manage this risk during the
    execution year. However, if operational demands accelerate later in the
    year, we may have to reevaluate our ability to sustain our efforts
    without additional help (supplemental or reprogramming).
        General Huly. Prior to their OIF II deployment, the Marine Corps
    received supplemental monies for identified, but unfunded, equipment.
    This support, combined with training specifically designed and focused
    on future Iraq deployments, has enhanced the marines capabilities and
    mission flexibility. The Marine Corps continues to evaluate its force
    reconstitution requirements and is making maximum use of the funding
    already provided to mitigate any shortfalls.

                               LOGISTICS PROBLEMS

        11. Senator Ensign. General Casey, Admiral Mullen, General Moseley,
    and General Huly, there were a number of articles in the press,
    particularly during the first few months of operations in Iraq, that
    reported on a variety of problems associated with the logistics support
    for operations in the Iraq theater of operations. Shortages of ammo,
    spare parts, and fuel were a few of the examples cited. Some have
    suggested that many of these problems were the result of too few
    inventories. Others suggested that these shortages were associated with
    the rapid advance of combat units into Iraq. Recent findings by the GAO
    indicate that some problems continue to exist. The GAO, for example,
    reported a $1.2 billion difference between the amount of material
    shipped to the theater and the amount that units acknowledge receiving.
    What is your assessment of the supply throughput to the forces in the
    field? Are inventories of spares, ammunition, etc., of sufficient
    inventories to support the current pace of operations?
        General Casey. Supply throughput to the field has improved
    dramatically over the last 6 months and units are receiving requested
    supplies in a timely manner. Early deploying units did experience
    problems with receiving shipments of needed supplies. The Army
    identified the problem with mis-shipments of repair parts by
    consolidating the delivery of full pallets of repair parts on a single
    pallet destined to a specific supply warehouse in theater. The method
    of ``pure palleting'' supplies has dramatically improved the percentage
    of supplies reaching the correct unit and has reduced the time it takes
    to reach the unit.
        In respect to current spares inventories and ammunition, the supply
    position of critical items is improving and is able to meet
    requirements for units in theater. After years of successfully reducing
    inventories to meet congressionally mandated targets for inventory
    reduction, additional monies received in 2003 are beginning to add back
    repair parts and ammunition items. Increases in operational tempo,
    coupled with environmental factors, have increased the demands for
    repair parts and ammunition. The Army continues to invest heavily in
    the repair of unserviceable items as the first option for replenishing
    inventory and satisfying demands. Depot repair production is up over
    last year; however, higher demand is requiring the Army to increase
    quantities for procurement and in some cases initiate emergency buys on
    selected critical items.
        Admiral Mullen. My assessment, based on Navy's history of operating
    in the area at this pace, is that the supply throughput is adequate and
    inventories are sufficient. For over a decade, the Navy has maintained
    almost continually a Carrier Strike Group presence in the fifth Fleet
    AOR. The logistics pipeline into the region is mature and highly
    productive, providing support in an accountable and timely fashion.
    Current Navy operations closely parallel the OPTEMPO we've maintained
    in the region for years and the Navy supply system is resourced to
    support the level of operations currently underway.
        General Moseley. As our supply metrics will attest, our overall
    spares support to the field is at its highest point since the early
    1990s. Previous operations and exercises have highlighted the need to
    begin planning combat support and sustainment in concert with the
    mission planning. To cover wartime/contingency operations, the Air
    Force approves additive levels of essential spares, or Readiness Spares
    Packages (RSPs). These RSP assets are deployed along with the weapon
    system to sustain operations until normal supply channels are
    established to provide routine re-supply capability.
        Our success in supporting contingency operations is evident in that
    the Air Force supported over 860 Air Force aircraft in the area of
    responsibility (AOR) at 27 locations and filled over 82,000
    requisitions. At the height of Operation Iraqi Freedom, over 9,000 high
    priority requisitions were delivered with an average Logistics Response
    Time (entire pipeline from requisition to customer receipt in the AOR)
    of 12 days vs. 21 days prior to September 11. Most importantly, no
    sorties were lost due to lack of parts or munitions.
        Based on current classified operation requirements and stockpile
    inventories, the munitions inventories are sufficient to maintain the
    current pace of Air Force operations.
        The Air Force has a number of transformation initiatives in varying
    states of implementation that will further enhance our ability to
    support supply throughput to our deployed forces. These initiatives
    focus on managing our supply chain from end-to-end to increase
    availability and improve affordability. We are changing our processes
    and providing the tools necessary to support our vision.
        General Huly. The success of the supply throughput was challenged
    by our lack of in-transit visibility (ITV). The lack of asset
    visibility on unit stocks and ITV on ordered items made it difficult to
    identify actual shortages, to locate needed items within stocks for
    reallocation, and to direct and track the movement of ordered items to
    requesting units. This resulted in delays, shortages, and at times an
    inability to expedite critical parts.
        Lack of visibility for OEF/OIF I in the supply chain resulted in
    duplicative ordering of some spares, which produced an impression of
    high usage early on. Additionally, lack of in-theater ground
    transportation assets to push supplies forward of the port of
    debarkation was a problem.
        Today, OIF II presents significantly different conditions under
    which logistics is provided to the operating forces than did OIF I. The
    theater of operations is logistically more mature, forces are operating
    in relatively static locations as opposed to conducting a continuous
    assault over hundreds of miles, and the numbers of marines and
    equipment in theater are significantly smaller than during OIF I.
        Spare/repair parts availability for ground equipment is sufficient;
    our current inventory is adequate to support operations. With our
    improvements to our distribution system we anticipate no difficulty in
    keeping up with the current pace of operations.
        Regarding ammunition, there have been no significant ammunition
    shortages based on Marine Forces identified requirements. Prior to
    hostile action commencement, the Marine Corps experienced very minor
    deficiencies to fulfill the total combat requirement; however, as
    identified by the Marine Central Command at the time, no deficiency was
    characterized as a `showstopper'. Current inventory levels are
    sufficient for both training and war Reserve requirements. Our practice
    of fully funding all ammunition requirements to the maximum
    practicable, has positioned the USMC to limit the surge requirement
    stress we have placed on the industrial base to only small production
    increases. Current on hand stocks are sufficient for the current pace
    of known contingencies.
        The Marine Corps lessons learned from OEF/OIF affirmed we are on
    the right track with our Logistics Modernization efforts. Our focus on
    total asset visibility and enhanced maintenance concepts, all supported
    by our Global Combat Support System-Marine Corps (GCSS-MC), will ensure
    excellence in logistics support, through the logistics chain, both in
    deployed and garrison operating environments.

        12. Senator Ensign. General Casey, Admiral Mullen, General Moseley,
    and General Huly, in cases where there may be shortfalls, what steps
    have the Services taken to increase the efficiency of supply support to
    units in Iraq?
        General Casey. The Army has implemented solutions in four key areas
    to increase the speed and accuracy of supply shipments to Iraq. The
    Army has ensured logistical requirements can be sent directly to the
    United States by an assured information technology infrastructure
    supported by commercial satellite equipment. This is allowing the Army
    to ``see'' requirements in real time. The Army is reducing the chance
    for misrouting of critical supplies by building pure pallets of
    supplies earmarked for a specific unit. This initiative allows the Army
    to speed the supplies to its final destination without having to
    repackage the supplies for onward movement. The Army is supporting the
    U.S. Transportation Command (TRANSCOM) initiative for a theater
    Deployment Distribution Operation Center to help synchronize
    distribution of materiel from origin to final destination by optimizing
    strategic and theater lift. This initiative has resulted in improved
    reliability, enhanced materiel visibility, increased speed, and
    improved customer confidence. Finally, the U.S. Army Materiel Command
    has deployed forward repair activities in Iraq to support the
    requirement for repairing critical repair parts in theater.
        Admiral Mullen. The Navy has aggressively supported our Marine
    Corps teammates in Iraq. For example, cargo handling units are deployed
    along the supply chain to speed the uninterrupted flow of replenishment
    parts to deployed forces and the return of failed critical components
    back to repair depots. A new program to ease the occasional difficulty
    encountered by Seabee battalions in obtaining quality construction
    materials is in the final stages of completion, integrating elements of
    both pre-positioning and responsive, multi-national vendors located in
    areas where we need them.
        From a joint perspective, we have provided resources to support
    TRANSCOM and General Handy's efforts to improve ``last mile'' material
    distribution for all units operating in Iraq. Establishment of the
    CENTCOM Deployment Distribution Operations Center (CDDOC) is providing
    the structure, capabilities, and oversight to synchronize all levels
    (strategic through tactical) of personnel and cargo distribution. This
    center is focusing on eliminating bottlenecks and ensuring unimpeded
    throughput of forces and material, enhancing logistic support for units
    in theater.
        General Moseley. Several initiatives have been undertaken to
    optimize supply support in Iraq.
        The concept of the Regional Supply Squadron (RSS) was born during
    the Desert Shield/Storm experience, when the Air Force Contingency
    Supply Support Activity was activated to centrally manage supply
    support to deployed units. The RSS is aimed at providing improved
    spares supply chain command and control by focusing the efforts of all
    elements of the spares supply chain on the same goal . . . weapon
    system availability.
        The core Agile Combat Support (ACS) principles of responsiveness,
    time definite delivery and resupply, continental United States reach
    back, and leveraging information technology place strong demands on
    materiel management activities sustaining the Air and Space
    Expeditionary Force. The key ACS tenet ``train the way we fight''
    mandates an RSS structure that seamlessly supports both peacetime
    requirements of supported major commands and contingency requirements
    of combatant commands.
        The Air Force implemented the High Impact Target (HIT) list of all
    ``problem'' items by soliciting input from the major commands
    concerning items driving deployed aircraft Mission Incapable Supply due
    to the increased operations tempo. This process was expanded to
    encompass Defense Logistics Agency managed items along with monitoring
    outstanding Air Force contracts on HIT list items.
        The Air Force and major commands have daily briefings on the status
    of deployed aircraft and engines to ensure supply issues and parts
    shortages are tracked to completion.
        Under DOD guidelines, the Air Force has instituted the Spares
    Priority Release Sequence that prioritizes Joint Chief of Staff (JCS)
    requirements, regardless of priority, ahead of Air Force non-JCS
    requirements. This prioritization process ensures that Air Force
    deployed/tasked unit requirements are satisfied prior to other non-
    tasked unit requirements.
        General Huly. We overcame our supply issues by enhancing in-transit
    visibility and by outsourcing some air transportation requirements
    where feasible. We have implemented Radio Frequency Identification
    (RFID) Tag technology, and partnered with the Defense Logistics Agency
    (DLA) for pure pallet packaging. Containers and pallets that were
    multi-packed for various units across the services had to be broken
    down and manually sorted, then rebuilt before delivery to the tactical
    end user, adding significantly to the distribution timeline. This issue
    has been resolved using the pure-pallet initiative. The pallet is built
    with items destined for a particular support site in Iraq. DLA,
    traditionally a wholesale distributor, is now extending their supply
    chain management functions to the Service-managed retail inventory
    level.
        We have partnered with the Army and Navy for supply and
    distribution systems to leverage existing airlift channels to the
    maximum extent. As a result of these initiatives, we are moving spare/
    repair parts sustainment stock more quickly through the distribution
    transportation system and pushing these stocks forward within 24 hours
    after they arrive at the aerial port of debarkation (APOD).
        Another challenge was the difficulty in communicating requisitions
    to the supporting Theater Support Command for common item support due
    to the incompatible supply and warehousing information systems. The
    materiel distribution process was cumbersome at best. This issue was
    also resolved using the pure-pallet initiative from DLA.

                      FLEET RESPONSE PLAN: FLEET PRESENCE

        13. Senator Ensign. Admiral Mullen, fleet presence around the world
    has been the foundation of the Navy's operating concept for over two
    centuries. In the age of carrier battle groups, when any crisis emerged
    in the last 50 years, one of the first questions from every president
    since FDR has been: ``Where are the carriers?'' I understand that the
    Navy has implemented a new operating concept called the Fleet Response
    Plan. As I understand it, this new concept of operations is predicated
    on maintaining a Navy ready to ``surge'' when required. What are the
    benefits of this new operating concept?
        Admiral Mullen. Senator, the FRP strengthens the Navy's commitment
    to routinely provide forces through flexible deployments to combatant
    commanders and additional combat-ready forces, faster, in times of
    need. To be certain, the Navy was, is, and always will be a
    rotationally deployed force operating overseas in areas of vital U.S.
    interest. When needed in times of major crisis, the FRP enables the
    U.S. Navy to respond with--to ``surge''--a greater number of forces and
    significantly more combat power than under previous plans, providing
    flexible and combat-credible options for the President.
        The FRP realigns our readiness processes and ensures that more
    forces achieve combat readiness sooner after a major maintenance period
    and then maintain that combat readiness for an extended period. In
    doing so, FRP provides the capability to employ up to eight Carrier
    Strike Groups in a contingency response; this is fifty percent more
    than possible under prior methods. This additional surge capability
    does not come at any cost to the Navy's commitment to rotationally
    deploy forces overseas but ensures as many forces as possible operating
    in home waters are combat ready.
        The FRP has also resulted in new force packages, like the
    Expeditionary Strike Group (ESG) that couples the deep striking power
    of cruisers, destroyers, and submarines with the proven forcible entry
    capabilities of our marines embarked in Navy ships. ESGs provide
    increased capability to the joint combatant commander that is
    persistent and sovereign. The future addition of DD(X) and JSF STOVL
    will enhance further the robust and flexible portfolio of combat
    capability of ESGs. Over the next few years, two new SEAL teams and
    four SSGNs will be fielded, enhancing the FRP and the projection of
    naval power and influence.

        14. Senator Ensign. Admiral Mullen, how does the Navy's FRP
    continue to maintain worldwide fleet presence?
        Admiral Mullen. Responding to the new world security environment,
    it was clear that the Navy could not best meet the long-term force
    requirements of global war on terrorism using its traditional
    employment methods; we are truly involved in transforming how we get
    our forces ready and increasing the combat readiness return on the
    taxpayer dollar. The FRP is among the most important of those
    transformations and is the real reason we can now provide such an
    immediate surge capability close on the heels of major combat
    operations.
        The FRP strengthens the Navy's commitment to routinely provide
    forces through flexible deployments to combatant commanders and
    additional combat-ready forces, faster, in times of need. Specifically,
    the FRP maintains the Navy's traditional commitment to rotationally
    deploy forces overseas in areas of vital U.S. interest. These
    capabilities-based forces are ready to respond across the entire
    spectrum of international engagement, from diplomacy to major crises--
    anytime, anywhere, in the far corners of the world, without a
    permission slip. Furthermore, FRP also ensures that forces operating in
    home waters quickly achieve and then maintain a combat-ready level of
    readiness, providing more options to the President and additional
    forces for crisis response or homeland security, as required. When
    coupled with the Joint Staff deployment policies, naval forces can be
    more flexibly employed to meet the near term demands of the security
    strategy.
        Naval forces will continue to deploy and provide a global naval
    presence based on combatant commander prioritized and validated
    requirements. FRP provides these ready forces overseas to meet the new
    planning requirements of 10-30-30; detering crises, defeating the
    intentions of an adversary, or winning decisively against a major enemy
    with speed.

        15. Senator Ensign. Admiral Mullen, to what degree has this program
    been coordinated with the regional combatant commanders?
        Admiral Mullen. The Combatant Commanders (COCOMs) have had full
    visibility on the Fleet Response Plan as it was implemented. COCOM
    staffs were briefed and the principles themselves by the Chief of Naval
    Operations at a combatant commander conference in 2003, with regular
    updates continuing. The Navy continues to meet Global Naval Force
    Presence Policy (GNFPP) requirements every day and now--under FRP--
    exhibits improved readiness and the ability to surge deploy additional
    combat ready forces in times of national need.
        Fleet Forces Command coordinates all presence and force flow
    through the naval component commanders who in turn discuss options with
    their COCOMs. In those few cases where the Service needs differ from
    the COCOM requirements, the Joint Chiefs provide arbitration of the
    issues prior to SECDEF approval, as they routinely have for many years.
    In aggregate, the Fleet Response Plan increases, not decreases, the
    total forces available to combatant commanders by having combat-ready
    forces rotationally deployed overseas as well as operating in home
    waters, available at the direction of the President or Secretary of
    Defense.

                     FLEET RESPONSE PLAN: AVIATION TRAINING

        16. Senator Ensign. Admiral Mullen, I understand that as a result
    of implementing the Fleet Response Plan, the Navy will decrease flying
    hours for aviators. Part of this decrease will be due to adjusting
    training cycles and part will be, according to press reports, an
    increased reliance on simulator training. A good deal of Navy aviation
    training occurs over the skies of Fallon, Nevada, and much of that
    training is not simulator based. What are the implications for Navy
    training at Fallon with implementation of the Fleet Response Plan?
        Admiral Mullen. There are minimal implications to training at the
    Fallon Range Training Complex (FRTC) as a result of FRP implementation.
    The increased use of simulators is predominantly in basic pilot
    training. Basic pilot training is accomplished at aviators' home
    stations whereas advanced, live, large force training exercises and
    other unique events are conducted at FRTC.

     TRAINING OF NAVY/MARINE CORPS TRAINING AT EGLIN AIR FORCE BASE: COST
                                   ASSESSMENT

        17. Senator Ensign. Admiral Mullen and General Huly, the Navy and
    Marine Corps did a great deal of work to find alternative locations to
    conduct joint task force training when it was determined that training
    facilities on the island of Vieques would be closed. The Navy
    programmed over $400 million into the budget last year for upgrades to
    facilities, for instrumentation and range upgrades, environmental
    costs, and exercise support as a result of relocating training from
    Vieques. The costs for supporting Navy training at Eglin Air Force Base
    were based on the Navy's old operating concept and old fleet
    formations. What are the implications for training on the Florida
    ranges with the implementation of the Fleet Response Plan and the
    creation of carrier strike groups (CSGs) and expeditionary strike
    groups (ESGs)?
        Admiral Mullen. For ESGs and CSGs, training on Florida ranges will
    increase due to the loss of the Atlantic Fleet Warfare Training
    Facility (AFWTF) and the emphasis of the Fleet Response Plan on
    maintaining high level of readiness. The displaced training shift to
    Florida and other locations will take place on other Navy training
    ranges, Major Range Test Facility Base (MRTFB) ranges (Eglin), and USAF
    training ranges (Avon Park). While there is a cost to train on MRTFBs,
    such as the Eglin AFB ranges, these have been included in the
    President's budget. The Navy plans to operate in the Gulf of Mexico
    only outside of the hurricane season. When limited access to the Gulf
    is coupled with the fact that the MRTFB ranges rightly give scheduling
    priority to test events, CSGs/ESGs may not always use the Eglin AFB
    ranges during their training. Navy also trains on MRTFBs only on a not-
    to-interfere-with basis to the test community. However, the Navy, Air
    Force, and Marine Corps have signed an agreement called the Overarching
    Range Cooperative Agreement (ORCA) that establishes protocols to
    schedule the use of one another's ranges and accommodate the joint use
    of those ranges. We use this agreement when the Navy desires to operate
    at Eglin AFB. The Navy has recently conducted a CSG and ESG exercise
    using Eglin and plans to use Eglin as an option for training in the
    future. Additionally, if the Navy only operates along the east coast,
    we will still use all the Florida ranges, including Eglin AFB, for
    strike training.
        General Huly. The Florida ranges provided a limited training venue
    for amphibious forces in support of a naval campaign. However, when
    these ranges are used in conjunction with other ranges along the east
    coast, then that training venue expands to an enhanced environment that
    links into the training transformation initiatives of the Navy/Marine
    Corps.
        Overall problems that made using Eglin, at best, a secondary option
    for training are:

             Difficulty coordinating
             No naval gun fire
             Rigid range requirements
             Air-centric
             Limited offload (LHA)
             High demand with AF training
             Overall time (sailing from east coast NC/VA AOA)
             Expense

        TRAINING OF NAVY/MARINE CORPS TRAINING AT EGLIN AIR FORCE BASE:
                             ALTERNATIVE LOCATIONS

        18. Senator Ensign. General Huly, your prepared testimony, and the
    testimony of the Commandant of the Marine Corps before the full
    committee a few weeks ago, both indicate that the Marine Corps is
    continuing to explore other alternatives to conducting Marine Corps
    training at Florida locations. What are those alternate locations and
    what are examples of some of the benefits that those alternative
    locations will provide?
        General Huly. The Marine Corps is continuing to assess the
    potential and value of expanding the training capability of its
    installations at Camp Lejeune and Cherry Point, North Carolina.
    Improving specific capabilities at these locations will provide a
    direct benefit to the forces resident at those locations and will
    ideally provide a more robust regional naval expeditionary training
    capability, when incorporated with the capabilities at the other naval
    facilities in the North Carolina and Virginia Capes geographic area.
    Specific benefits that these alternate locations would provide are:

            (1) Proximity to existing east coast Navy and Marine Corps
            installations eases operational/deployment tempo considerations
            (2) Usable year-round (no standing restrictions due to
            hurricane concerns June-October)
            (3) Lower costs to transit to/from training areas and train on
            USN/USMC installations
            (4) Investments in infrastructure benefit not only the Marine
            Expeditionary Unit but also the entire II Marine Expeditionary
            Force
            (5) Camp Lejeune supports integrated live fire, to include live
            naval gunfire from ship-to-shore
            (6) Significantly lower costs to conduct large-scale amphibious
            training at Camp Lejeune and Cherry Point vice the Eglin Major
            Range and Test Facility Base.

         TRAINING OF NAVY/MARINE CORPS UNITS AT EGLIN AIR FORCE BASE:
                           IMPLICATIONS FOR AIR FORCE

        19. Senator Ensign. General Moseley, in 2001 and 2002, the 46th
    Test Wing, Eglin Air Force Base, documented 9,129 and 8,856 test
    missions completed, respectively, on the Eglin range. Please provide an
    update of test missions conducted at the Eglin Range Complex. Please
    state how many missions were requested, how many missions were
    scheduled, and how many missions were conducted for calendar year 2003
    and calendar year-to-date for 2004. Please apportion each data set by
    month and by customer.
        General Moseley. A total of 10,107 missions were conducted at Eglin
    Air Force Base in 2001, which included 4,419 tests and 5,688 training.
    In 2002 a total of 10,300 missions were conducted of which 4,317 were
    tests and 5,983 were training. In 2003, 10,331 missions were conducted
    of which 4,273 were tests and 6,058 training. Initial data for 2004
    shows a total of 1,761 missions conducted of which 803 were tests and
    958 training. The attached spreadsheets contain the data requested.
        As the data used for this response does not exactly match the
    mission numbers shown in the question, we are providing 2001 and 2002
    data in addition to that requested for 2003 and 2004 in order to
    provide a consistent data set over the time span.
        Spreadsheet number 1 shows Eglin Air Force Base test and training
    missions requested, scheduled, and conducted by month for calendar
    years 2001, 2002, 2003, and initial data for January and February 2004.
    This data source does not identify specific customers.
        Spreadsheet number 2 shows test and training sorties scheduled over
    the time span and identifies specific customers. Please note that the
    number of sorties will not match the number of missions as a single
    mission may involve several sorties.

                 STRING OF FIRINGS OF NAVY COMMANDING OFFICERS

        20. Senator Ensign. Admiral Mullen, the press is reporting that
    there were a number of commanding officers of Navy ships that were
    relieved from their commands. Reports state as many as 22 commanding
    officers have been relieved in the past year. How many commanding
    officers have been relieved of their command in the past year, how does
    that number compare to previous years and what actions is the Navy
    taking to address this problem?
        Admiral Mullen. Since May 2003, 20 commanding officers have been
    removed from operational command due to misconduct or a loss of
    confidence in their ability to lead. Of that total across the Service,
    11 were in command of surface ships, 3 of aviation squadrons, and 4 of
    submarines.
        Overall, the gross number is statistically higher for 2003 compared
    with previous years. The data alone, however, does not support any
    readily distinguishable trend or pattern in terms of casual factors.
    Consequently, I have directed an internal review of the cases to
    determine if there are any distinguishable patterns or trends and, if
    so, corrective recommendations. Each detachment is carefully reviewed
    and given due process and each of these were justified by the facts of
    the individual case; indeed, detachment was critical in order to
    maintain high standards in general, and the special trust and
    confidence placed in commanding officers in particular.

                 ARMY AND MARINE CORPS PREPOSITIONED STOCKPILES

        21. Senator Ensign. General Casey and General Huly, both the Army
    and the Marine Corps used both land-based and sea-based prepositioned
    stockpiles for major combat operations in Iraq. I understand the Army
    is continuing to use those assets and the Marine Corps is once again
    drawing on prepositioned stockpiles as Marine Corps units return to
    Iraq. Since the forces have transitioned from combat operations to
    stability operations, to what extent have your Services begun to return
    equipment to the prepositioned stockpiles that will not be required due
    to this change in operations?
        General Casey. The reset of Army Prepositioned Stocks (APS) is
    being impacted by the continued use of APS equipment in Southwest Asia
    (SWA). As an example, over 3,800 individual vehicles from APS have
    recently been issued in support of theater requirements. This presents
    a challenge in accomplishing APS reset. APS equipment will be used to
    support future Operation Iraqi Freedom (OIF) rotations. This is the top
    priority for APS maintenance efforts both in and out of theater and
    comprises a significant percentage of the APS equipment remaining in
    SWA, again limiting our ability to fully reset APS.
        APS reset actions have been accomplished on APS-4 (Korea), two
    ammunition ships, the 1  1 for Guam/Saipan, and the 1
     1 for Diego Garcia, which is being prepared to go afloat.
    Additionally, 48 percent of the combat support/combat service support
    equipment for the second large medium speed roll-on/roll-off ship for
    Guam/Saipan has been removed from SWA and is undergoing repair in
    Charleston, South Carolina. The Army will attempt to complete fill of
    this ship; however, continued use of APS equipment in SWA may prevent
    this.
        General Huly. The transition from combat operations to stability
    operations influenced the decision an withdrawal requirements from the
    First Marine Expeditionary Force (I MEF) concerning use of Maritime
    Prepositioning Force (MPF) equipment. The combination of an established
    logistics infrastructure and force composition to support the
    stabilization mission contributed to a selective (or tailored) approach
    to withdrawing specific equipment and supplies from the MPF. This
    selective approach resulted in a reduction in the requirement for much
    of the prepositioned sustainment stocks (i.e., Meals Ready to Eat
    (MREs), ammunition, package Petroleum Oil and Lubricants (POL),
    fortification, or medical supplies) and focused on our prepositioned
    Principal End Items (Class II/VII). As a result, the sustainment items
    not required to support OIF-II, but normally used in the first 30 days
    to support a Marine Expeditionary Brigade (MEB), are in the process of
    being returned to prepositioning stocks to support the rebuilding of
    our other prepositioning squadrons. As a result of the OIF II
    deployment of MPS principal end items, asset availability continues to
    be the major challenge in returning equipment to the prepositioning
    programs.

        22. Senator Ensign. General Casey and General Huly, what are the
    particular challenges associated with this process?
        General Casey. As previously noted, the continued use of APS
    equipment in Southwest Asia is impacting APS reset. Support to future
    Operation Iraqi Freedom (OIF) rotations will also require a large
    amount of APS equipment. This has the benefits of reducing home station
    equipment requirements, reducing the amount of strategic lift needed,
    and leaves a pool of equipment in the continental United States in case
    it is needed to support contingency operations elsewhere in the world.
    However, by utilizing APS equipment, the Army limits its ability to
    fully reset APS. Additionally, the continued use of APS equipment in
    theater will result in higher maintenance costs and increased numbers
    of replacements in the future.
        A major challenge will be funding. The supplemental funding we
    received this year was instrumental in resetting parts of APS. However,
    with much of the APS equipment remaining in theater supporting current
    operations and future OIF rotations, our reconstitution burden will
    only increase. The Army has an approved APS future strategy that we are
    continuing to refine, but without adequate funding, this strategy may
    be at risk.
        General Huly. Utilizing prepositioning assets for long-term
    employment (6 months and beyond) creates challenges at the Service
    level to adjust/shift the institutionalized support infrastructure
    (i.e., Depot maintenance, Master Work schedule, service contracts,
    outsourcing, etc) from long-term, pre-programmed, and budgeted workflow
    to short-term, reactive resource management that impacts fiscal
    efficiencies and strains workflow capacity. The long-term employment of
    principal end items has created an equipment availability problem that
    will only be alleviated by additional investments, redistribution from
    the operating forces or return of assets currently employed in
    contingencies. An extended equipment availability problem may result in
    gapping the Marine Corps prepositioning maintenance cycle at Blount
    Island Command, Jacksonville, Florida, which has the potential to
    degrade long-term operational capability and debilitate the Marine
    Corps ability to restart the maintenance cycle contract.

        23. Senator Ensign. General Casey and General Huly, how are you
    using your reset plans to redeploy pre-positioned assets for future
    missions?
        General Casey. The Army leadership recognized before Operation
    Iraqi Freedom (OIF) that the APS strategy that was based on Cold War
    realities had to change in order to meet Army transformation goals and
    to address the world's changing environment. OIF afforded the Army the
    opportunity to implement its new APS strategy in concert with Army
    setting the force plans.
        This new APS strategy is capabilities based and supports the
    defense strategy by emphasizing rapid force closure, enhanced strategic
    responsiveness, and provides flexible deterrent options to the regional
    combatant commanders across the full spectrum of operations.
        Under this strategy, the Army will maintain land based APS in
    Northeast Asia, Southwest Asia, and Europe. The APS afloat program has
    changed to an Army Regional Flotilla (ARF) concept where the afloat
    capabilities are dispersed geographically in critical regions to
    provide a set of modular capabilities. Each ARF will be comprised of
    five ships with a total of three flotillas located in the
    Mediterranean, Diego Garcia, and Guam/Saipan.
        The approved APS reset timeline is currently being executed in
    accordance with Army setting the force priorities. Recent APS reset
    actions have allowed the Army to place critical APS assets in Korea,
    Diego Garcia, and Guam/Saipan. These actions have mitigated some risk
    in three of four critical regions; however, current operations continue
    to impact full APS reset. The Army leadership has recognized for
    sometime that the timeline may have to be adjusted. This decision is
    still pending. As the Army goes forward, we will continue to place
    prepositioned assets in those areas deemed most critical preparing the
    Army for success in future missions.
        General Huly. Our focus is reconstituting a second MPF squadron
    (MPSRON-1) between now and April 2005. Additionally, we continue to
    assess what resources are available or needed to begin to reconstitute
    a third MPF squadron (MPSRON-2) beginning in May 2005 and ending in
    April 2006. Due to equipment maintenance capacity and/or asset
    availability, the reality may be that MPSRON-2 is not reconstituted
    until the OIF mission is complete and the returning equipment is
    repaired with associated equipment re-installed. Once the employing MEF
    determines their OIF III equipment requirements and external sourcing
    shortfalls, we will be able to better assess our ability to
    reconstitute MPSRON-2 and return our prepositioning capability to pre-
    OIF attainment and readiness status.

             ARMY GROUND AND AVIATION OPERATING TEMPO REQUIREMENTS

        24. Senator Ensign. General Casey, the Army has faced a number of
    challenges in trying to ensure that Army pilots and tank commanders
    complete the number of flying hours and tank miles planned for their
    training. For example, the Army was authorized funding in fiscal year
    2004 for 913 tank miles, but believes that it will execute closer to
    899 this year. With respect to aviation training time, the Army
    continues to fall short of the stated requirement for 14.5 hours/crew/
    month. Are deployments for contingency operations the major cause for
    under executing ground and air training time, or are there other
    factors, for example, are the required number of hours required to
    maintain ready air crews and tank crews correct, and what steps is the
    Army taking to address this issue?
        General Casey. Ground--The Army was authorized 913 tank miles, but
    we subsequently developed major command (MACOM) unique training
    strategies that updated the training requirement from 913 to 899 miles.
    MACOM strategies more accurately depict and estimate training
    requirements taking into account such factors as political and
    geographic constraints to training. Since 2001, the Army has executed
    its training mission and, in fiscal year 2004, execution is on track to
    meet or exceed projections. Our Combined Arms Training Strategy (CATS)
    is working and sustaining our warfighting readiness. We see the results
    every day in Afghanistan and Iraq. As the Army transforms and fields
    units of action and implements the force stabilization initiative, we
    expect to further modify our training strategy.
        Air--The CATS requirement for the modified table of equipment
    combat aviation units is an average of 14.5 hours/crew/month. In the
    first 5 months of fiscal year 2004, the active Army is on track to meet
    or exceed its air training requirements. The Army believes the CATS is
    accurate, however, a new training strategy is being developed as a
    result of the mix of pilots and aircraft as we move aircraft and pilots
    from the Corps into the Divisions under the Aviation Implementation
    Plan concept. The under execution of the flying hour program in the
    past was primarily due to three major factors: (1) Aviation
    Transformation Plan (divestiture of several Vietnam-era aircraft, re-
    sized units and movement of aircraft to other active component units
    and into the Reserve component to replace shortages); (2) Aviation
    units deployments to/from Bosnia, Kosovo, and Afghanistan requiring
    additional maintenance down time and 3 months ship and recovery time;
    and (3) Safety of flight (SOF) messages increased from an average of 12
    between fiscal years 1997-1999, to 35 between fiscal years 2000-2002,
    that caused numerous aircraft groundings waiting for new or improved
    parts. SOFs were down to 13 in fiscal year 2003 that helped increase
    execution to 14.1 hours/crew/month at home station. Currently there are
    six SOFs through February 2004.

                AIR FORCE AVIATION OPERATING TEMPO REQUIREMENTS

        25. Senator Ensign. General Moseley, I note that the budget request
    includes a reduction of approximately 20,000 hours for Air Force
    pilots. What is the reason behind this reduction and what are the
    implications for pilot training?
        General Moseley. The major issue contributing to the ``20,000''
    flying hour reduction was Air Education and Training Command's (AETC)
    canceling of Undergraduate Pilot Training class 05-15. This action
    provided funds to AETC to help build their fiscal year 2005 command
    program. It was managed so that it supported the reduction of over
    absorption pressures in the Air Force Operational Units and a reduction
    of stress on Field Training Units. The related fiscal year 2005
    undergraduate pilot production adjustment was from 1,100 to 1,014.

               CAPACITY AT DEPOTS TO EXECUTE PLANNED MAINTENANCE

        26. Senator Ensign. General Casey, Admiral Mullen, General Moseley,
    and General Huly, I am particularly pleased to read that the fiscal
    year 2005 budget request includes increases for most of your depot
    maintenance programs--in some cases, significant increases. How does
    this level of funding address continuing concerns about maintenance
    backlog?
        General Casey. The Army defines the backlog as unfunded
    requirements. Depot maintenance requirements include the following:
    end-item overhauls and repairs, missile certifications, watercraft
    certifications, embedded software maintenance, calibration support to
    units, technical support to lower levels of maintenance, and the
    recapitalization program. The Army's recapitalization program is fully
    funded. Funding for depot maintenance commodities is at levels in
    accordance with Army depot maintenance priorities and is balanced
    against other key Army programs. As equipment continues to age, and
    current operational tempo levels continue, sustainment costs will also
    increase. While depot maintenance funding increases slightly from
    fiscal year 2004-2005 (excluding the fiscal year 2004 supplemental),
    backlog continues at higher than acceptable levels.
        Admiral Mullen. Annual deferred ship maintenance has been reduced
    every year since fiscal year 2000. The fiscal year 2005 budget request
    provides the funding necessary to keep deferred maintenance low and
    maintain high fleet readiness.
        For aircraft depot maintenance, we have selected a more appropriate
    metric based on readiness levels rather than maintenance backlog. For
    airframes, the fiscal year 2005 program of record is resourced to
    achieve the CNO readiness goal of 100 percent Primary Aircraft
    Authorized (PAA) for deployed/work-up squadrons and 90 percent PAA for
    non-deployed squadrons. In addition, through this year's cycle we were
    provided an additional $33 million of funding to meet 100 percent of
    the planned inductions for the fleet's critical aircraft. This level of
    programming enables the Navy to meet operational commitments and
    achieve flight line aircraft entitlements for critical type-model-
    series. For engine depot maintenance, the fiscal year 2005 Program of
    Record is financed to achieve the CNO readiness goal of zero bare
    firewalls and 90 percent of the ready-for-issue spares.
        General Moseley. Air Force depot backlog has decreased in recent
    years due to supplemental and global war on terrorism funding. While
    the Air Force increased funding in the fiscal year 2005 President's
    budget (PB) for depot maintenance (82 percent--up from 77 percent in
    fiscal year 2004 PB), we are still projecting 39 aircraft and 60 engine
    deferrals, which are included on the Air Force's Unfunded Priority List
    ($242.8 million).
        General Huly. The Marine Corps Depot Maintenance program funding
    line remains consistent from fiscal year 2004 to fiscal year 2005 and
    meets immediate readiness needs and maintains an acceptable level of
    depot maintenance backlog.

        27. Senator Ensign. General Casey, Admiral Mullen, General Moseley,
    and General Huly, are there any constraints at your depots that would
    preclude your Service from executing the planned level of depot
    maintenance?
        General Casey. The Army and its depots are on track to execute all
    planned depot maintenance workload. To accommodate the additional reset
    workload, the depots have added second and third shifts, added
    additional production lines, increased overtime, hired government and
    contract employees, expanded contract hours, and implemented process
    improvements. Even with this increased production, the depots have not
    yet reached their maximum production capabilities and retain an ability
    to increase production further to meet the demands of future rotations.
        Admiral Mullen. The Navy carefully plans its maintenance and there
    are no known constraints that would preclude depots from executing the
    planned level of depot maintenance. A particular depot may experience a
    short-term workload perturbation, usually accommodated by civilian
    overtime and/or augmented by contractor artisans. Long-term workload
    perturbations are accommodated through hiring additional personnel,
    contractor augmentation and/or direct assignment of work to commercial
    and inter-service depots.
        General Moseley. No. We have the capacity to support workload that
    may generate as a result of real world operations and reconstitution
    efforts. We are meeting all demands and expect to continue to do so.
        General Huly. Marine Corps Depots have the ability to execute all
    planned depot level requirements. A primary constraint for the Marine
    Corps in the near term is asset availability for planned depot
    maintenance. Given the current operational tempo, many Marine Corps
    assets are committed to support OIF II. This unplanned commitment of
    assets initially slowed down asset availability for induction into the
    depot maintenance cycle. However new induction plans for assets for
    depot maintenance are being reviewed and continue to be updated to
    ensure asset availability.

                           INVENTORIES OF SPARE PARTS

        28. Senator Ensign. General Casey, Admiral Mullen, General Moseley,
    and General Huly, in the build-up to, and execution of, decisive
    operations in Iraq, many had expressed concern that the pace of
    operations had ``emptied the shelves'' of essential spare parts--
    particularly in the Army. What is your assessment of the impact of
    current operations on spare part inventories?
        General Casey. During fiscal year 2003, several Army-managed
    spares, critical in support of the global war on terrorism and
    Operation Iraqi Freedom, were in short supply. Intensive management
    efforts on the part of the U.S. Army Materiel Command's commodity
    commands have, in most cases, been able to alleviate or significantly
    reduce these shortfalls. However, the continued extremely high
    operational tempo keeps the delicate balance of parts availability and
    available resources precarious necessitating continuous oversight to
    preclude recurring shortages.
        Admiral Mullen. Spare parts inventories fully support current
    operations and the Navy has maintained a similar level of OPTEMPO in
    the region for many years. The Navy supply system is resourced to
    support the level of operations currently underway.
        General Moseley. The Air Force's spare parts inventory has remained
    essentially level over the last 3 years, although our supply
    performance (in terms of mission capable hours lost due to lack of
    spares) has steadily improved. Aircraft grounded for lack of parts and
    aircraft cannibalized for parts have remained approximately the same as
    before Operation Iraqi Freedom. Our Air Force supply records indicate
    the Readiness Spares Package assets (along with rapid re-supply
    operations) were very successful in keeping weapon systems operational
    during the overall conflict.
        General Huly. Lack of visibility for OEF/OIF I in the supply chain
    resulted in duplicative ordering of some spares, which produced an
    impression of high usage early on. The combination of normal operating
    stock and prepositioned assets on Maritime Prepositioning Ships (MPS)
    mitigated the impact. The Marine Corps experienced minimal spares
    impact as a result of operations. We overcame the visibility problems
    by using the commercial freight company, Dalsey, Hillblom & Lynn (DHL),
    to provide quick response to the operating forces in Kuwait. Because
    the Marine Corps has an end-to-end supply chain secondary reparable
    management program, we were able to minimize the impact to operations.
    The impact of current operations on spare parts inventories is
    improving.

        29. Senator Ensign. General Casey, Admiral Mullen, General Moseley,
    and General Huly, to what degree can the industrial base support
    requirements for spare parts?
        General Casey. The industrial base adequately and satisfactorily
    supports spare part requirements within contractual and material lead
    times. A great majority of spare parts (80 percent) are under the
    Defense Logistics Agency (DLA) management, and the U.S. Army Materiel
    Command (AMC) manages the remainder. Overall spares support from AMC's
    major subordinate commands and DLA's supply centers was tremendous.
    However, critical items remain critical items even in a time of war.
    Our industrial base responded to the challenges and surged production
    on several key items such as tracks, road wheels, batteries, and rotor
    blades in support of the high level of conflict intensity. Our
    experience with the industrial base for this effort has been extremely
    positive, and many of our contractors have given us their full support.
        Admiral Mullen. The industrial base is adequately supporting the
    requirements for spare parts. Performance based logistic contracts in
    addition to the retirement of older ships and airframes have eased the
    occurrence of spare parts shortages in general.
        General Moseley. The aging fleet is increasing operating costs and
    impacting readiness. Office of the Secretary of Defense has formed the
    Joint Council for Aging Aircraft and the Air Force has established an
    aging aircraft office at our Air Force Materiel Command to provide an
    Enterprise Management Approach. We have formed a Diminishing
    Manufacturing Source and Material Shortages Program to address
    solutions such as redesign, and qualification of additional
    manufacturers to include aftermarket sources for parts manufacturers.
    We also have asked Air Force Research Laboratory to assess the
    industrial base.
        The Air Force, along with the other Services, are developing and
    implementing capabilities to respond to the issue of parts
    availability. Our aging fleet and some newer systems continue to
    experience component availability problems. This is mainly with
    microelectronic items but other commodity groups are impacted. We
    expect that our current acquisition processes will keep us in step with
    the industrial base and therefore, allow us to make rapid changes as
    needed.
        General Huly. Industry did respond to most of our surge
    requirements for spares and repair parts for ground equipment.
    Additionally, the Marine Corps leveraged our industrial base surge
    capability for NBC equipment, and most recently, body armor. Also, the
    requirement to armor plate our vehicles was met with quick, decisive
    response from the commercial sector as well as our own depot expertise.
    Marine Corps depots manufactured and shipped vehicle hardening to meet
    the recent I MEF OIF-II requirement. For their expertise and devotion,
    they were recently awarded the Meritorious Unit Citation by the
    Secretary of the Navy.

        30. Senator Ensign. General Casey, Admiral Mullen, General Moseley,
    and General Huly, what programs do each of your Services have in place
    to manage procurement and distribution of essential spare parts?
        General Casey. The U.S. Army Materiel Command prioritizes the
    distribution and procurement of all essential spares based on the
    priority of need for each customer. Procurements are awarded based on
    funds availability. Currently, fiscal years 2002 and 2003 spare parts
    procurement for peacetime requirements and procurement in support
    contingency operations are on contract.
        As with any massive deployment, there are challenges in meeting the
    distribution. Multiple consignee shipments being broken down,
    separated, and delivered to the requesting combat unit resulted in
    extensive delays at the Theater Distribution Center. The Defense
    Distribution Center is now building pure pallets to be sent directly to
    the requesting major combat units. Additional transportation assets,
    both ground and theater air, have been allocated to move parts into the
    maneuver area. The Defense Logistics Agency (DLA) has been asked to
    stand up a theater distribution center similar to its operation at
    Susquehanna, Pennsylvania. This, coupled with U.S. Transportation
    Command initiatives, will smooth the path to the port or rail stop.
        Admiral Mullen. Navy's global supply chain is structured to support
    naval operations worldwide in areas of vital U.S. interest, in peace
    and war. The Navy system is focused on timely delivery of validated
    requirements anywhere in the world, including procurement, stocking,
    and expeditious movement of essential parts. Part visibility and
    tracking in the logistic pipeline ensures efficient movement from
    manufacturer to end-user. Parts are stocked aboard ships and submarines
    based upon the contribution to achieving a weapon system readiness
    goal. To meet the parts demand of afloat units, Navy has robustly
    funded the wholesale requirement to ensure system responsiveness.
    Increasingly, we use our commercial partners via performance based
    agreements to improve the availability of mission essential parts that
    have historically not satisfied the fleet's demand in a timely fashion.
    To support sustainment, critical parts that have been used and are in
    need of repair are flagged for expeditious movement back to depots for
    rapid return to the fleet. There are isolated cases where support does
    not meet fleet requirements, but these are exceptional support
    challenges and not driven by lack of funding or current operations.
    Overall, from end to end, we have the supply chain about right,
    particularly for essential items.
        General Moseley. Processes and procedures are in place to
    accelerate procurement actions in response to an emergency, including
    contingencies. Procedures are also in place that allow for expedited
    delivery, including direct delivery to the user.
        The Air Force Procurement and Supply Chain Management
    transformation initiative incorporates a shift toward management of
    material based on a commodity-centric approach, links purchasing and
    supply chain management to the Air Force procurement and logistics
    strategic goals. The objective is to align policies, processes, people,
    and technology to facilitate continuous improvement to reduce total
    ownership costs, manage risks, and improve performance (quality,
    responsiveness, reliability, and flexibility).
        With the increase in operations, a focused cell was established to
    provide a ``one-stop shopping'' for shippers of Air Force Cargo. The
    Continental United States (CONUS) Distribution Management Cell has
    refined the skills resident within the Shipper Service Control Office
    and the Air Clearance Authority to provide a service to expedite,
    locate or divert cargo to meet our customer's needs. The CONUS
    Distribution Management Cell is composed of a command and control cell
    at Wright Patterson Air Force Base, and forward located personnel at
    Norfolk Naval Air Terminal, Dover Air Force Base, and Travis Air Force
    Base. The CONUS Distribution Management Cell is positioned to directly
    support Operation Enduring Freedom/Operation Iraqi Freedom (OEF/OIF)
    activities as well as any other operations needing specialized support
    in asset visibility and expeditious movement of Air Force cargo.
        An OEF/OIF shipment tool was developed in response to a United
    States Air Forces, United States Central Command request to automate
    important shipment data and policy directives. The shipment tool
    summarizes by week, the transit time performance to all OEF/OIF
    locations for Air Mobility Command and commercial carrier modes.
    Additionally, delays such as cargo frustration, incorrect routing and
    customs delays are shown to highlight problems encountered in various
    shipping  modes. Shippers as well as decisionmakers use this data to
    determine preferred modes and carriers.
        Another initiative that has helped optimize mode and carrier
    selection is our partnerships with the World Wide Express carriers. On
    a weekly basis, commercial carrier performance from an Air Force
    perspective is forwarded to the carriers for their comments. Feedback
    from the carriers usually detail problems they are having, get-well
    plans and carrier specific routing. If carrier performance trends
    indicate poor performance then a change in shipping mode or carrier is
    considered and/or implemented. Monthly conference calls with the
    carriers and carrier representatives located in the area of
    responsibility have been effective in relaying Air Force priorities and
    concerns.
        General Huly. The Marine Corps has an end-to-end supply chain
    secondary reparable management program. As a result, reparables are
    reordered based on failures and replenishment of those items at
    predetermined points as a result of the collaborative planning process.
    Visibility of essential spare parts coming from the continental United
    States was one of the greatest challenges during OIF. A recent
    initiative to mitigate those challenges is the implementation of Radio
    Frequency Identification (RFID) tags. We are using RFID tags on all
    sustainment cargo (e.g., boxes, pallets, containers) for OIF-II and
    will apply tags and interrogate down to the tactical level. We plan to
    use RFID technology to obtain visibility to the battalion level and to
    push tagged shipments as far forward as possible. Distribution teams
    with interrogators are established at key nodes in theater to employ
    RFID visibility to the tactical level. While we are working the initial
    RFID implementation now, the end state is full integration into the
    end-to-end distribution process.

            DEPOT-LEVEL REPAIR/MAINTENANCE OF EQUIPMENT USED IN IRAQ

        31. Senator Ensign. General Casey and General Huly, Army and Marine
    Corps armored and mechanized vehicles, helicopters, and other equipment
    have been tried and demonstrated durable and reliable, without
    question, in the harsh Iraqi environment. As this equipment comes off
    the line for depot-level repairs and servicing, what is the strategy of
    the Army and Marine Corps to quickly and effectively make repairs and
    return the equipment to the warfighters?
        General Casey. The Army has established extensive ground, aviation,
    and communications and electronics sustainment programs in theater to
    support the warfight. The three primary locations where maintenance is
    performed are Tikrit, Anaconda, and Arifjan. The U.S. Army Tank--
    automotive and Armaments Command, Rock Island, Illinois, has
    established Forward Repair Activities (FRA) composed of select
    capabilities from both Anniston and Red River Army Depots (Anaconda and
    Arifjan) to provide support to combat and tactical equipment. A HMMWV
    support center was established in Iraq (Anaconda) on October 29, 2003,
    to provide wheeled vehicle services. The Army is also in the final
    planning stages for establishing an intermediate level maintenance
    Heavy Tactical Vehicle Support Center in Iraq. The U.S. Army
    Communications--Electronics Command, Fort Monmouth, New Jersey, FRA
    (Tikrit and Arifjan) supports the Mobile Subscriber Equipment,
    communications security, intelligence electronic warfare, logistics
    automation programs, and other general communications and electronic
    items. Technicians from Tobyhanna Army Depot are supporting logistics
    automation hardware, Common Ground Stations, and the Firefinder radar
    systems. The U.S. Army Aviation and Missile Command, Redstone Arsenal,
    Alabama, has an Aviation Classification Repair Activity Depot (AVCRAD)
    and a Mast Mounted Sight Team (Arifjan) capable of providing theater
    level intermediate and selected depot support for all Army aviation
    systems in the area of responsibility. The AVCRAD also supports
    aircraft phase maintenance and conducts the processing and deprocessing
    of aircraft at the port. Teams are also on the ground inspecting,
    assessing, repairing, and servicing equipment; building wheel
    assemblies; applying add-on armor; inspecting and evaluating battle
    damage costs; and identifying and inspecting and processing repairables
    for retrograde to the United States.
        To accommodate the reset workload done at the depots in the U.S.,
    the depots have added second and third shifts, additional production
    lines, increased overtime, hired government employees and increased
    contractor support, and implemented process improvements.
        General Huly. The Marine Corps strategy includes early
    identification of requirements, use of forward deployed contact teams,
    and maximum use of remain behind equipment to quickly and effectively
    repair and return equipment to the warfighter.
        Early identification of requirements was accomplished by contact
    teams sent in theater to conduct assessments of damaged and dead lined
    principal end items. As a result of early identification of
    requirements, the Marine Corps made sourcing decisions that expedited
    the repair process. Blount Island Command dispatched a large contingent
    of forward deployed contact teams to initiate on site repairs and begin
    Maritime Preposition Force reconstitution. Marine Corps Logistics
    Command dispatched contact teams to assess the condition of Remain
    Behind Equipment (RBE). The contact teams identified the RBE that was
    operational capable and available for MPF reconstitution, equipment
    that needed repair and could be repaired on site, and equipment
    requiring depot level repair.

        32. Senator Ensign. General Casey and General Huly, to what degree
    are the maintenance depots being used to effect repairs?
        General Casey. In fiscal year 2004, the Army received $1.2 billion
    for emergency supplemental reset funding for depot level overhauls and
    rebuilds in addition to our peacetime budget for depot maintenance. The
    Army is using reset funding to have its industrial base and industry
    partners restore key combat systems to the condition our equipment was
    in when it deployed with our soldiers. To accommodate the reset
    workload, the depots have added second and third shifts, additional
    production lines, increased overtime, hired government employees,
    expanded contract hours, and implemented process improvements. Even
    with the increased production, the depots have not yet reached their
    maximum production potential and retain an ability to increase
    production further to meet the demands of future rotations.
        The U.S. Army Tank--automotive and Armaments Command, Rock Island,
    Illinois, has established forward repair activities composed of select
    capabilities from both Anniston and Red River Army Depots (Anaconda and
    Arifjan) to provide support to combat and tactical equipment.
    Technicians from Tobyhanna Army Depot are supporting logistics
    automation hardware, Common Ground Stations, and the Firefinder radar
    systems.
        General Huly. The Marine Corps Depots have a major role in
    returning the operating forces to full mission capable. Both Depots are
    multi-commodity centers that can repair most Marine Corps ground combat
    equipment and are committed 100 percent to reconstitution efforts for
    Maritime Preposition Program and the MARFORs. Marine Corps Depots
    accelerated execution is providing timely support to the reconstitution
    effort.

                          ARMY AMENDED BUDGET REQUEST

        33. Senator Ensign. General Casey, the Army recently cancelled the
    Commanche helicopter program. As a result of the cancellation, the
    President has submitted a revised budget request for the Army for
    fiscal year 2005. The request indicates an increase of $57.0 million
    for the Army operation and maintenance account for the Army's Flying
    Hour Program. The request also indicates a decrease of $48.2 million
    from the Army National Guard from the Guard's Flying Hour Program. What
    are the implications for the aviation training programs of the Army and
    of the National Guard as a result of these funding realignments?
        General Casey. Active Army Flying Hour Program (FHP): Although the
    Army requested an increase of $57.8 million for the Operation and
    Maintenance, Army (OMA) appropriation, only $33.9 million is designated
    for the FHP. The remainder of the $57.8 million is designated for other
    aviation requirements (i.e., publications, $6.8 million; logistics
    programs, $2.9 million; flight training, $10.2 million; doctrine
    development, $4 million). The FHP increase funds the Army's move to the
    new modular unit structure by moving aviation units from the Corps into
    the Divisions, converting the 3rd Infantry Division, 101st Airborne
    Division (Air Assault), 10th Mountain Division, 4th Infantry Division
    and the 4th Air Troop/2nd Armor Cavalry Regiment by the end of fiscal
    year 2005. The Army changed the mix of line pilots and staff pilots in
    units that increased flight hours in modernized aircraft. This movement
    to modular units caused the changes to aircraft allocation and crew mix
    for UH-60, OH-58A1C, OH-58D and AH-64. More AH-64 Apache helicopters
    and pilots will be retained in the Active Force and all Attack
    Battalions will be converted to the more expensive AH-64D Longbows by
    2005. Also, the Aviation School's Program of Instruction (POI) for
    Implementing Flight School XXI changed causing a 12 percent increase in
    flight hours but only a three percent increase in cost by using more
    hours in less expensive TH-67 and OH-58AC aircraft.
        Army National Guard FHP: New force structure changes for the Army
    National Guard (ARNG) are based on the Aviation Implementation Plan.
    The $48.2 million reduction in the President's fiscal year 2005 budget
    submission incorporates force structure changes in the Army National
    Guard (ARNG) FHP. The changes affect mix of aircraft and pilots for the
    entire fleet of aircraft. The primary reduction in cost is a result of
    the elimination of 6 Divisional Cavalry Squadrons (12 Air Troops and 6
    Aviation Unit Maintenance Troops) and 1 Attack Battalion as a result of
    new Army aviation designs. In addition, one of the ARNG Attack
    Battalions originally scheduled for conversion to the AH-64D Longbow
    will remain equipped with the older AH-64A.

        34. Senator Ensign. General Casey, what does this mean in terms of
    hours flown per air crew per month (the Army/Army National Guard metric
    for aviation training)?
        General Casey. Active Army Flying Hour Program (FHP): We have not
    changed our crew operational tempo training strategy in fiscal year
    2005--remains at 14.5 hours/crew/month. However, the strategy will
    increase slightly as more aviation units are transformed into the new
    modular unit structures (14.6 in fiscal year 2006 and 14.7 in fiscal
    year 2007 and out). The Aviation Implementation Plan's new modular unit
    structure changed the mix of line pilots that fly more hours than the
    battalion's staff pilots in combat units. This change increased flight
    hours in modernized aircraft. The plan changes the FHP based on
    aircraft reallocation and crew mix for OH-58D, UH-60, CH-47D, and AH-
    64. More AH-64 Apache helicopters and pilots will be retained in the
    Active Force and all will be converted to the more expensive AH-64D
    Longbows by 2005. We are retaining more UH-60As that are more expensive
    to fly than the UH-60Ls. Also, the Aviation School's program of
    instruction for Implementing Flight School XXI changed causing an
    increase in flight hours and cost.
        Army National Guard (ARNG) FHP: The ARNG aviation training strategy
    has changed slightly upwards from 9.7 to 9.9 hours/crew/month. The
    increase is due to the change in the mix of pilots and aircraft in the
    modified table of equipment combat units. Overall, the ARNG reduced
    authorized units, pilots and aircraft, which is the reason for the
    decrease in funding.

      BUDGETING FOR TRAINING EVENTS AT MAJOR RANGE AND TEST FACILITY BASES

        35. Senator Ensign. General Casey, Admiral Mullen, General Moseley,
    and General Huly, one of the challenges identified with the growing use
    of Major Range Test Facility Bases (MRTFB)-designated activities for
    training purposes is financial solvency of the MRTFB. It has been
    suggested that the services include funding for training at MRTFBs in
    their Program Object Memorandums (POMs). How does your Service budget
    for training at MRTFBs?
        General Casey. Army MRTFBs do not program for training on their
    ranges other than for the Integrated Training Area Management (ITAM)
    program. The Army Test and Evaluation Command (ATEC) programs ITAM
    requirements for White Sands Missile Range, Yuma Proving Ground,
    Arizona; Dugway Proving Grounds, Utah; and Aberdeen Proving Ground,
    Maryland. ITAM supports land management and maintenance at those
    locations. Requirements are based on both testing and training
    activities. ATEC does not program for range operations and range
    modernization in support of training. Units using MRTFB for training
    are normally required to reimburse the installation for range
    operations support. Such funds would come from the unit's operational
    tempo.
        Admiral Mullen. Fleet commands budget for exercise activity on
    MRTFBs from the Operation and Maintenance, Navy (O&M,N) account. These
    O&M,N resources pay for training exercise support on MRTFBs and the
    amount budgeted is developed using historical expenditures.
        General Moseley. The Air Force programs for training activities on
    the six Air Force MRTFBs, however not all training activities and units
    are included in the POM submission.
        The POM submission includes training funds only for the MRTFB's
    host units. For example, Nevada Test and Training Range's (NTTR) host
    unit is the Air Combat Command (ACC) wing at Nellis Air Force Base,
    thus these units are budgeted for operations on NTTR, while no other
    units are included in the POM submission. This rule applies to Utah
    Test and Training Range (UTTR) as well with the exception that UTTR's
    POM submission accommodates training for all ACC units. Large-scale
    exercises on NTTR, i.e., Red Flags, are included in the POM by the
    major commands in their Combat Air Forces Exercise and Readiness
    Training Periodic Inspection. Otherwise, no other training on MRTFBs is
    included in the POM submission.
        General Huly. Currently, the Marine Corps does not have any MRTFBs
    so therefore we don't budget for them. However, we do our testing at
    Eglin AFB. The Air Force budgets for normal throughput at their
    activity. When the Marine Corps has additional students to train, we
    forward a Military Interdepartmental Purchase Request for the
    additional cost only. Eglin AFB determines cost based on which course
    it is and services needed.
        Fiscal year 2004 global war on terrorism paid for 16 additional
    students at a cost of $290,000 for the Navy Explosive Ordnance School.
        Fiscal year 2005 global war on terrorism paid for 76 additional
    students at a cost of $479,000 for the Navy Explosive Ordnance School.

        36. Senator Ensign. General Casey, Admiral Mullen, General Moseley,
    and General Huly, to what degree is budgeting captured in the current
    POM development process?
        General Casey. Only Integrated Training Area Management is
    programmed to support training on the Army Test and Evaluation Command
    major range test facility bases.
        Admiral Mullen. The Operation and Maintenance, Navy (O&M,N) account
    budgets projected workload for exercise support on ranges, to include
    training on the Major Range Test Facility Bases. Fleet commands
    resource these requirements within their budgets from the O&M,N
    account.
        General Moseley. Budgeting for training activities at Major Range
    and Test Facility Bases (MRTFBs) follows the established Air Force
    process and is captured in the respective Air Force Major Command
    (MAJCOM) budgets. The current Air Force Planning Programming Budgeting
    and Execution process allocates a fair-share portion of overall Total
    Obligation Authority to each MAJCOM. Each MAJCOM allocates funding for
    their programs based on required capabilities and current fiscal
    realities. If a MAJCOM has a funding shortfall or excess, the issue is
    elevated through the Air Force Corporate Structure process. The
    Corporate Structure then ranks MAJCOM issues in accordance with Air
    Force priorities, balancing disconnects and initiatives against
    offsets. The Air Force Corporate Structure sees programmatic issues for
    training events at MRTFBs during the POM only if the MAJCOM has a
    broken program, a new program or is offering up funding from a program.
    In short, program growth for MRTFBs is reviewed at the MAJCOM and air
    staff level and competes for funding based on MAJCOM priorities and Air
    Force priorities. MAJCOM priorities that don't receive funding are
    consolidated and prioritized in the Air Force unfunded requirements
    list.
        General Huly. The POM development process captures all scheduled
    training events at major range and test facility bases. Due to
    deployments and other operational requirements, these schedules are
    subject to change, and the corresponding adjustment in resources are
    addressed in the year of execution through the budgeting process.
                                     ______

                  QUESTION SUBMITTED BY SENATOR JEFF SESSIONS
                              AIR FORCE C-5 FLEET

        37. Senator Sessions. General Moseley, I am truly disturbed that
    your C-5 fleet appears to be standing into trouble. We have a set of
    programs on the books to upgrade the C-5s, the Avionics Modernization
    Program (AMP) which is a comprehensive upgrade to the Avionics package,
    and the Reliability and Re-engining Program (RERP) that fixes the
    engines. I'm told these upgrades, in addition to improving the safety
    of flight, will save over $1 million a day in operations costs and may
    save over $8 billion through the Future Years Defense Program (FYDP).
    Yet these programs were a bill payer in the Air Force budget this year,
    and these badly needed upgrades are not even on your unfunded list. I
    have heard further that your lead contractor, Lockheed Martin, may be
    having trouble on the AMP software part of this and that the program
    may slip even further than the year that the AMP program has already
    slipped. Now with the C-5s in their current condition, it appears they
    experience a lot of downtime, and many folks were upset that we leased
    Antonov 124s where a company from the Ukraine flew our heavy lift
    missions on a Air Force subcontract for close to $50 million during
    Operation Iraqi Freedom. What is the plan for bringing these AMP and
    RERP upgrade programs back on track to bolster the readiness of our
    heavy airlift fleet or is the C-5 a divestment target?
        General Moseley. With regard to C-5 AMP, last fall Lockheed Martin
    briefed the program office of a 4-month slip in flight test completion
    from June 2004 to October 2004. Since that time the Air Force has been
    notified that flight test completion has been slipped to January 2005.
    Funds were transferred from RERP to AMP in fiscal year 2005 for
    Research, Development, Testing and Evaluation (RDT&E) and spare parts.
    A C-5 must be AMP'd prior to being RERP'd due to avionics required for
    the new engines. Therefore, our first priority is to ensure that AMP is
    a success and remains on track. The current Air Force program procures
    55 kits by the end of fiscal year 2006. Procurement of additional AMP
    kits will be addressed by the Air Force during our fiscal year 2006
    budget deliberation process.
        Budget decisions removed RERP funds to pay for higher Air Force
    priorities. Initial estimates from the program office indicated a one-
    year slip in RERP RDT&E and procurement. Since those initial estimates,
    the program office has restructured the program to bring RDT&E back to
    the original schedule, however procurement has been slipped 1 year.
    Three RERP kits were procured in fiscal year 2004 for RDT&E. During the
    fiscal year 2006 budget deliberation process the Air Force will
    evaluate several C-5 RERP options that keep this important program on
    track with Air Force mobility requirements.
                                     ______

                 Questions Submitted by Senator Saxby Chambliss

                          AERIAL COMMON SENSOR PROGRAM

        38. Senator Chambliss. Admiral Mullen, I am pleased that the Army
    and Navy are teaming on the Aerial Common Sensor (ACS) program and
    believe that the more our military approaches programs jointly the more
    efficient we will be and the more value we will get for the taxpayers'
    money. However, I have some specific concerns about the way the ACS
    program is being competed. As you may know, the Army program manager
    for the ACS program made the comment regarding the ACS platform that,
    ``It's like buying a car. I would love to have a Lexus or a Mercedes,
    but my checkbook doesn't afford that, I get the minimum needs of a car
    that I have to have.'' Now when it comes to fighting a war, collecting
    sensitive intelligence in hostile environments, and ensuring the safety
    of our men and women in uniform, I think that statement is a just a
    little bit shortsighted. Can you comment on the Navy's requirements for
    the ACS program, both regarding the sensors and the platform, and what
    intelligence collection requirements you would not be able to meet if
    you procured a platform that meets the minimum threshold versus the
    more rigorous, objective requirements?
        Admiral Mullen. The proposed ACS will meet the Navy's requirements,
    exceeding EP-3E capabilities in both mission sensors and aircraft
    performance while expanding the mission beyond the current Signals
    Intelligence (SIGINT)--only capability. ACS mission systems represent a
    significant improvement over the current EP-3E capabilities, performing
    SIGINT (Communications Intelligence (COMINT), Electronic Intelligence
    (ELINT), and special signals), Imagery (Electro-Optic, Infrared and
    Synthetic Aperture Radar) and Measurement and Signature Intelligence
    (MASINT). Additionally, ACS will exceed EP-3E aircraft performance
    capabilities in terms of speed, altitude, and on-station coverage while
    also meeting the EP-3E's maximum range criteria, significantly
    surpassing the EP-3E's capabilities and meeting Navy intelligence
    collection requirements even at the threshold requirement.

       DEFENSE PLANNING GUIDANCE EMPHASIS ON PERFORMANCE BASED LOGISTICS

        39. Senator Chambliss. General Moseley, in your written statement
    you focus quite a bit on depot maintenance programs and funding. I am
    pleased that the Air Force has a depot maintenance strategy and is
    committed to it. I think the other Services would benefit from having a
    similar strategy for their depot maintenance work. Apparently the most
    recent Defense Planning Guidance issued in February 2004 requires that
    all acquisition category 1 and 2 programs be reviewed for the
    application of performance based logistics. I believe in performance
    based logistics, but it often implies contractor support rather than
    in-house depot maintenance, and the idea that we may be moving toward a
    paradigm where we automatically assume that maintenance of major
    weapons systems will be performed by contractors concerns me. We have
    already seen this with the 767 tanker lease contract. What is the
    intent and logic of this defense planning guidance directed review and
    does it indicate that DOD is moving toward contracting out the workload
    for our core logistics capabilities?
        General Moseley. The Air Force agrees that current operations in
    Operation Enduring Freedom--Afghanistan and Operation Iraqi Freedom
    reinforce the value in terms of readiness, logistics footprint and
    costs, of weapon systems operating under Performance Based Logistics
    (PBL) arrangements (e.g. F-18E/F, C-17, F-117). PBL is the Air Force
    preferred product support strategy for sustaining our systems.
        PBL does not imply contractor support rather than organic support.
    PBL places full accountability for product support on the program
    manager using public, private, or a partnership between public and
    private sector providers.
        PBL will not impact core logistics capabilities, since, by law,
    core logistics capabilities must be performed in Government-owned and
    Government-operated (including Government personnel and Government-
    owned and Government-operated equipment) facilities. We are able to
    meet core logistics capabilities through partnerships that incorporate
    the tenets of PBL. A good example is the C-17 PBL partnership between
    the contractor and our Air Force depots on core workloads. These
    partnerships will stand up core capabilities at all three Air Force
    depots. WR-ALC currently performs depot maintenance on C-17 aircraft.
    The Air Force is establishing additional core capability to perform
    avionics work at WR-ALC, auxiliary power units at OO-ALC, and
    pneudraulics and displays at OC-ALC. The Air Force will continue to
    meet the requirements of the law.

                BLOUNT ISLAND/MARINE CORPS LOGISTICS BASE ALBANY

        40. Senator Chambliss. General Huly, I was pleased to see you refer
    to Blount Island so extensively in your written statement. They and the
    Marine Corps Logistics Base in Albany, Georgia, play an absolutely
    central role in maintaining equipment and supplying the Marine Corps'
    fleet of maritime preposition ships. From your comments in your written
    statement on depot maintenance, it sounds like the Marine Corps has
    requested less depot maintenance funding than you really need because
    your depots do not have the capacity to handle the workload the Marine
    Corps requires. It also sounds like you are not able to make equipment
    available for depot maintenance at the appropriate intervals simply
    because you need the equipment in the field so badly. Is it true that
    the capacity of Marine Corps depots is insufficient to perform your
    required workload, and what is your long-term plan for modernizing and
    improving the efficiency of your depots in order to expand capacity so
    they can meet all of the Marine Corps logistics requirements?
        General Huly. The capacity of Marine Corps depots is sufficient to
    perform the required workload. The depots can be operated at a surge
    capacity and contracted support can be brought in to manage increased
    workloads requiring rapid turnaround. The Marine Corps' organic
    facilities have the capability to increase production to meet surge
    demands through the use of overtime and working additional hours on the
    weekends, without being augmented by additional facilities, equipment,
    or personnel. If necessary, additional temporary personnel can be hired
    to handle increased demand.
        All Marine Corps Depot level requirements are being accomplished
    through organic and commercial repair sources as required. The long
    term plan is to transform the depots into a premier source of repair in
    the Department of Defense, seeking workload outside the Marine Corps to
    augment funded requirements and sustain critical skill sets. Public-
    private partnering ventures are being developed to strengthen the
    Marine Corps' competitive position and leverage expertise from both the
    public and private sectors. The long term strategy includes modernizing
    the depots to provide continuing support resulting from new equipment
    acquisitions. Significant efficiencies continue to be realized within
    the Marine Corps Depots as a result of process improvements such as
    Theory of Constraints, Lean Thinking, and International Organization
    for Standardization (ISO) certification.
                                     ______

                 Questions Submitted by Senator Daniel K. Akaka

                               TOMAHAWK MISSILES

        41. Senator Akaka. Admiral Mullen, your testimony cites additional
    investments in Tomahawk missiles, among other things, as the result of
    lessons learned in Operations Iraqi Freedom and Enduring Freedom.
    However, Tomahawks are also on the Navy's unfunded priority list. How
    much have you invested in Tomahawks, and why have you not funded them
    more robustly if they are an important warfighting capability?
        Admiral Mullen. The Navy has significantly invested in the Tomahawk
    weapon system which has repeatedly proven itself a valuable and
    versatile weapon, investing $402.5 million in research, development,
    test, and evaluation, Navy (RDT&E-N) funding from fiscal year 1998
    through fiscal year 2004 towards the development of the Tactical
    Tomahawk Missile; $510 million in the weapon (WPN) account in fiscal
    year 2002 and fiscal year 2003; and the fiscal year 2005 President's
    budget request contains $2.199 billion in weapons procurement funding
    for fiscal year 2004-2009. This reflects $65 million additional funding
    for fiscal year 2005 above the fiscal year 2004 President's budget
    request profile. Also, the CNO unfunded list contains two unfunded
    requests: one for additional Special Tooling and Special Test Equipment
    to increase production capacity, and a second for an additional 163
    Tactical Tomahawk missiles. By balancing the proper mix of other weapon
    systems capabilities in combination with those of Tactical Tomahawk,
    the fiscal year 2005 President's budget request represents the best
    balance of resources to requirements across the Department of Defense.

                      FLYING AND STEAMING HOUR REDUCTIONS

        42. Senator Akaka. Admiral Mullen, your statement acknowledges that
    the Navy has reduced its goals both for steaming days and for flying
    hours in this year's budget request. I know that all of the Services
    are facing severe budgetary pressures, and that you are trying to be as
    responsible as possible with your funding. However, I am concerned when
    these pressures appear to lead to things like lowering required goals
    and decreasing readiness. I have a couple of questions about this, but
    I also want to state that this is an area where I am particularly
    concerned about the relationship between the Navy and the Marine Corps,
    with respect to funding. What I mean by that is, even if the Navy
    decides that it can afford to reduce its flying hour requirements, for
    example, I sincerely hope that these decisions are not forced upon the
    Marine Corps, which might have a different view. Therefore, I hope that
    the fiscal year 2006 budget request will reflect whatever the
    independent judgments are of the Navy and Marine Corps about flying
    hour needs, in particular. Was the flying hour reduction in this year's
    Navy budget request driven by financial or operational concerns and
    what about the reduction in ship steaming days?
        Admiral Mullen. Our fiscal year 2005 budget request is the result
    of a conscious, detailed, analytically-based effort to balance current
    readiness needs and future readiness investments. Through an expansion
    of our training cycle, efficiencies gained from shore-based training,
    and increased utilization of flight simulators, we were able to reduce
    flying hours and non-deployed steaming days while still maintaining a
    readiness posture that supports the Fleet Response Plan. Simulators
    systems have matured and become more widely available, providing a
    realistic imposition of important combat and emergency situations that
    are simply too risky for basic training in a live training environment
    (e.g., airframe threatening aircraft emergencies, multiple weapon
    firings, etc.), enhancing the overall regimen of both aviation and
    shipboard training.
        Concerning the Marine Corps Flying Hour Program, the Marine Corps
    independently constructs its overall requirements in general and its
    type/model/series training and readiness requirements in particular,
    reflecting the significant differences in composition and mission
    requirements of the two air fleets. Similar to the Navy, however, the
    Marine Corps has also somewhat reduced their overall flying hour
    requirement--which is fully funded--after a detailed review of their
    training and readiness requirements and historical execution data.

                                   READINESS

        43. Senator Akaka. Admiral Mullen, what analysis has the Navy done
    to demonstrate that less ready is still ready enough, or, put
    differently, why were we previously paying for readiness we didn't
    need?
        Admiral Mullen. The Navy achieved over the last 4 years--and is now
    maintaining--its highest, sustained level of readiness force-wide seen
    in modern times. Indeed, only through your support and very aggressive
    funding on readiness accounts by the CNO and Navy over the past 4 years
    was the Navy able to implement such a far-reaching and transformational
    force employment program like the Fleet Response plan (FRP). FRP is
    among the most important of Navy's transformation efforts; it
    strengthens--not lessens--the Navy's readiness and its commitment to
    routinely provide forces through flexible deployments to combatant
    commanders and additional combat-ready forces, faster, in times of
    need.
        FRP maintains the Navy's traditional commitment to deploy forces
    overseas in areas of vital U.S. interest. These capabilities-based
    forces are ready to respond across the entire spectrum of international
    engagement, from diplomacy to major crises--anytime, anywhere, in the
    far corners of the world, without a permission slip. Furthermore, FRP
    also ensures that forces operating in home waters quickly achieve and
    then maintain a combat-ready level of readiness, providing more options
    to the President and additional forces for crisis response or homeland
    security, as required. When coupled with the Joint Staff deployment
    policies, naval forces can be more flexibly employed to meet the near
    term demands of the security strategy.
        We also continue to find new ways to enhance our current readiness.
    We have, in particular, judiciously substituted flying and steaming
    hours--where practical and where it makes sense--with additional
    simulator time, decreasing our budget requirements but enhancing our
    training. Only recently have we reached the point in terms of
    technological maturity and fielded systems, particularly concerning
    multi-ship exercises, that we can conduct realistic combat training
    across multiple platforms in a simulated but realistic combat
    environment. Aviation simulators continue to improve, enhancing overall
    pilot training by the imposition of risky aircraft casualties not
    prudent in live training.

                               DEPOT MAINTENANCE

        44. Senator Akaka. Admiral Mullen, you state that the efficiencies
    will be achieved both in depot maintenance and by increasing reliance
    on simulations. What evidence do you have the maintenance efficiencies
    will actually be realized?
        Admiral Mullen. Our aviation depots are in the midst of a
    transformation that will provide increased readiness to meet our
    national security needs. Our AirSpeed initiative is aggressively
    applying best business practices proven to work in industry such as
    Lean, Theory of Constraints, and the principles of Six Sigma. We are
    confident that we will actually realize efficiencies from these
    practices because, first, they are being instituted where we have
    identified strong parallels to the business model from which they were
    drawn, and, second, we are already seeing positive results. For
    example, using lean techniques, which focus on improving processes by
    reducing non-value added steps, we have been able to reduce the cycle
    time on F/A-18 brake assemblies by 68 percent. We have seen a 30-
    percent decrease in turn-around time on the fiscal year 2004 aircraft
    engine using Lean techniques in conjunction with a Performance Based
    Logistics initiative. Using Theory of Constraints, which focuses on
    identifying constraints in the process and minimizing their impact on,
    overall process efficiency, we have been able to improve turn-around
    time on H-53 standard depot maintenance by 10 percent. Based on the
    improvements we have seen, the Naval Aviation Depots are expanding the
    use of these proven process improvement techniques, where appropriate,
    across a growing number of aircraft, engine and component programs.
    This will allow us to move toward achieving ``Cost-Wise-Readiness'' and
    allow the Navy/Marine Corps aviation team to effectively and
    efficiently support the fleet.

        45. Senator Akaka. Admiral Mullen, as for simulations, are you
    buying additional simulators to support your new strategy or just
    making increased use of ones you already own, and if it is the latter,
    do you have enough simulators in the right locations to support your
    new strategy?
        Admiral Mullen. The Navy is procuring some new simulators to
    support the training strategy included in this budget as well as
    upgrading some existing ones. The simulators are in the right locations
    to support our greatest training needs.

                              FLEET RESPONSE PLAN

        46. Senator Akaka. General Huly, what are the implications of the
    Fleet Response Plan (FRP) for the Marine Corps, and do you have any
    particular areas of concern?
        General Huly. To meet emerging threats in the global war on
    terrorism, the Chief of Naval Operations directed the Navy to find ways
    to provide additional forces in support of national objectives. From
    this directive have come three concepts: Fleet Response Plan (FRP),
    Flexible Deployment Concept (FDC), and SeaSwap.

               FRP: By adjusting maintenance cycles, training
            cycles, and revising ship manning this seeks to provide more
            units to surge in response to unplanned contingencies and keep
            individual units surge capable for a longer period of time.
            This is designed to produce a consistent level of sufficient
            readiness to enable short notice deployment whereas the
            previous pattern demanded nearly perfect condition and training
            prior to deployment and acknowledged substandard conditions
            following.
              FRP has the potential to increase overall capability.
              USMC Position:

                       FRP has not yet been applied to Amphibious
                    Shipping.
                       The Marine Corps believes forward ``Presence
                    is the Purpose.'' The Marine Expeditionary Unit
                    (Special Operations Capable) [MEU(SOC)] is a highly
                    trained, specialized, and cohesive force, with a very
                    deliberate Pre-deployment Training Program. This
                    program provides the Combat Commanders with MEU(SOC)
                    that are able to respond to a wide range of missions
                    rapidly (due to forward presence) and ensures a
                    significant degree of parity due to the certification
                    process required for each unit prior to deployment. If
                    FRP does not require reduction in Navy support of MEU
                    forward presence, then improved readiness of non-
                    deployed assets is attractive. Other available Marine
                    Forces could deploy with these surge ready assets
                    should contingencies occur.
                       The MEU(SOC) program provides highly trained
                    units designed for forward deployment based upon the
                    Global Naval Forward Presence Policy schedule. FRP does
                    not necessarily threaten this highly used capability
                    but if the potential gains of FRP require reduced
                    forward presence deployments, as is the Navy Philosophy
                    in Carrier FRP, then geographic commanders will be
                    denied some portion of the MEU (SOC) forward presence
                    that has proven so useful in recent memory. Further,
                    current USMC efforts to increase SOCOM/USMC cooperation
                    in global war on terrorism depend on forward presence.

               FDC: This concept intends to minimize `wasted'
            employment of naval forces and provide improved employment
            options. It codifies the Navy vision of ``Presence with a
            Purpose,'' and seeks for sake of economy to retain its ships in
            homeport or in local operating areas unless needed in direct
            support of concrete national objectives.
              USMC Position:

                       When applied to amphibious shipping it is a
                    direct counter to the philosophy of forward presence as
                    deterrence and crisis response, or ``Presence is the
                    Purpose.''
                       ``Presence with a Purpose'' (per FDC)
                    equates to fewer days forward deployed.
                       Combatant commander requirements still call
                    for a 3.0 forward presence or greater (one MEU
                    continuously in each CENTCOM, EUCOM, and PACOM),
                    currently being met by a 2.5 presence. OIF/OEF have
                    further increased the utility of MEUs.
                       Crisis Response times are a relevant
                    concern, and surging from homeport in lieu of
                    responding from the immediate vicinity yields far
                    greater operational risk.

               SeaSwap: A concept that maximizes the naval
            capability deployed forward while minimizing the expenses
            inherent in forward basing. In this model the ships remain
            forward deployed while the entire crew complement is exchanged.
            Crews are rotationally deployed for approximately 6 months,
            removing the need for PCS orders, support housing ashore, and
            the administrative structure to support dependents.
              USMC Position:

                       Positive in this plan is the elimination of
                    transit time to the theater of operations.
                       Offsetting that will be the impacts
                    associated with turnover of equipment in theater, and
                    potential impact on overall capabilities as the marines
                    and sailors re-orient and regain full operational
                    readiness.
                       As ships, even within the same class, can
                    vary significantly there will certainly be challenges
                    associated with working up in CONUS on one set of ships
                    and then falling in upon another in theater.

        Summation: It is the position of the United States Marine Corps
    that the FRP, FDC, and Sea Swap concepts are viable, relevant, and
    offer potential efficiencies. However, we must be sure we are not
    losing critical capability in exchange for as yet unproven benefits.
    When and how these plans are implemented could impact the United States
    Marine Corps ability to remain the Nation's multi-purpose ``911''
    force. We must remain cautious as we explore the potential of future
    concepts and avoid further decrease in relevant forward deployed
    capability in support of Combatant Commander requirements. Efforts to
    increase the readiness of non-deployed amphibious shipping are welcomed
    as well as implementation of proven concepts that meet forward presence
    requirements more efficiently.

                               DEPOT MAINTENANCE

        47. Senator Akaka. General Huly, I am concerned about funding for
    depot maintenance. As I understand it, both the Army and the Marine
    Corps are facing significant increases in maintenance associated with
    operations in Iraq and Afghanistan that will not be fully covered by
    supplemental funds. In addition, the FY05 budget request does not come
    close to meeting your ongoing requirements to maintain equipment. The
    Marine Corps only funded 65 percent of its known requirements. Your
    statement suggests that this is because much of your equipment is being
    used and is not available to go to the depots. However, the number one
    unfunded operations and maintenance requirement is for depot
    maintenance--an additional $43 million. So I am a little confused--is
    there additional depot maintenance that needs to be done, and that
    could in fact be done if you received additional funding, or is the
    equipment not there?
        General Huly. The Marine Corps has additional depot maintenance
    requirements for fiscal year 2005 that have been identified in the
    Unfunded Programs List. Given the current operational tempo, many
    Marine Corps assets are currently committed to support OIF II. This
    unplanned commitment of assets initially slowed down asset availability
    for induction into the depot maintenance cycle. However, new plans have
    been developed and continue to be updated to ensure asset availability.
    The equipment that would be repaired with an additional $43 million has
    been validated and will be available for repair.

                             UNFUNDED PRIORITY LIST

        48. Senator Akaka. General Huly, is $43 million the maximum amount
    of additional funding that could be executed if we were able to provide
    it, or are there additional unfunded requirements that did not make the
    priority list?
        General Huly. The Marine Corps Depot Maintenance Program could
    execute additional fiscal year 2005 funding if provided. The Unfunded
    Programs List request of $43 million represents the highest priority of
    remaining requirements. The Marine Corps continues to analyze equipment
    usage as a result of OIF I and OIF II to determine if additional
    requirements exist.

                                FORCE RESETTING

        49. Senator Akaka. General Casey and General Moseley, how much
    additional funding would you require to fully meet your known ``reset''
    maintenance requirements, as well as to maintain your equipment during
    normal peacetime operations?
        General Casey. The Army needs $1.2 billion to reset Operation Iraqi
    Freedom (OIF) 1 and Operation Enduring Freedom (OEF) 4. The total cost
    requirement to reconstitute OIF-1 and OEF-4 was $3.4 billion, $2.9
    billion for organic maintenance at installations and $1.5 billion for
    depot maintenance. The fiscal year 2004 supplemental funded $2 billion
    of a $3 billion requirement and $1.2 billion of the $1.4 depot
    requirement. Additionally, the Army staff is developing cost estimates
    for repair of OIF-2/0EF-5. However, it is too early to identify those
    estimates with any fidelity. Without reset dollars, we will be forced
    to take risk and fund within the base budget.
        We do not anticipate a request for additional funds to maintain
    equipment during normal operating tempo as long as the Army receives
    the funds requested in fiscal year 2005 President's budget.
        General Moseley. The Air Force requested $242.8 million on the
    fiscal year 2005 Unfunded Priority List for depot maintenance. This
    funding would eliminate 39 aircraft and 60 engine deferrals. It also
    provides the Air Force opportunities to complete $10 million in
    Intercontinental Ballistic Missile maintenance in lieu of deferring the
    workload.

        50. Senator Akaka. General Casey and General Moseley, what do you
    believe are the immediate and longer-term readiness impacts if these
    funds do not materialize?
        General Casey. The Army will not be able to provide trained and
    ready forces to combatant commanders in the numbers or with the
    capabilities they require. The immediate impact would stall the current
    momentum we have established for setting the force and produce a
    cascading effect for purchasing parts, services, and reconditioning of
    equipment, resulting in a backlog. Initially the impact may be
    minimized by the diversion of peacetime parts or cash flowing this
    requirement to address the shortfall, but this would delay rather than
    fix the problem. The future readiness of the Army is largely dependent
    upon the timely reconstitution of forces returning from Operation Iraqi
    Freedom and Operation Enduring Freedom. Any decrement or delay in
    funding this effort will result in a decrease in readiness and
    degradation in the units' ability to conduct subsequent operations. The
    long-term impact would be the Army's ability to provide trained and
    ready forces to combatant commanders for ongoing missions and other
    worldwide commitments.
        General Moseley. If funds do not materialize, 39 aircraft and 60
    engine depot inductions will be deferred. This places an additional
    workload on blue-suit maintainers to perform extension inspections and
    additional hourly inspections to ensure safety of flight. potential
    grounding of some aircraft and/or engines could occur through
    expiration of time or defects detected during extension inspections.

                                  SPARE PARTS

        51. Senator Akaka. General Casey, Admiral Mullen, General Moseley,
    and General Huly, one of the issues I want to ensure we get an update
    on is the one that always seems to be identified as a problem after
    every major operation, and that is spare parts. Can each of you please
    briefly summarize your Service's experience with parts supply during
    Operation Iraqi Freedom, any problems you might continue to have and
    how they will be resolved, and any concerns you might have about spare
    parts funding either for the remainder of fiscal year 2004 or in fiscal
    year 2005?
        General Casey. Inadequate spares in sustainment stocks and
    Authorized Stockage List (ASL) create a potential readiness issue. Long
    lead times for delivery of stocks and increased usage of repair parts
    during contingency operations have adversely impacted Army's ability to
    replenish ASLs and sustain equipment readiness. Currently, Army has
    over $7 billion dollars in spare parts due from procurement contracts
    and repair facilities. Spares needed to support contingency operations
    are not projected during our peacetime budget operations.
        As reflected in the logistics focus area, connect the logistician
    and integrate the supply chain, there are three fundamental problems
    with parts support for Operation Iraqi Freedom (OIF): lack of
    communications connectivity for supply activities, distribution
    challenges, and the availability of selected items of materiel.
        Constant movement over extended distances during the early phases
    of the operation precluded focused maintenance actions along with the
    associated parts requisitioning. The communication connectivity
    challenge has now been overcome by the purchase of commercial satellite
    equipment for the tactical supply activities in theater. Equipped with
    these terminals, OIF supply activities are now communicating their
    requirements daily.
        When materiel ordered in the early phase began arriving, movement
    was constrained by the lack of secure distribution routes and the
    limited availability of transportation. Constrained distribution
    capability and the prioritization of supplies moving forward were
    initially weighted on other than repair parts. Initially, more than 90
    percent of available transportation assets were consumed moving water,
    food, and fuel. Transportation challenges have also been addressed and
    are showing improvements as more ground and theater air assets are
    being used to transport parts to maneuver units. Additionally, this is
    greatly facilitated by the Defense Distribution Center building pure
    pallets of repair parts for major maneuver elements.
        Increasing demands of OIF significantly impacted batteries and
    tracks. Unanticipated high usage levels resulting from the increased
    operating tempo and the desert environment caused temporary but
    critical shortfalls until production and deliveries were able to catch
    up. Actual OIF demands for repair parts for Abrams, Bradley, Palladin,
    and HMMWVs, especially suspension parts, exceeded anticipated demand
    factors by 6-10 times greater than normal peacetime usage.
        Admiral Mullen. To ensure Navy could sustain extended combat
    operations, we invested resources above peacetime levels in the
    repairable supply chain well ahead of hostilities. As a result, ships
    and submarines deployed with the necessary spares onboard to
    successfully execute their missions and were adequately supplied
    throughout OIF. Parts availability and the transportation pipeline met
    Navy's requirement to support the continuous operations of seven
    carrier and nine expeditionary strike groups. Today, our Navy continues
    to experience the benefits of a robust supply system and, provided
    there is no significant increase in OPTEMPO, parts availability is
    expected to remain acceptable.
        General Moseley. The Air Force does not have any congressional
    spare parts funding issues for fiscal year 2004 or fiscal year 2005.
    Due to robust funding of the flying hour program, backorders have
    decreased, cannibalization rates are down, and aircraft not mission
    capable for supply are at the best rate since 1995.
        General Huly. Lack of visibility for OEF/OIF I in the supply chain
    resulted in duplicative ordering of some spares, which produced an
    impression of high usage early on. We have implemented Radio Frequency
    Identification (RFID) tag technology, partnered with Defense Logistics
    Agency (DLA) for pure pallet packaging, and partnered with the Army and
    Navy for supply chain distribution support. The impact of current
    operations on spare parts inventories is improving. DLA traditionally
    was a wholesale distributor. DLA is now extending its supply chain
    management functions to the Service-managed retail inventory level. In
    the future, we will increase our partnership efforts with DLA applying
    a National Inventory Management System (NIMS) concept. NIMS will
    replace distinct wholesale and retail inventories with a nationally
    integrated inventory. It will provide the Services with a much clearer
    view of immediate stock requirements and minimize the Service's
    financial investment in stocks. Class IX (spare and repair parts)
    availability for ground equipment was not necessarily the problem;
    parts were generally available from DLA and industry, BA-5590 batteries
    were the exception. The problem was two-fold: (1) industry's inability
    to respond to surge requirements in the time frame required, and (2)
    funding constraints given the high daily usage and associated cost.
    Marine Air-Ground Task Force (MAGTF) End-to-End (E2E) Distribution will
    provide the tactical Marine the methods and tools to seamlessly execute
    inbound and outbound movements for all classes of supply while
    maintaining Total Asset Visibility/In-Transit Visibility throughout the
    distribution pipeline. Working with our industrial base partners, who
    will be required to assign RFID tags--both passive and active--will
    provide visibility of assets on the shelves. As our industrial base
    partners see the usage increase they can be more proactive in getting
    supplies back on the shelves. MAGTF E2E distribution will facilitate
    the flow of material through the logistics chain, both in deployed and
    garrison operating environments.
        With respect to fiscal year 2004 and fiscal year 2005 funding
    concerns, there were no spare parts funding requests for ground
    equipment on the Unfunded Programs List for either of those years.
    However, there was funding for spares imbedded in the overall fiscal
    year 2003 Supplemental for Reconstitution request. Currently, we are
    evaluating the total force constitution that will determine the stress
    on equipment repairs required at the depot level and Blount Island
    Command to replenish our Maritime Prepositioning Ships. Additionally,
    we will identify the amount of Class IX spare parts and secondary
    reparables needed by Marine Forces to conduct in-theater repairs to
    restore equipment to a full operational condition and extend the
    service life.

        52. Senator Akaka. Admiral Mullen, I understand that the Navy may
    have identified a spares shortfall of $500 million over the Future
    Years Defense Program. Is that the case? What is the Navy's shortfall
    in spares funding, if any?
        Admiral Mullen. As a result of the PR-05 Integrated Readiness
    Capability Assessment (IRCA), spares were funded to 100 percent of the
    post-IRCA requirement. Growth in future requirements has occurred
    through the expansion of Navy's recapitalization and will be addressed
    within POM-06. As a follower recapitalization account, the spares tail
    will be adjusted accordingly to follow these changes in program, and
    are thus continually changing year to year. This is particularly true
    as the Navy divests several older weapon platforms with significant
    spare parts tails. In all cases, however, routine resource sponsor
    adjustments to the spares account take into full consideration the
    attendant risks of a navy adjustments in terms of both timing--
    specifically in cases of divesture--and funding levels, accepting only
    well-understood conditions. In the final assessment of spares funding,
    Navy is--under the Fleet Response Plan--ensuring that more operational
    fleet units maintain a higher level of combat readiness for a longer
    duration than in the past, deploying units as a matter of routine but
    also ready to respond with significant forces if necessary.

                             TRAINING AT EGLIN AFB

        53. Senator Akaka. General Huly, you say in your statement that the
    Marine Corps is evaluating whether training at Eglin Air Force Base in
    Florida is cost effective, and that you are examining other options.
    Eglin was supposed to provide the best solution for training to
    compensate for the loss of Vieques. What are the specific problems you
    are experiencing at Eglin, and what changed from the analysis you did
    prior to commencing exercises at Eglin that would cause you to pursue
    other options?
        General Huly. There are several challenges in conducting large-
    scale amphibious and ground training aboard the Eglin AFB Major Range
    and Test Facility Base (MRTFB) range complex as a result of fundamental
    cultural differences between the testing and training communities.
    These challenges and limitations include the lack of an integrated and
    instrumented ground training range infrastructure, test directive
    process inflexibility, inability to conduct live naval gunfire from
    ship-to-shore, and the high costs to conduct training at Eglin. The
    Marine Corps programmed its training costs for Eglin at approximately
    $450,000 per exercise based on a series of cost estimates from Eglin.
    Due to Eglin's decision to conduct the first exercise with exclusive
    use of the ranges by the exercise force, the actual MRTFB costs became
    significantly higher, nearly $1.25 million. As a result of these
    limitations and high costs at Eglin, the Marine Corps is continuing to
    assess the potential and value of expanding the training capability of
    its installations at Camp Lejeune and Cherry Point, NC. The benefits
    that these alternate locations would provide are:

        (1) Proximity to existing east coast Navy and Marine Corps
    installations eases operational/deployment tempo considerations;
        (2) Usable year-round (no naval restrictions due to hurricane
    concerns June-October);
        (3) Lower costs to transit to/from training areas and train on USN/
    USMC installations;
        (4) Investments in infrastructure benefit not only the Marine
    Expeditionary Unit but also the entire II Marine Expeditionary Force;
        (5) Camp Lejeune supports integrated live fire, to include live
    naval gunfire from ship-to-shore;
        (6) Significantly lower costs to conduct large-scale amphibious
    training at Camp Lejeune and Cherry Point vice the Eglin MRTFB.

        54. Senator Akaka. General Huly, what other venues do you believe
    might be available that would provide the necessary training, and when
    do you expect to make a decision about whether you will move training
    somewhere else?
        General Huly. Both the Navy and the Marine Corps are planning to
    use Eglin for training in some capacity for the foreseeable future. The
    Marine Corps is continuing to assess the potential and value of
    expanding the training capability of its installations at Camp Lejeune
    and Cherry Point, NC. Improving specific capabilities at these
    locations will provide a direct benefit to the forces resident at those
    locations and provide a more robust regional naval expeditionary
    training capability, particularly when incorporating the capabilities
    at the other naval facilities in the North Carolina and Virginia Capes
    geographic area. The Marine Corps will continue to seek new training
    venues and locations, both within the United States and abroad, that
    may offer site-specific training opportunities or enhance the operating
    forces' overall regional training capability.

        55. Senator Akaka. General Huly, can you describe what specific
    changes to test facility regulations are necessary to improve training
    at Eglin?
        General Huly. The Marine Corps requires a naval expeditionary
    warfare training venue for use during an advanced phase of the pre-
    deployment training cycle. This venue must:

        (1) provide tactical flexibility to the commander in planning and
    execution of training events;
        (2) exercise decisionmaking skills of units and leaders;
        (3) forge Navy and Marine Corps interoperability in a dynamic,
    realistic training environment;
        (4) provide a dynamic, adaptable battle-space operating area vice
    simply range-space.

        The Marine Corps must not compromise training standards due to
    Major Range and Test Facility Base inflexible test scheduling processes
    or high costs to train. Should the Marine Corps continue using Eglin
    for naval expeditionary force training, costs to train must be
    controlled. Rigid test scheduling process must adapt to accommodate the
    training requirements of large-scale amphibious and ground training
    exercises which require expansive battlespace. Department of the Navy/
    Department of Defense should make significant investments at Eglin to
    provide substantial infrastructure, ground range, and instrumentation
    upgrades to make it of equal or better training value than existing
    North Carolina training areas. These improvements could include
    development of proximate ground maneuver and dud-producing impact
    areas, and instrumentation that supports training feedback of live-fire
    tactical maneuver.

        56. Senator Akaka. Admiral Mullen, the Navy has also begun training
    at Eglin. Are you experiencing similar challenges, and do you agree
    with the Navy that changes in the test range regulations are needed to
    improve the Navy's training?
        Admiral Mullen. Navy has trained on its west coast test ranges for
    some time, and has experienced the same financial issues as experienced
    recently at Eglin AFB. While the ability to mission fund some of the
    assets on test ranges would lower the cost to train, the events
    conducted on the major range test facility bases are already high
    quality due to the high fidelity equipment required by the testing
    mission. Close coordination with the test ranges facilitates effective
    fleet use for training on a not-to-interfere basis, which should be
    preserved to provide fleet access to the ranges and efficient use of
    these range resources while still ensuring the RDT&E community is given
    priority access to the resources required to adequately field new
    systems to the fleet.

                                     HAITI

        57. Senator Akaka. General Huly, I know that you have a number of
    marines who are on the ground doing great work bringing stability to
    Haiti. How long do you expect this mission to continue, and what is the
    impact on 2 MEF as it supports these forces?
        General Huly. The target date for transition and Transfer of
    Authority from the current Multi-National Interim Force Haiti (MIFH) to
    a U.N. led coalition is 1 June. Impact on II MEF will be minimal as
    long as the transition is accomplished in accordance with the published
    timelines. 3d Bn, 8th Marines deployed to Haiti as part of the Air
    Contingency Marine Air-Ground Task Force (MAGTF). They were originally
    on the OIF II-2 Force List. CMC requested and SECDEF approved the
    activation of 1st Bn, 23d Marines in order to fill the requirement in
    support of OIF II-2.

        58. Senator Akaka. General Huly, does the Haiti operation have any
    impact on the Marine Corps' ability to support operations in Iraq and
    Afghanistan or elsewhere in the world?
        General Huly. The target date for transition and Transfer of
    Authority from the current MIFH to a U.N. led coalition is 1 June.
    Impact on ongoing Operations Enduring Freedom and Iraqi Freedom will be
    minimal as long as the transition is accomplished in accordance with
    the published timelines.

                       JOINT NATIONAL TRAINING CAPABILITY

        59. Senator Akaka. General Casey, Admiral Mullen, General Moseley,
    and General Huly, I know all of you are participating in DOD's effort
    to establish a Joint National Training Capability (JNTC), and that
    Joint Forces Command recently directed the first JNTC event. Can each
    of you please give me your perspective on how JNTC is progressing, as
    well as a quick assessment of the initial event and are there any
    improvements or refinements that you think are necessary?
        General Casey. Through efforts to date, the Services, Joint Forces
    Command, and the Joint and Office of the Secretary of Defense (OSD)
    staffs have achieved considerable agreement about how to build the best
    possible JNTC. JNTC is being developed to train both operational and
    tactical level units and headquarters. For operational level units, it
    provides a superb training opportunity for commanders and staffs of all
    potential joint force headquarters; Army headquarters that must be
    prepared to function as a Joint task force command, or Army
    headquarters that must be prepared to function as Joint Force Land
    Component Command. JNTC for tactical level units ensures they have the
    opportunity to train joint and interoperability tasks within a ``true''
    joint context, that is, as close as possible to how they will perform
    during actual operations. In addition, JNTC at the tactical level gives
    the Army a greater opportunity to train ``joint'' early in a soldier's
    career.
        The initial event was the first of four OSD-directed, Commander
    U.S. Joint Forces Command sponsored JNTC exercises leading up to JNTC
    Initial Operating Capability not later than October 1, 2004 with the
    final operating capability scheduled for fiscal year 2009. The initial
    event provided joint context for an Army National Training Center
    rotation, an Air Force Air Warrior rotation, part of a Marine Corps
    Combined Arms Exercise rotation at Twentynine Palms, and a Navy Surface
    Launched Missile Exercise run virtually from three ships pier side at
    San Diego, California. Three major technical tests were conducted at
    the exercise locations to test the links between the live, virtual, and
    constructive instrumentation and simulation systems. While operating
    with service specific command and control systems proved challenging,
    it did not result in any degradation to the network and the subsequent
    training event. Integration of multiple Service tactical exercises into
    a single coherent scenario was also challenging, but through Service
    collaboration, advances were made towards the end of truly integrated
    joint training. The progress made in developing a tactical-level JNTC
    capability, as demonstrated in January's first ever JNTC event will
    reinforce our efforts in fully integrating joint training capabilities
    for all tactical level units, without significantly increasing
    deployment and operating tempo demands on tactical units.
        Admiral Mullen. The JNTC continues to make steady, positive
    progress. The initial event was the first full tactical exercise of
    joint close air support conducted within an enhanced joint context and
    assessed to defined conditions and measures. In a significant
    improvement over previous events, the execise incorporated the most
    credible live and simulated opposing force ever constructed for such a
    large event. While Navy participation was limited due to the nature of
    the exercise, it included several geographically dispersed elements
    participating both live and virtually.
        In order to maintain the level of operational tempo important to
    the well-being of our sailors and their families, it is important to
    build JNTC participation upon existing Service-specific training and
    within the existing Chairman's Exercise Program. The Navy's Fleet
    Response Plan requires the capability to train Strike Groups in
    geographically distributed Fleet concentration areas. The
    infrastructure of JNTC should and will support this requirement, and
    the addition of joint forces to Navy training events will enhance our
    overall effectiveness. A concerted and collaborative joint effort is
    essential to create JNTC that supports all of the Services' joint
    needs. This approach builds individual Service core capabilities while
    improving the joint context of training.
        General Moseley. JNTC is just getting started but will greatly
    enhance joint training at all levels. The addition of virtual and
    constructive simulations to JNTC exercises provides participants much
    needed joint context, increases training realism, and enhances home
    station training quality, while reducing personnel tempo and deployment
    costs. JNTC range instrumentation upgrades are also having a major
    impact on the quality of training received by improving threat,
    scoring, and feedback systems. In a collaborative way, Air Force and
    other Service's organizations are providing valuable operational,
    technical, and program expertise to assist the Office of the Secretary
    of Defense, the Joint Staff, Joint Forces Command, and combatant
    commanders with JNTC implementation. JNTC is on track to achieve
    Initial Operating Capability (IOC) in October 2004 as planned.
        The January 2004 Western Range Complex JNTC event was the first of
    four JNTC events in fiscal year 2004 that define JNTC IOC. It created
    an expanded, dynamic training venue for the Services while reducing the
    costly requirement to transport exercise participants, their equipment,
    and maintainers to a distant exercise location. Also, with the
    integration of sophisticated virtual and computer-generated force
    elements, the training was more complete and realistic than in previous
    non-JNTC joint exercises.
        Preparing our forces to deal with constantly changing real world
    asymmetric threats is a huge challenge. In many cases, joint operations
    have far exceeded our training capability to prepare our forces--
    individuals, units, and staffs. JNTC has taken on this challenge to
    blend the training environment and the operational environment to
    prepare our forces under dynamic, adaptive conditions that ultimately
    focus on mission rehearsal and true joint performance. The bottom line
    is that this program must be fully funded to provide JNTC the resources
    to prepare our warfighters to meet the challenges to fight and defeat
    the global threats they face.
        General Huly. From the Marine Corps perspective, the Joint National
    Training Capability is progressing as well as can be expected
    considering current operational commitments and fiscal constraints.
    With forces deployed in support of Operation Iraqi Freedom and
    Operation Enduring Freedom, as well as other commitments the Marine
    Corps has around the world, forces available to conduct these exercises
    are at a premium. We must ensure the JNTC events schedule reflects
    well-defined training requirements and are not conducted simply in
    order to fill the yearly schedule.
        The Marine Corps was a full partner in the January 2004 Western
    Range Complex Horizontal Training Event via the Combined Arms Exercise
    at the MAGTF Training Command, Twentynine Palms, CA, and learned
    valuable lessons from the event. The Marine Corps feels that there was
    valuable training for the service members that were in direct support
    of the Joint Close Air Support Missions, whether in the air or on the
    ground. Two areas that require further work are better defining both
    the training audience and appropriate levels of command, and continuing
    to refine the Joint Tactical Tasks that the forces are to execute and
    be assessed.

                                   CORROSION

        60. Senator Akaka. General Casey, Admiral Mullen, General Moseley,
    and General Huly, one issue I have long been concerned with is
    corrosion; obviously, military forces in Hawaii constantly experience
    the effects of hot, wet weather, and their equipment and facilities are
    subject to severe corrosion problems. This affects their equipment
    readiness, their manpower and maintenance costs, and their personnel
    requirements. I am very proud of the actions this committee has taken,
    along with our House counterparts, to raise the issue of corrosion
    prevention to a higher level within the Department of Defense, and to
    require DOD to centralize policy and oversight of the Services'
    corrosion efforts in the office of the DOD Director of Corrosion
    Policy. Our intent in creating a central corrosion office was not to
    increase bureaucracy, but instead to drive common regulations and
    testing requirements and to break down information barriers between the
    Services and between the equipment and facilities communities. I am
    interested, therefore, in your perspectives on DOD's current level of
    effort on, and attention to, corrosion, the impact that you see of
    corrosion on your forces and your budgets, and any additional steps
    that might be taken to reduce the impact of corrosion and other factors
    that drive high life-cycle costs, especially on the operations and
    maintenance side. Could each of you please comment whether your Service
    has begun to work together with the DOD Director of Corrosion Policy to
    address this issue fully and, to address corrosion, has your Service
    begun requiring that corrosion plans be developed for all equipment and
    facilities, or do you anticipate doing so?
        General Casey. The Army Corrosion Program is managed by the U.S.
    Army Materiel Command where the Program Officer, Army Corrosion Program
    sits as an Executive Committee member of the DOD Corrosion Prevention
    and Control Integrating Product Team lead by the DOD Corrosion Policy
    and Oversight Office. To date, there have been four Corrosion Forums,
    in which each Service provided input to DOD on policy, standards,
    capabilities, and requirements. It is in these joint committee meetings
    that the Army participates with the other military Services to execute
    the directives of the Bob Stump Act.
        Among the efforts the Army has brought to bear in the fight on
    corrosion is the work accomplished in Hawaii and Texas. The Hawaii
    corrosion program is evolving into an Army Corrosion Center of
    Technology. Army prototyped its first Corrosion Control Center (CCC)
    for tactical vehicles and associated equipment at Schofield Barracks,
    established the Pacific Rim Corrosion Center at the University of
    Hawaii, and will install a newly designed Clearwater Rinse Facility at
    Wheeler Army Air Field in the coming year that could become the
    prototype for other Army aviation units. Successes in the Army's Hawaii
    corrosion prevention and control initiatives led to the installation of
    a similar CCC at Fort Hood, Texas, and plans for expansion to Fort
    Polk, Louisiana, with others to follow.
        Admiral Mullen. The Navy is aggressively supporting Mr. Wynne's
    efforts as the designated DOD Corrosion Executive and has participated
    in the DOD Corrosion Working IPT to develop plans and strategies to
    mitigate the effects of corrosion. As part of this working team, we
    assisted in the development of the DOD policy letter, the formulation
    of the DOD Strategic Plan submitted to Congress last fall, and the
    development of the revised DOD 5000.2. The most significant policy
    achievement to date has been the DOD Corrosion Prevention and Control
    Guidebook, which has already been passed to our acquisition programs.
    Since this policy was released, several programs such as the V-22, H-1,
    and MMA are already developing comprehensive Corrosion Prevention and
    Control Plans and we anticipate continuing the introduction of these
    plans for selected equipment. Coupled with appropriate funding profiles
    and sufficient fiscal empowerment for the program manager, long-term
    corrosion prevention will have a significant impact on life-cycle
    costs.
        The Navy has also supported the program through information
    sharing. When Mr. Wynne first announced the formation of a working
    team, the Navy leveraged existing Aging Aircraft efforts under the
    Joint Aeronautical Commanders Group (JACG). The Joint Council on Aging
    Aircraft (JCAA) developed a robust program to facilitate transition of
    the latest technologies and tools to the fleet, resulting in decreased
    maintenance man-hours and improved readiness. A joint effort from its
    inception, the corrosion team has set the example by jointly evaluating
    and qualifying new products, effectively identifying cross-service/
    agency transition opportunities, increasing the sharing/acceptance of
    inter-service test data and results, and reducing the time to implement
    effective tools to detect, mitigate and remove corrosion. This joint
    corrosion group is also leveraging existing DOD-wide, Coast Guard and
    industry science and technology resources that are currently developing
    improved corrosion detection technology and improved protection
    systems.
        Recent accomplishments in the battle against corrosion are
    encouraging, and these changes, as well as other technologies and
    processes, continue to be promising in the fight against corrosion. For
    instance, sustaining engineering resources enable Reliability Centered
    Maintenance (RCM) evaluations to effectively tailor and integrate the
    proposed changes into platform lifecycle support plans; upgraded data
    systems ensure relevant/timely information down to the component level
    for informed trades; and available corrosion publications and related
    training enable timely change implementation.
        General Moseley. Yes, the Air Force is working closely with the DOD
    Director of Corrosion Policy and Oversight (DCPO). An Air Force team
    has participated in the DCPO's working forums since April 2003, led by
    our Air Force Corrosion Prevention and Control Office, including
    representatives from the Air Force Research Laboratory, Air Force
    Coatings Technology Integration Office, Air Force Civil Engineering
    Support Agency, and Headquarters United States Air Force Maintenance
    Management Division. This team helped develop the new DOD corrosion
    policy; led the compilation and reporting of the DOD cost of corrosion
    maintenance; led the writing of the DOD Corrosion Prevention and
    Control Planning Guidebook; and is leading the Air Force's current
    effort to propose high-value corrosion projects for fiscal year 2005
    DOD funding.
        We are implementing the new DOD policy (OSD-AT&L memo November
    2003), which requires corrosion planning by all acquisition programs
    (for both equipment and facilities). The new policy has been
    communicated to the Assistant Secretary of the Air Force, Secretary of
    the Air Force for Acquisitions, Headquarters United States Air Force,
    Air Force Program Executive Officers (PEO), and system program
    managers. The DOD Corrosion Prevention and Control Planning Guidebook
    has been provided to PEOs and program managers to assist them in their
    planning. Air Force Instructions are already in place that require
    corrosion programs, covering the entire life cycle, including design,
    procurement, operation, and sustainment.
        General Huly. The Marine Corps is actively engaged in supporting
    the efforts of the DOD Director of Corrosion Policy and Oversight
    through active participation in DOD Corrosion Forums and Working
    Integrated Product Teams (WIPTs) that seek opportunities to reduce
    corrosion, increase readiness, improve morale, and reduce costs
    associated with corrosion control.
        In support of the long term strategy of the DOD Corrosion Office,
    the Marine Corps chairs the sub-committee on communication and
    outreach, whose goal is the initiation of the DOD Corrosion Exchange
    Web site for the collection and dissemination of corrosion data and
    information.
        The Marine Corps Corrosion Prevention and Control (CPAC) Program
    Management Office, along with organizations at HQMC, are developing
    several low risk Corrosion Control Projects using proven technologies.
    These projects will focus on support for Marine Corps Ground Combat and
    Support Equipment located throughout the world by detecting and
    treating corrosion earlier and more precisely.
        We are evaluating corrosion upgrades in the following areas:
        Corrosion Service Teams. Focused on providing operator level
    support in the battle against corrosion.
        Long Term Storage. Indoor storage located near the warfighter used
    to store assets both long-term and in a ready-to-roll mode.
        On the Lot Storage. Takes advantage of current technology and
    outdoor storage methods, where applicable and cost effective.
        Wash Rack Upgrades. Upgrades to the old pre-established wash racks
    used throughout the Marine Corps through a modernization program.
        Additional funding will be requested in order to support the
    project plans upon approval by DOD Corrosion Office.
        The Marine Corps program has been working closely with the DOD
    Corrosion Exchange Web site by disseminating posted information to the
    operating forces using links from the Marine Corps CPAC Web site. The
    information is constantly changing, but the site remains a user-
    friendly location for the dissemination of information as intended.
        The Marine Corps CPAC Program Management Office has helped to
    develop the DOD Corrosion Control and Prevention Planning Guidebook.
    The objective is to provide acquisition program managers with a tool
    that provides guidance in developing and implementing a Corrosion
    Prevention and Control Plan for all weapons systems.
        HQMC and the Marine Corps CPAC Program focus on extending the
    useful life of all Marine Corps tactical ground and ground support
    equipment by reducing maintenance requirements and associated costs due
    to corrosion damage. Additional funding for these efforts is desired to
    ensure continued operation of Corrosion Service Teams, Equipment
    Storage Programs, and Wash Rack up-grades. For corrosion fighting
    efforts to be effective, continued support throughout DOD would be
    required.

                  REDUCTION OF STEAMING DAYS FOR MINE HUNTERS

        61. Senator Akaka. Admiral Mullen, I understand that while your
    budget request funds an average of 51 steaming days for all ship
    classes, some particular ship classes such as mine hunters had their
    steaming days reduced rather dramatically, and that the Navy intends to
    make up any resulting training shortfalls primarily through simulation.
    How did the Navy determine which ship classes would have their more
    realistic training reduced?
        Admiral Mullen. Our budget funds an average of 51 deployed steaming
    days and 24 non-deployed steaming days per quarter for all active ships
    (less carriers and the submarine force), to include mine warfare ships.
    Further, all Reserve ships are budgeted for 51 deployed steaming days
    and 18 non-deployed steaming days per quarter. In the fiscal year 2004
    budget submission, non-deployed steaming days for Reserve mine warfare
    ships was budgeted at 28 steaming days per quarter, while all other
    Reserve ships were budgeted at 18 steaming days per quarter. Our
    current fiscal year 2005 budget reflects the adjustment to budget
    Reserve mine hunter steaming days consistent with that of other Reserve
    ships and to reflect actual steaming days being executed by the Reserve
    mine warfare ships.

        62. Senator Akaka. Admiral Mullen, how does simulation support for
    mine hunters compare to simulations for other ship classes, in terms of
    the number of simulators fielded and the quality of the resulting
    training?
        Admiral Mullen. Simulation support for minehunters is provided
    through the Mine Warfare Training Center, located in Ingleside, TX. The
    simulation support for minehunting platforms compares equitably to
    other ship classes, respective to the mission requirements and size of
    the ship class, and provides high quality training ashore that enhances
    live training at sea.

                      STRAIN ON COMMAND AND CONTROL UNITS

        63. Senator Akaka. General Casey, Admiral Mullen, General Moseley,
    and General Huly, given the number of operating locations and current
    commitments, I would expect that the strain on command and control
    assets is very large. I know, too, that despite unprecedented levels of
    cooperation and integration in Operation Iraqi Freedom, our forces
    continue to have problems with interoperability, communication on the
    move, and bandwidth constraints. Please characterize the current level
    of stress your service is experiencing for command and control units
    and equipment, and describe what changes you think are necessary, to
    include any requirements for additional funding, to help improve the
    command and control situation.
        General Casey. We thank the committee for its concern on the
    effects of the worldwide deployments of Army command and control (C2)
    units in support of our efforts in Southwest Asia and elsewhere
    supporting operations in the global war on terrorism. We find those
    effects most apparent in establishing a rotation of C2 units into Iraq
    and Afghanistan while complying with deployment and dwell time
    guidelines. This was made more challenging by the unprecedented numbers
    of C2 units used in the successful preparation and prosecution of
    Operation Enduring Freedom and Operation Iraqi Freedom. Because of the
    unconventional nature of the operations and the distances involved,
    more units were used than pre-OIF doctrine foresaw. This was especially
    true of echelons above corps and corps level area signal battalion
    units in the preparation for offensive operations and the current
    support and sustainment operations.
        The primary effect of this has been a more intensive management of
    both Reserve and active component units to ensure that dwell time on
    home station before redeployment does not break the 12-month guideline
    established by the Army leadership.
        Fortunately, two ongoing programs, 3rd Army's theater C4
    commercialization and the Modularity efforts initiated by the Chief of
    Staff, will support major improvements in bandwidth and joint
    interoperability at all levels. The C4 commercialization program will
    start to provide major reductions in echelons above corps and corps
    level C2 units required in theater beyond OIF 3.
        Theater C4 commercialization has already started fielding
    commercial communications equipment and contracted personnel replacing
    an abundance of military provided C4 capabilities and C2 units. This
    effort results in a robust and interoperable theater backbone
    communications system with a greater capacity in both data and voice
    communications and interconnects the division, corps, joint task force
    and combatant command elements to ensure radically improved command and
    control communications to OEF/OIF.
        The conversion of the 3rd Infantry Division into four modular units
    of action (UA) and a unit of employment (UE) will provide a tremendous
    C4 improvement. This conversion into the more modular UA/UE structure
    is accompanied by the fielding of major improvements of battle command
    equipment and higher bandwidth beyond line of sight satellite
    communications down to the battalion level. This provides the
    improvements in command and control and intelligence, surveillance, and
    reconnaissance services documented as shortfalls in OIF lessons
    learned.
        These improvements in conjunction with continued intensive
    management by the joint and Army staffs will provide the necessary
    means to relieve the stress the current worldwide operating tempo has
    induced in Army C2 units. Adequate support and funding of both programs
    are crucial to maintaining the momentum established in transforming our
    Army to cope with the new demands of global war on terrorism.
        Admiral Mullen. Stress on some of our C2 systems, for example
    tactical data links, is evident. We are addressing these challenges by
    moving to more and more capable systems. We are phasing out capacity-
    limited systems such as Link 11 (TADIL-A) and moving to the much more
    robust Link 16 (TADIL-J). We found in recent operations, such as
    Operation Enduring Freedom (OEF) and Operation Iraqi Freedom (OIF),
    that the size of area involved in the conflict and the dispersion of
    forces has created challenges in delivering the operational data to all
    the locations that need the information. These shortfalls have been
    identified by the Combatant Commanders and returning forces and we are
    moving rapidly to correct the deficiencies. One interim solution that
    produces significant capability is the NAVEUR Theater Maritime Fusion
    Center to provide 24/7 fusion of all Tactical Data Link and Common
    Operational Picture (COP) information. This Fusion Center bridges
    several seams: between Carrier Strike Groups (CSGs) and other forces,
    between fleet and shore, and between the Tactical Data Links and the
    COP systems.
        During OIF, available SATCOM bandwidth in all bands was
    insufficient to meet demand in the forward theaters of EUCOM, CENTCOM
    and PACOM. This strain affected data communications; Tomahawk Land-
    Attack Missile (TLAM) operations; intelligence and strike planning; and
    voice communications in all areas, as affected bands included SHF
    (Defense Satellite Communications System (DSCS) and commercial);
    Extremely High Frequency (EHF) (both Low Data Rate and Medium Data
    Rate) Ultra-High Frequency (UHF); and commercial narrowband (INMARSAT).
    Close cooperation among the forward theaters resulted in a worldwide
    reallocation among all bands sufficient to meet the minimum
    requirements. This shortfall is being addressed by greater capacity
    systems such as the Wideband Gapfiller Satellite (WGS), the Multi-User
    Objective System (MUOS) and the planned Transformational Communications
    Architecture (TCA) SATCOM Roadmap. Navy must continue to field upgrades
    afloat to take advantage of this, especially for smaller vessels that
    provide Sea Strike capabilities in CSG/Expeditionary Strike Groups
    (ESGs). Ashore, we will take advantage of the Defense Information
    Systems Agency (DISA) Global Information Grid (GIG) to provide better
    bandwidth using improved fiber optic paths, as well as taking advantage
    of economies of scale.
        As we move to a more joint, networked force the requirement to
    execute timely command and control of forces continues to increase.
    Additionally, in our continuing efforts to avoid blue-on-blue
    engagements of not only our own forces, but those of our Allied and
    Coalition partners, the ability to maintain continuous situational
    awareness has become more and more challenging. The requirement remains
    for a coherent global coalition C4 architecture with ease of
    information transfer and capability to establish new networks
    seamlessly as operations dictate. There needs to be a streamlined
    strategy for releasing information to allies and coalition partners as
    well as resources devoted to technically achieving this result.
        Warfighters use a variety of systems to develop and maintain
    situational awareness, but there is no single integrated common
    operational picture. This requires operators to be adept on multiple
    systems and results in operator information overload as they work to
    mentally integrate the various pictures while executing multiple
    functions. Many of our curret systems were not designed to handle the
    amount of data that is currently required to achieve true network
    centric operations. Although we have made progress in increasing data
    throughput on the larger ships typically used by at-sea commanders
    (CVNs, LHAs, LHDs, and LCCs), smaller escorting and supporting ships
    continue to have very limited capability. Available funding and the
    budget process limit the speed at which we are able to provide new
    technology to improve this capability.
        Current overall funding in the President's budget is adequate to
    meet current program goals. There are, of course, areas where
    additional funds would accelerate completion or enhancement of C2
    system capabilities. For instance, there are currently shortfalls in
    shore pier and training infrastructure that prevent full utilization of
    synthetic training capabilities. Completion and modernization of this
    infrastructure is necessary to allow the most efficient utilization of
    C2 bandwidth and to train effectively while maximizing available
    resources as was recently demonstrated by the Multi-Battle Group Inport
    Exercise (MBGIE) that linked together three CSGs from both coasts. The
    Navy is also migrating from its service-unique global communications
    architecture to fully use the GIG and DOD teleports. This effort, both
    complex and expensive, is essential to ensuring efficient, high
    capacity joint interoperability. Simultaneously, as the transformation
    to Internet Protocol (IP) routed networks occurs, the Navy needs the
    tools to monitor and operate its networks to ensure efficient, reliable
    command and control at sea.
        General Moseley. Our Theater Air Control System (TACS) elements,
    the Air Operations Center (AOC), Airborne Warning And Control System
    (AWACS), Joint Surveillance Target Attack Radar System (JSTARS),
    Control and Reporting Centers (CRC), Air Support Operations Centers
    (ASOC) and Tactical Air Control Parties (TACP) remain engaged in
    operations abroad and at home, The AOC, CRC, ASOC/TACP, and JSTARS are
    key Command and Control (C2) Battle management nodes in Operation Iraqi
    Freedom and Operation Enduring Freedom, AWACS, CRCs, and our Air
    Defense Sectors are engaged in homeland defense missions such as ONE,
    AWACS, and JSTARS simultaneously support operations while in Global
    Military Force Policy Reconstitution. Reconstitution will help build a
    sustainable AWACS and JSTARS force. The approach to AOC as a Weapon
    System will equally enhance stability for operational level C2
    warfighters. Efforts to standardize Joint Terminal Attack Controller
    equipment, training, tactics, and procedures will benefit Close Air
    Support C2, The recent force structure improvements to the CRC,
    including the addition of a third crew per weapon system will stabilize
    this ground based radar system. The stressors are unique to each C2
    weapon system and there is no single solution; however, manpower is a
    common thread that needs to be addressed. Some positions need to be
    validated, funded, and filled, while others simply need time to
    reconstitute. Focusing on C2 system manpower will allow us to sustain
    today's operations as well as prepare for the next fight.
        Interoperability and integration, communication on the move, and
    bandwidth are certainly key elements of successful employment of our
    TACS in planning and executing operations. Voice and digital
    connectivity are required to vertically and horizontally integrate with
    each other, attack and support assets, as well as with our sister
    Services. Our forces continue to overcome challenges with
    communications and interoperability, and bandwidth constraints by
    participating in Joint, Service, and coalition programs such as the
    Family of Interoperable Operational Pictures. C2-enabling capability
    initiatives are underway which employ joint-level standards, including
    Configuration Management and implementation coordinating committees as
    well as the endeavor to fully implement Link-16. In addition we are
    working closely with the Army on the development and fielding of the
    Joint Tactical Radio System and the Joint Blue Force Situational
    Awareness (JBFSA), an initiative to standardize flow of blue force data
    amongst Service C2 systems to assist in the prevention of fratricide.
    The Joint Forces Command sponsored Joint Battle Management C2 Roadmap
    is designed to harmonize requirements and acquisition activities among
    the Services and will help create an integrated, interoperable,
    sustainable C2 weapons system supportable at all levels of planning and
    execution. Funding initiatives such as these will improve machine-to-
    machine interfaces required for timely and accurate prosecution of
    operations.
        General Huly. The Marine Corps continues to maintain a high state
    of readiness for communications assets currently employed supporting
    Operations Iraqi Freedom (OIF) and Enduring Freedom (OEF). This high
    level of readiness is attributed to disciplined and aggressive
    maintenance procedures as well as timely rotation of principle end
    items. The current operational environment continues to redefine the
    way we have traditionally employed communications across the
    battlefield. Today there is a much larger requirement to push data, and
    video capability down to lower tactical echelons of the Marine Air
    Ground Task Force.
        The challenge we have today is to continue to support the
    increasing communication requirements with the current table of
    equipment. Operational requirements dictate that additional bandwidth
    be available at the lowest tactical levels to support enhanced ability
    to share situational awareness. Old tables of equipment do not support
    a `digital battlefield.' Increased bandwidth communications
    requirements at lower echelons coupled with the requirement to sustain
    a dispersed force across a large area of responsibility and the need to
    track all entities (to include combat service support elements) across
    the battlefield has stretched our current inventory of equipment.
    Additionally, requirements to provide communications assets to Military
    and Police Assistance Teams to train Iraqi Forces has exacerbated this
    challenge. Current operational tasking outpaces our table of equipment
    for many high demand command and control items. This creates challenges
    to support home-station pre-deployment training as well as other
    contingencies.
        Efforts are underway to converge Army and Marine Corps friendly
    force tracking capabilities that will provide over-the-horizon/on-the-
    move capability while improving information exchange between the
    Services and coalition forces at the lowest level. We have approved and
    are executing a plan to develop a single capability among the services
    that includes both hardware and software solutions. Based on efforts to
    date, significant enhancements have already been realized; but much
    remains to be done in this area to extend this capability to joint and
    coalition partners. The goal for completion of this effort is fiscal
    year 2007. We have also made significant strides in increasing the
    density of Blue Force Situational Awareness devices on the battlefield.
    Recent analysis indicated that our initial acquisition objective of
    4,500 devices was insufficient. We have determined that we need to
    procure 14,500 devices that will allow us to field such a capability to
    every command and control platform in the Marine Corps and up to 40
    percent of all other vehicle assets. Finally, our Communication-On-The-
    Move-Network-Digital-Over-The-Horizon-Relay initiative will provide the
    radio transmission capability required to bridge between echelons
    beyond line of site.
        We are addressing many of these increased command and control
    requirements by `cross-leveling' equipment between forces returning
    from OIF and forces preparing to deploy to OIF. This practice ensures
    that forces deploying can meet the command and control requirements in
    theater but creates shortfalls at home station for training.
        To satisfy demands for bandwidth we contract for commercial
    services. We are concerned with the increasing costs associated with
    sustaining the commercial communication equipment and services to
    support OIF and OEF. To date, the sustainment of these commercial
    initiatives have almost exclusively been funded via annual supplemental
    appropriations.
        The fiscal year 2005 supplemental and cross leveling efforts will
    help alleviate some of the stress on our command and control assets in
    the near term. We are examining additional ways to alleviate some of
    the strain on command and control assets while ensuring sufficient
    assets to train with at home station.

                              UNIT MANNING POLICY

        64. Senator Akaka. General Casey, I want to applaud the Army for
    the depth and magnitude of the changes you are making to try to change
    your force to be better suited to current needs. One of the Chief of
    Staff's key initiatives in that regard is unit manning, or the plan to
    stabilize personnel in a given unit for an entire 3 year assignment. As
    I understand it, one of the primary rationales for unit manning is that
    it will improve cohesion, which in turn will presumably improve
    performance. I have a couple of questions about the logic behind this
    plan. Can you explain to me exactly what the problem is that unit
    manning is trying to solve and how you know that you have it? If it is
    a lack of cohesion, and therefore performance, are there instances you
    can point to where additional cohesion would have helped?
        General Casey. Senator, unit focused stabilization (formerly
    referred to as unit manning), is directed at making more capable and
    combat-ready forces that are agile and deployable in support of an
    expeditionary Army at war. In light of this guidance, unit focused
    stabilization, and more specifically lifecycle manning, is designed to
    focus all personnel turbulence of a brigade-sized unit to a focused
    two-month window, called the reset phase. The unit then trains to build
    from individual through full collective capability in a training phase.
    Finally, the unit is validated or certified at its collective
    capability and enters the ready phase (approximately 30 months in
    length). While in this phase, the unit continues to build capabilities
    through accretive training events. Unlike units manned under the
    individual replacement system of today, the unit is more agile and
    maintains continuity of personnel through deployments. Because the
    entire team has remained together through the entire training phase,
    each soldier knows his or her part in the mission. The unit can deploy
    and immediately enter the fight if necessary. The unit of today cannot
    make that claim. In any given year, approximately 30 percent of the
    unit ``turns over'' through normal assignments and separations. A 2000
    Rand study reviewed three units, that when notified for deployment, had
    to exchange up to 40 percent of their assigned unit personnel as these
    soldiers did not meet peacetime deployability criteria. Each of these
    units then had to integrate and train these new soldiers to form a unit
    prior to deployment. Similarly, when the 3rd Infantry Division (3ID)
    deployed for Iraq, the Army had to first institute Stop Loss/Stop Move
    in order to keep the majority of the soldiers with their units, but
    still approximately 30 percent of the soldiers had less than 1 year
    with their unit and had not been fully trained as a member of the unit.
    Fortunately, units of 3ID had a number of months to train at team,
    squad, platoon, and company level in the desert while awaiting
    initiation of combat. Unit Focused Stability--lifecycle manning reduces
    or eliminates the need for Stop Loss/Stop Move as the unit and all
    assigned soldiers are on a common timeline synchronized to the
    operational cycle of the unit. The team that trains together, deploys
    together and fights together eliminating going to war with a ``pick-up
    team'' and the need/requirement to spend months training while in a
    forward location awaiting the order to fight. Cohesion is many things
    to many people, and a number of studies have shown a positive
    correlation between certain types of cohesion and performance.
    Cohesion, while important, is not the final goal--agile, combat-ready
    formations that maintain their continuity during deployments are.

        65. Senator Akaka. General Casey, can you explain why some units
    like the 82nd Airborne or the 101st Screaming Eagles are able to
    achieve greater cohesion under an individual replacement system, and
    why you can't use the same methodology to increase cohesion in other
    units without going through the turmoil of implementing a unit manning
    system?
        General Casey. The units mentioned certainly have very high esprit-
    de-corps, but cohesion as a term is too ambiguous in this context.
    Units can be filled with highly motivated, vocal, aggressive
    individuals who enjoy being together both militarily and socially yet
    not have trained to the requisite collective capability to accomplish
    their mission and return. These same units realize approximately 30
    percent personnel turbulence annually driven by a combination of
    factors including enlistment contracts, reenlistment rates, global
    presence and overseas tour lengths, and promotion timing. In order for
    a unit to support an expeditionary Army at war, the unit must be fully
    trained at its wartime mission. Soldiers trained to a ``razor's edge''
    have the best chance of completing their mission with the fewest
    casualties. When soldiers are continuously entering and leaving the
    unit, building and sustaining the highest levels of collective
    capability is difficult or impossible. The unit must continually start
    each major training cycle with the basics to fully integrate the newest
    members, whether new to the unit or new to their position within the
    unit.
        Task cohesion, specifically the alignment of all members of the
    team towards attainment of a collective goal, is the most important
    form of cohesion for a military unit. Numerous studies have indicated a
    positive correlation between task cohesion and performance. In
    addition, many studies have shown that successful performance increases
    cohesion, which can lead to a positive feedback loop in which increased
    cohesion improves performance, which increases cohesion, etc. It is
    next to impossible to reap the benefits from this feedback loop when 30
    percent of the unit is continually new and did not attend the last
    successful training events or missions. Shared experiences, trials, and
    tribulations, which were overcome as a team lead to effective units and
    also build cohesive units.

                       DEFENSE READINESS REPORTING SYSTEM

        66. Senator Akaka. General Casey, Admiral Mullen, General Moseley,
    and General Huly, the Office of the Secretary of Defense (OSD) has
    highlighted the importance of the Defense Readiness Reporting System
    (DRRS) as a vast improvement over the way current readiness reporting
    is conducted. I wanted to get each of your views on how this program is
    moving ahead and the benefits it offers, but I also wanted to get a
    commitment from each of you that you will ensure your Service is doing
    all that it can to share access to data and information to ensure that
    DRRS will be a success. What do each of you see as the primary benefits
    of DRRS and will you make sure your Service is doing all that it can to
    support it?
        General Casey. The primary benefit of DRRS, as it is currently
    envisioned, will be rapid integration of readiness data into war gaming
    and scenario analysis. The Army is the lead Service in support of the
    OSD effort to develop the DRRS and will continue to provide access to
    required information. We are beginning with personnel information and
    expect a demonstration of DRRS initial operational capability by
    September 2004. OSD expects to achieve full operational capability in
    fiscal year 2007, and the Army will continue to support that goal.
        Admiral Mullen. Navy is working closely with OSD personnel and
    readiness (P&R) and has already created a working prototype called
    DRRS-N, building on the new Navy Training Information Management System
    (NTIMS) which translates fleet training data into mission-oriented
    capabilities. DRRS-N is a capability based readiness system that
    captures and aggregates all Navy readiness data for direct use by Navy
    leaders and DRRS. Navy is openly sharing the data and information
    necessary to support the overall OSD (P&R) DRR effort. The greatest
    benefit of DRRS-N is its ability to provide usable readiness
    information in near-real time vice the time-late, platform-centric data
    that is currently collected. As a result, DRRS-N and DRRS will improve
    the quality and more accurately reflect the true current readiness of
    naval forces worldwide for the benefit of all levels of leadership,
    from unit commanders through senior staff members.
        General Moseley. The Headquarters, United States Air Force staff is
    working closely with OSD to ensure DRRS is a success for both the DOD.
    and the Air Force. DRRS initiates a significant change in readiness
    reporting which shifts the emphasis away from simply counting
    resources. With DRRS, we'll evaluate our units' ability to execute
    their warfighting tasks and also assess the capabilities needed to
    provide the desired effect in the battlespace. DRRS' primary benefit is
    in answering the question, ``ready for what?'' With any new system of
    this magnitude, we can anticipate some bumps in the road, but we've
    already taken several steps to support the DRRS construct. We formed a
    team to review and update the mission essential tasks we perform in
    support of the National Military Strategy. We also have another team
    focusing on the inter-related databases and systems architectures
    required for future readiness reporting and force management. Recently,
    we issued an Information/Data Management Strategy that sets the path to
    achieve the objectives of the Department of Defense, Netcentric Data
    Strategy. One of the tenets of the strategy is to enable the sharing/
    reuse of data to support improved readiness reporting. We are currently
    in discussion with OSD to facilitate access to our personnel system,
    the Military Personnel Data System (MILPDS), and will later move to
    logistics and other data. We look forward to continuing support to DRRS
    to dramatically improve readiness reporting.
        General Huly. DRRS will enable every unit commander to report his
    unit training objectives in a very candid and open manner. His
    objectives can then be reviewed by all authorized users of the system.
    Deficiencies can be expressed in terms of personnel, equipment, or time
    required to train, which should refine our resource allocation
    processes. The prime benefit of the DRRS system will be the recognition
    of our perpetual commitment to warfighting excellence as exhibited by
    our comprehensive training programs coupled with the presentation of
    our fiscal requirements to sustain them. The Marine Corps is committed
    to working with the Joint Staff and OSD to harness the technology
    required to implement this decision support tool as an initial first
    step toward a truly net-centric world.

                         FUNDING OF ONGOING OPERATIONS

        67. Senator Akaka. General Casey, the committee has heard a lot of
    testimony in the last month on the amount of funding the Services have
    to continue funding ongoing operations for the rest of the fiscal year.
    I want to ask you a couple of questions about this. For fiscal year
    2004, Secretary Brownlee testified last week that he had a commitment
    from OSD that they will provide additional funds to the Army to get
    them through the remainder of this fiscal year. Are you aware of this
    commitment? If so, how much money do you expect that the Army will
    need, and what is your understanding of where the funds will come from?
        General Casey. The OSD is committed to supporting the combatant
    commander. As the Army is shouldering most of the burden for fighting
    the war on terror, I would expect that OSD will provide some additional
    funding, but I don't how much they have the ability to provide.
        Over the next 6 or 8 weeks, we will conduct mid-year reviews with
    all of our commands to determine the size of any shortfalls we have. We
    will prioritize the shortfalls and do some reallocation among commands
    to fund everything we can. After we get this consolidated picture, we
    will meet with OSD to conduct a similar review at the Service level. As
    far as the source of funding, assuming that there is no additional
    funding coming into the Department of Defense (DOD), OSD would have to
    use some of Secretary's reprogramming authority and reallocate funding
    within DOD.

                       OPERATIONS AND MAINTENANCE FUNDING

        68. Senator Akaka. General Casey, for next fiscal year, by my
    calculations, if the Army's current budget request is approved
    unchanged, you will have $26 billion in operation and maintenance (O&M)
    funding. If spending continues at about the current rate, the Army
    should have completely exhausted its O&M dollars within 6 months, or by
    the end of March a year from now. In your judgment, how long can the
    Army wait for a supplemental before you start either increasing the
    size of the eventual bill and/or cutting into other programs in a
    harmful way?
        General Casey. If our fiscal year 2005 bum rate were similar to
    fiscal year 2004, we would exhaust our O&M base budget in March 2005. I
    do not know the extent to which a late supplemental will increase the
    eventual bill, but it would have some effect on readiness and other
    programs. From the beginning of the year, we will be forced to borrow
    from base programs to fund global war on terrorism. If the Secretary of
    Defense has sufficient temporary authorities to support the temporary
    redistribution of funds across the Department of Defense, we may be
    able to support the global war on terrorism without irreparably harming
    our base programs and with repayment on receipt of a supplemental.

        69. Senator Akaka. General Huly, the Marine Corps' O&M budget is
    only $3.6 billion. If costs in Iraq remain high, this does not give you
    much flexibility to ``cash flow'' to support your deployed forces. How
    long do you expect your fiscal year 2005 budget, if approved at the
    requested level, could support Marine Corps operations at current
    spending rates?
        General Huly. Based on the $25 billion supplemental, funds should
    be more than adequate for the first 5 months of fiscal year 2005. We
    will submit a supplemental request in February 2005 to cover the
    remainder of the fiscal year. We do not anticipate any problems
    supporting our deployed troops.

                            NATIONAL GUARD TRAINING

        70. Senator Akaka. General Casey, we share what I am sure is great
    pride in our National Guard and the great things they are doing for our
    country. I have some concern, however, about how they are trained for
    deployments. I know that some of the brigades that were recently
    deployed to Iraq were trained by active component division headquarters
    and their subordinate training support brigades. However, some of the
    Guard units have expressed concern that they have not had sufficient
    ownership of their training, which seems odd given that many of them
    have equal or greater amounts of experience than their active duty
    counterparts. Is the Army aware of this problem, and are you taking
    steps to ensure that the enhanced brigades that have recently been
    activated will have responsibility for their training that is
    commensurate with their experience?
        General Casey. The training division of the Army Directorate of the
    National Guard Bureau addressed a similar question in January 2004 in
    an information paper. The enclosed paper states that U.S. Army Forces
    Command (FORSCOM) Regulation 500-3-1, paragraph 3.1.6 states the
    continental United States Army (CONUSA) exercises operational command
    over active component installations for mobilization, deployment
    training, and execution. The CONUSA commander has command from the date
    of mobilization until arrival at the power projection platform/power
    support platform (PPP/PSP). While the regulation states the CONUSA has
    operational command, it is Army policy and is clearly stated in Field
    Manual (FM) 7-1. The unit commander is responsible for the wartime
    readiness of all elements in the formation. The commander is,
    therefore, the primary trainer of the organization. . .'' The problem
    of training ownership and training validation continues to vex leaders.
    With cooperation and understanding, Reserve and active component
    commanders can solve their training ownership problems.

                            OPERATIONAL COMMITMENTS

        71. Senator Akaka. General Casey and General Huly, the level of
    operational commitments for Army and Marine forces is incredibly high
    right now. I know that your Services will do whatever it takes to meet
    the national needs, but I want to get a better sense for the level of
    stress your units are facing. How would you characterize the current
    level of stress, and how does it compare, in your experience, to past
    levels of commitment? More specifically, how many major units do you
    have that are reporting readiness levels of C-3 or below, and how long
    do you expect these levels to persist?
        General Casey. The Army has no major deployed units reporting C-3
    or less as of March 15, 2004. The Army priority remains winning the
    global war on terrorism while posturing to meet the requirements of the
    National Defense Strategy. Our soldiers are combat experienced, better
    trained, more capable, and better equipped now than at any other time
    in history, and our major combat units will remain ready to execute
    future contingency operations. The Army is entering one of the most
    demanding periods in its history, but the coming months will also offer
    unique opportunities to regenerate combat power while increasing the
    capabilities of Army units. The combination of reconstitution and
    supplemental funding will allow us to reset returning units and add
    additional combat brigades through modularity, while ensuring units
    remain capable and ready. The Army goal is to reconstitute Active units
    within 6 months or less of their return to home station. Reserve
    component units will likely require 6 to 12 months after their
    equipment arrives at home station to attain pre-deployment readiness
    levels. In order to meet this goal, the Army established C-3 as the
    minimum readiness goal for redeploying units to help minimize the time
    required for units to achieve C-1 readiness levels and capabilities.
    The Army also initiated a new policy requiring commanders of deployed
    units to assess and forecast their readiness levels over the estimated
    redeployment timeframe as part of the monthly-deployed unit status
    report. Additionally, the Army established the Reset Task Force, a post
    Operation Iraqi Freedom/Operation Enduring Freedom (OIF/OEF)
    reconstitution/reset effort designed to: (1) continue support to
    combatant commanders; (2) return redeployed forces to pre-employment
    readiness levels while continuing transformation; (3) reestablish and
    restructure Army pre-positioned stocks to support rapid deployments
    around the world; and (4) integrate reset procedures into
    transformation, reorganization, modernization, and recapitalization
    efforts to posture the Army for future operations. The Army has done
    the necessary planning, applied available funding, and is executing
    reset activities with priority going to units redeployed from current
    missions and preparing for future contingency plans. The end-state will
    be a trained, well equipped, capable, and battle tested force resourced
    to successfully prosecute the global war on terrorism, build additional
    combat force structure, and posture the Army for future requirements.
        General Huly. The Marine Corps is being stretched in ways planners
    never anticipated. We have marines in Iraq, with more on the way,
    Afghanistan, Haiti, Africa as well as those marines stationed in Japan.
    While our marines are keeping their chins up, the strain is showing on
    people and equipment alike. Marines are being ordered to accelerate
    deployments to Iraq and discussions continue on whether to extend those
    already there. Seventeen percent of our Active Forces are reporting
    degraded readiness with 54 percent of these units reporting equipment
    as the degrader. Despite our efforts, it is anticipated that these
    levels will persist, or even increase, as long as substantial force
    commitments to OIF/OEF persist.

                     AREAS OF STRAIN AND COMMITMENT LEVELS

        72. Senator Akaka. General Casey and General Huly, what is your
    Service's particular areas of strain, and what, if anything, can be
    done to alleviate those concerns?
        General Casey. Today our Army is executing operations in defense of
    the homeland (Operation Noble Eagle), stability and support operations
    in the Balkans (Stabilization Force/Kosovo Force), peacekeeping in the
    Sinai as part of the Multinational Force and Observers (MFO) and combat
    operations in Iraq and Afghanistan (Operations Iraqi Freedom/Enduring
    Freedom) (OIF/OEF). We are also forward stationed in Korea and
    elsewhere. Approximately two-thirds of our active and Reserve combat
    formations were deployed in fiscal year 2003 and will be deployed in
    fiscal year 2004. To mitigate risk, the Army is embarking on a series
    of initiatives.
        An essential initiative is resetting forces returning from OIF and
    OEF to a standard higher than before their deployment. Introduction of
    new technologies for battle command and new concepts and designs for
    modularized capabilities are examples of these improvements. Another
    initiative establishes force stabilization measures to reduce
    turbulence for soldiers, units, and their families. Predictability of
    rotations, to include the essential training and exercise periods that
    prepare units for combat deployments and operations, is an important
    measure to reduce stress and other force management risks.
        The Army is internally rebalancing active and Reserve component
    forces to better posture our existing force structure to meet global
    commitments. One example of a near-term measure taken by the Army is
    the formation of 18 provisional military police comies in the Army
    National Guard using field artillery formations that were not stressed.
    Between fiscal years 2004-2009 the Army is converting approximately
    30,000 spaces of cold war structure to capabilities needed for homeland
    defense and the global war on terrorism (civil affairs, military
    police, psychological operations, other Special Operations Forces,
    etc.).
        The Army has also begun to increase the number of available combat
    brigades through modular reorganization. Newly restructured, trained
    and equipped forces provide campaign quality capabilities that are
    responsive and agile for both rapid deployment and sustained full-
    spectrum combat operations. This increase in available brigades allows
    the Army to improve strategic flexibility, sustain a predictable
    rotation cycle and permit the Reserve component to reset. To facilitate
    this end-state, the Army has been authorized to increase temporarily
    its level of manning. These measures will mitigate risk and ultimately
    provide increased capability to combatant commanders.
        General Huly. The Marine Corps' particular areas of concern with
    regard to strain on the force are personnel and equipment. As a result
    of the current operational demands associated with the global war on
    terrorism, Marine Corps units are rotating at a higher rate. The Marine
    Corps tries to maintain a 1:3 deployment ratio for active component
    marines. This means for every one day deployed a Marine is not deployed
    for 3 days. This ratio has proven historically sustainable with no
    undue stress on the force. We are currently at a 1:1 unit deployment
    ratio. We are concerned about the effect that an increase in deployment
    tempo may have on retention rates. As of 2 April 2004, the Marine Corps
    had 2,270 active component and 1,963 Reserve component marines who have
    exceeded the 400 out of the preceding 730 days deployment tempo
    threshold (less than a 1:1 ratio). 43,948 active component and 16,644
    Reserve component marines have exceeded 180 days of deployment tempo
    (less than a 1:3 ratio). The degree to which the number of marines with
    less than a 1:3 deployment ratio will increase will depend on the
    duration of the increase in deployment tempo. Inasmuch as possible, the
    Marine Corps is striving to maintain normal personnel assignment
    policies. For Operation Iraqi Freedom II we will mitigate deployment
    tempo by limiting the requirement for a 14 month presence to only those
    marines serving in the I MEF command element. Marine units supporting I
    MEF will rotate on 7-month deployments, which is more in line with our
    normal deployment rotation periods.
        Regarding the strain on equipment, we are using our equipment at a
    much higher tempo for sustained periods in combat conditions. It will
    take time to return the Maritime Prepositioning Force program to pre-
    Operation Iraqi Freedom employment capability, and the use of Maritime
    Prepositioning Squadron assets in support of Operation Iraqi Freedom II
    may extend reconstitution. One squadron is essentially complete and
    ready to respond to any contingency. Several ships in the other two
    squadrons had completed reconstitution, but those ships have since been
    used to support the Marine forces deploying for Operation Iraqi Freedom
    II. The current schedule has one Maritime Prepositioning Squadron
    completing its scheduled maintenance cycle in April 2005, and the
    second squadron concluding its scheduled maintenance cycle in April
    2006. The time it will take until we have all three squadrons fully
    overhauled will be a function of additional equipment requirements in
    support of Operation Iraqi Freedom II, Corps-wide equipment readiness,
    and the condition of the equipment that returns from Operation Iraqi
    Freedom II. In any case, reconstitution of our forces and Maritime
    Prepositioning Squadrons will be a challenge for at least a couple more
    years.

        73. Senator Akaka. General Casey and General Huly, how do current
    commitment levels affect your Service's ability to respond both to any
    possible additional contingencies, for instance in Venezuela, or to
    meet additional requests for forces coming out of Operations Iraqi
    Freedom and Enduring Freedom?
        General Casey. The Army retains the ability to respond to
    contingencies and crisis around the world by maintaining a Brigade-size
    element that can respond on short notice. In addition, the Army remains
    strategically postured, and can meet the operational needs of joint
    force commanders, and the force management challenges for operations in
    Iraq and Afghanistan.
        General Huly. The Marine Corps, as directed by Commander, U.S.
    Joint Forces Command, maintains a rapidly deployable force called the
    Air Contingency MAGTF (ACM). The ACM is home-stationed in Camp Lejeune,
    NC and is currently deployed to Haiti conducting Peacekeeping
    Operations. The target date for transition and Transfer of Authority
    from the current Multi-National Interim Force Haiti (MIFH) to a U.N.
    led coalition was late June 2004. Impact on ongoing Operations such as
    Enduring Freedom and Iraqi Freedom will be minimal as long as the
    transition is accomplished in accordance with the published timelines.
    Once the ACM is redeployed from Haiti and reconstituted in Camp Lejuene
    the ACM will be ready to respond to any regional contingencies such as
    a potential crisis in Venezuela.

        74. Senator Akaka. General Casey, Admiral Mullen, General Moseley,
    and General Huly, General Jones testified before the Senate Armed
    Services Committee last week that European Command has done extensive
    cost analyses of any upgrades that might be needed to ranges in Eastern
    Europe and Africa as DOD moves to implement its new overseas presence
    policy. Have any of your Services participated in those cost analyses?
    If so, what is your understanding of the costs associated with
    expanding the areas where forces will train in European Command and
    when do you expect to request those funds?
        General Casey. The U.S. Army, Europe (USAREUR) staff has
    participated in the assessments of range capabilities at Eastern
    European sites proposed for U.S. use by European Command. Specific
    range upgrade requirements have not yet been identified; however, the
    Office of the Deputy Chief of Staff, G-3, is ready to address these as
    USAREUR establishes them. The G-3 staff also meets formally with the
    major Army commands on a semi-annual basis to review all Army range
    issues and requirements. As a contingency, we will provide USAREUR with
    a supplemental range package of portable targetry and range support
    equipment in fiscal year 2004. This package will permit USAREUR to
    begin to rapidly improve Eastern European ranges when they are
    identified and when appropriate approval for their use is granted. The
    Grafenwoehr and Hohenfels Major Training Areas (GTA/HTA) in Germany,
    remain central to the Army's training range capabilities for both
    permanent and rotational forces stationed in Europe. We will continue
    to improve GTA and HTA to provide the range capability required of our
    Future Force, as well as our joint partners.
        Admiral Mullen. The Navy is exploring the possibility of improving
    select infrastructure on some foreign ranges in North Africa and
    Eastern Europe, but no cost analysis has been performed at this time.
    Any required funds will be included in future years budget requests.
        General Moseley. In order to take advantage of potential savings of
    the United States Air Forces in Europe, the Integrated Global Presence
    and Basing Strategy initiative as defined in the Strategic Planning
    Guidance, ``Shape Force Posture,'' there will need to be some
    improvements to an existing range and the creation of a new range with
    advanced electronic capabilities. The United States Air Forces in
    Europe has participated in these costs analyses. The improved and new
    European ranges would obviate the necessity for expensive Weapons
    Training Deployments to the Continental United States. If the necessary
    upgrades are made and additional range areas created, the considerable
    yearly savings will offset the costs associated with this initiative.
    Since this initiative is listed in the Strategic Planning Guidance, it
    is scheduled to be part of the fiscal year 2006-fiscal year 2011
    Program Objective Memorandum submissions. Savings will be realized.
    Therefore, commensurate requests for these range additions will be
    forthcoming.
        General Huly. The Marine Corps has not participated in any cost
    analyses relating to Ranges/Training areas in Eastern Europe and
    Africa.

                             AMMUNITION PRODUCTION

        75. Senator Akaka. General Casey, the Army continues to face severe
    shortfalls in ammunition. I understand that you are looking at this
    problem and possible solutions, although it seems apparent that the
    Army will not be able to afford to make any serious progress on this
    issue for some time in the future. General Schoomaker also testified
    that the Army is considering adding additional production capacity to
    help increase the rate at which ammunition can be bought. What is the
    total amount of the ammunition shortfall and how does the Army expect
    to address it? What is the Army's plan to increase ammunition
    production?
        General Casey. The current requirement for small arms ammunition
    has five parts: (1) training; (2) war reserve; (3) current operations
    in Iraq and Afghanistan; (4) support to other Services under the single
    manager for conventional ammunition program; and (5) testing. Annual
    requirements have ramped up from 1.1 billion rounds in fiscal year 2004
    to 1.74 billion rounds annually through fiscal year 2009. The current
    serviceable inventory is approximately 1.1 billion rounds (which is
    spread among stateside depots and worldwide Army prepositioned
    stockpiles). However, this inventory is being depleted at a higher rate
    than we are currently able to refill it.
        The Army's sole production facility for small arms ammunition is
    Lake City Army Ammunition Plant, Independence, Missouri. Under the
    current contact, the operating contractor, ATK-Alliant Techsystems, has
    the capacity to produce at the rate of 1.2 billion rounds annually. Our
    first step in taking care of the shortfall has been to fully fund Lake
    City to produce at capacity. While Lake City is ramping up production,
    the Army has awarded contracts to two commercial vendors for 140
    million rounds to support the training base. We are working toward
    long-term goals of increasing the capacity of Lake City to produce 1.5
    billion rounds annually and establish commercial sources for an
    additional 300-500 million rounds per year.

                               READINESS CONCERNS

        76. Senator Akaka. General Casey, Admiral Mullen, General Moseley,
    and General Huly, would each of you please tell me your primary
    readiness concerns for the coming year?
        General Casey. The Army provided to Congress its fiscal year 2005
    shortfalls on March 23, 2004. This list laid out our readiness
    concerns: vehicle bolt-on ballistic armor, modularity, reset the force,
    replacement of combat-battle loss equipment, up-armored HMMWVs, and
    military construction. In addition, the Army will be resetting units
    from Operations Iraqi Freedom and Enduring Freedom, transforming
    brigades into modular units of action, and preparing units for
    deployment to continuing operations. Congressional support in the form
    of adds and supplemental funding will address these concerns.
        Admiral Mullen. We have submitted what I would characterize as a
    ``lean'' budget request, judiciously balancing current readiness needs
    with future readiness investments. I believe we have trimmed all of the
    ``fat'' from our readiness accounts, and that these accounts ar
    resourced to deliver the required readiness levels. I consider the
    risks we've taken to be well thought out and executable, but any
    additional reductions to these accounts would, in my mind, put
    readiness at some new, higher and unacceptable level of risk.
        More immediately, the challenges I discussed during my verbal
    testimony remain. These include the capacity of the public ship repair
    industrial base, fatigue life issues for our EA-6B and P-3 aircraft,
    our stockpiles of precision-guided munitions, and encroachment on our
    training areas.
        General Moseley. The Air Force's primary readiness concerns are
    Operations Tempo (OPTEMPO) and aging weapon systems. The increased
    OPTEMPO, particularly during the past year, had impacts on Air Force
    readiness, particularly among low density/high demand (LD/HD) assets,
    as units experienced training and equipment/supply strains. Training
    levels were impacted as deployed personnel and instructors were not
    available in some systems. This affected aircrew training as well as
    the balance between enlisted skill levels (3-level vs. 5/7-levels). LD/
    HD communities are affected the roost if aircraft and instructors are
    not available to train initial qualification students in career fields
    that are already stressed. OPTEMPO also affects equipment and supplies
    as they are used at a faster rate as the level of demand increases for
    contingencies. While we have experienced reconstitution success and
    returned to our Air Expeditionary Forces Battle Rhythm for most assets,
    increased OPTEMPO would have further impacts on our readiness.
        Aging aircraft are also a concern as the average age of the total
    fleet is now 23 years. Technical surprises such as those driven by high
    cycle fatigue, corrosion, and aging composites may impact the future
    reliability/maintainability of our fleet and reduce our ability to
    preserve its readiness.
        General Huly. The Marine Corps' primary readiness concerns for the
    coming year are the management of the operational tempo (OPTEMPO) of
    our units, active and Reserve, and the effect on personnel tempo
    (PERSTEMPO), as well as the repair or replacement of equipment as we
    support operational commitments worldwide.
        Prior to September 2001, the Marine Corps maintained a 2.7:1 unit-
    level rotation ratio. As a result of operational commitments in support
    of the global war on terrorism, our OPTEMPO has increased to a 1:1
    ratio. Our near-term goal is to return to a 2:1 ratio by fiscal year
    2006.
        The Marine Corps' back-to-back participation in OIF I&II is
    straining our materiel readiness, particularly the maintenance of our
    Maritime Prepositioning Force equipment. Presently, we are meeting our
    operational requirements within the constraints of our fiscal year 2004
    global war on terrorism funding and depot maintenance capabilities.

                              PREPOSITIONED STOCKS

        77. Senator Akaka. General Huly, you state that reconstituting the
    Marine Corps' maritime prepositioning squadrons will be a challenge for
    the next few years, and that right now, only one of the three squadrons
    is available for contingency response. Are we using any equipment from
    that squadron in Haiti?
        General Huly. Currently, no prepositioned equipment and supplies
    are being used in support of operations being conducted in Haiti.
    Marine units are using their organic assets for that mission.

        78. Senator Akaka. General Huly, what risks are associated with
    there only being one maritime prepositioning squadron available?
        General Huly. This question should also be directed to combatant
    commanders since they are the ones who are actually supported with the
    prepositioned squadrons. The Marine Corps' role is merely a force
    provider in support of combatant commander requirements. That said, the
    combatant commanders who are most directly impacted by the one squadron
    currently offloaded and the other squadron currently cycling through
    maintenance have assessed the risks entailed with this situation. Risks
    are deemed mitigated through various global sourcing and use of CONUS-
    based units and equipment sets. This will add strategic lift
    requirements to Commander, U.S. Transportation Command (CDRUSTRANSCOM);
    therefore, I recommend this question be directed toward the
    CDRUSTRANSCOM staff with an eye toward gauging the impact of moving
    globally sourced and/or CONUS based assets to support combatant command
    requirements. If events remain as currently scheduled, spring 2005 is
    when we expect to have our second squadron complete its maintenance
    cycle and fully capable of supporting combatant commander assigned
    missions. However, between now and then, individual ships from that
    squadron will be completing their maintenance actions. This translates
    to the following: By April 2004, two ships will ready; by July 2004,
    three ships will be ready; by December 2004, four ships will be ready;
    and the final ship of that squadron becomes ready by March 2005. The
    third squadron will then commence its maintenance cycle and is
    scheduled to conclude that cycle by spring 2006.

        79. Senator Akaka. General Casey, what is the status of Army
    prepositioned equipment and what risks are there to it not being fully
    available for some time to come?
        General Casey. APS reset actions have been accomplished on APS-4
    (Korea), two ammunition ships, the 1  1 for Guam/Saipan, and
    the 1  1 for Diego Garcia, which is being prepared to go
    afloat. Additionally, 48 percent of the combat support/combat service
    support equipment for the second large-medium speed roll-on/roll-off
    ship for Guam/Saipan has been removed from Southwest Asia (SWA) and is
    undergoing repair in Charleston, South Carolina. The Army will attempt
    to complete fill of this ship; however, continued use of APS equipment
    in SWA may prevent this.
        Currently, the Army has adequate combat power in APS to support one
    swiftly defeat the effort scenario and other contingencies, as
    directed. The APS-4 (Korea) brigade set is in a ``ready to fight''
    condition. The combat power in the two afloat brigade sets is rated
    green. Lacking is the equipment needed to support these sets for an
    extended period of time once employed.
        The continued use of APS equipment to support current operations in
    SWA does present limited risk to possible near term Army operations.
    These risks have been identified and mitigation strategies have been
    reviewed and implemented. The Army leadership has determined that the
    best use of APS equipment currently is to support operations in SWA and
    future Operation Iraqi Freedom rotations.
                                     ______

                   Question Submitted by Senator Bill Nelson

        80. Senator Bill Nelson. General Casey, at the January 2004 Senate
    Armed Services Committee hearing with the Joint Chiefs, I asked the
    Chief of Staff of the Army, General Schoomaker, about a decision in the
    DOD fiscal year 2005 budget process that reduced funding for Army Guard
    and Reserve training by $600 million. At the time of the hearing,
    General Schoomaker and Lieutenant General Steve Blum (Chief of the
    National Guard Bureau) did not seem fully aware of the specific nature
    of this reduction. The Army has had time to research this. I have been
    told privately that this reduction is a heavy hit on the Reserve
    component readiness and that it has a significant negative impact on
    the Guard and Reserve ability to reset the force returning from
    Operation Iraqi Freedom. It seems contradictory to want to reset the
    Army, both active and Reserve components, without the required funds in
    hand or a supplemental planned; and, it seems potentially disastrous
    for the Reserve component to try to reset its force when they are
    already $600 million behind their peacetime requirement. Please provide
    the committee with an update on the resolution of this situation.
        General Casey. The Reserve component training budget ensures the
    funds necessary to conduct military occupational specialty training
    (individual training), professional military education training (leader
    training), and the necessary operational tempo to support collective
    training for those units preparing for mobilization and deployment
    while in a Reserve status, as well as enabling recently demobilized
    units to maintain their readiness edge. The Army is committed to
    ensuring that any future Reserve component cost avoidance will be used
    for resetting its Reserve component units. In addition, the Army plans
    to address both Active and Reserve component unfunded reset
    requirements in the fiscal year 2005 supplemental request.

        [Whereupon, at 4:20 p.m., the subcommittee adjourned.]

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                      2005

                                  ----------

                            TUESDAY, MARCH 23, 2004

                               U.S. Senate,
                      Subcommittee on Readiness
                                and Management Support,
                                   Committee on Armed Services,
                                                        Washington, DC.

                   DEPARTMENT OF DEFENSE FINANCIAL MANAGEMENT

        The subcommittee met pursuant to notice at 2:30 p.m. in
    room SR-222, Russell Senate Office Building, Senator John
    Ensign (chairman of the subcommittee) presiding.
        Committee members present: Senators McCain, Allard, Ensign,
    Levin, Akaka, and Pryor.
        Majority staff members present: William C. Greenwalt,
    professional staff member; and Gregory T. Kiley, professional
    staff member.
        Minority staff member present: Peter K. Levine, minority
    counsel.
        Staff assistants present: Andrew W. Florell, Sara R.
    Mareno, and Bridget E. Ward.
        Committee members' assistants present: Lance Landry,
    assistant to Senator Allard; and D'Arcy Grisier, assistant to
    Senator Ensign.

           OPENING STATEMENT OF SENATOR JOHN ENSIGN, CHAIRMAN

        Senator Ensign. The Readiness and Management Support
    Subcommittee meets this afternoon to receive testimony on the
    state of financial management within the Department of Defense
    (DOD). We are honored to have both the Comptroller General of
    the United States, David Walker, and the Under Secretary of
    Defense, Comptroller, Dov Zakheim, before us today.
        I welcome both of you. I understand that Secretary Zakheim
    will return to the private sector after April 15. I want to
    thank him not only for his appearance today but for the service
    he has given our Nation as the Under Secretary of Defense.
        Though some may consider this a somewhat arcane topic, the
    presence of both of you here demonstrates the high level of
    attention this subject demands. Proper financial management and
    accurate reporting of how defense dollars are spent are
    critical requirements for decisionmakers and those responsible
    for oversight of those decisions.
        Lack of auditable and repeatable financial statements may
    call into question the resource decisions made within the
    Department and make carrying out our constitutional
    responsibilities for oversight of those decisions more
    difficult. The American taxpayers deserve better; and working
    together, we must do better.
        Two years ago, this subcommittee, under Senator Akaka's
    leadership, met and received testimony from the same two
    witnesses before us today. That hearing proved very informative
    in discussing the shortfalls of financial management within the
    Department of Defense and in laying out a framework to address
    those problems.
        Today we are here to receive an update of that hearing. I
    would especially appreciate your straightforward assessment of
    the progress made and the obstacles remaining toward achieving
    clean, auditable statements and developing accurate and timely
    financial management information to support effective
    decisionmaking in the Department of Defense.
        Two years ago, Secretary Zakheim presented a plan to
    develop a comprehensive architecture for financial management
    systems. While it appears those plans and time lines were
    optimistic, it is also apparent that progress has been made.
    DOD has reported progress in several areas, including: reported
    improvements in contract payment backlogs and payment recording
    errors; improved purchase and travel card management; the
    number of purchase cards has been reduced by 50 percent--travel
    card delinquencies are down; and there was the completion of an
    initial draft financial management enterprise architecture in
    May 2003.
        As we enter another election season and as you, Secretary
    Zakheim, prepare to step down from your post, I am concerned
    that such gains may be lost during any transition period,
    regardless of who wins the next election. Previous
    administrations have launched reform efforts, only to be
    replaced by the reform efforts of succeeding administrations or
    Pentagon leadership teams. Already the separate Services have
    briefed the committee on their financial management systems
    plans that include milestones in conflict with the Office of
    the Secretary of Defense (OSD)-established time lines and
    funding shortfalls.
        We must continue the progress made in this vital area of
    financial management reform. We owe the American taxpayer no
    less. Improving DOD's financial management will require the
    support of several more successive administrations. In that
    light, as you present your testimony, can either of you suggest
    possible legislative actions or funding requirements, that
    Congress may make to ensure that the progress gained so far
    will not be lost and a solid foundation will remain for
    continued financial management improvement?
        Gentlemen, thank you again for the time to appear before
    the subcommittee today. I look forward to your testimony.
        But first, Senator Akaka, do you have any opening remarks?

                  STATEMENT OF SENATOR DANIEL K. AKAKA

        Senator Akaka. Thank you very much, Mr. Chairman. I, too,
    want to welcome our two witnesses, Secretary Zakheim and
    Comptroller General Walker, to this hearing. This is a follow-
    up, as was mentioned by the chairman, of a hearing 2 years ago
    on the same subject. I believe today that the Department will
    never be managed efficiently until it can get its financial
    house in order.
        When we met 2 years ago, DOD Comptroller Dov Zakheim told
    us that the Department was committed to the highest levels of
    addressing problems in the Department's financial management
    systems. He told us that the Department would establish a new
    financial management systems architecture, covering all of the
    Department's business systems within a year. He told us that he
    would start implementing DOD-wide solutions, on a prototype
    basis, by the middle of 2003. He told us that he would control
    the Department's investments in free-standing business systems
    until the new plan was in place to avoid expenditures on stand-
    alone systems that would not meet the Department's needs.
        I know that Dr. Zakheim has retained his commitment to this
    issue throughout his tenure as DOD Comptroller. Unfortunately,
    it does not appear that he has been able to overcome the
    Department's institutional resistance to change. Two years
    after our last hearing, the Department still does not have a
    working blueprint for a new financial management system, still
    has not started to field new systems based on such a road map,
    and still does not have an effective system in place to control
    and coordinate investments in business systems by individual
    DOD organizations.
        In short, we are pretty much where we started. I hope that
    today's hearing will give us an opportunity to focus not only
    on what has gone wrong but on how we can move forward in a
    constructive way to address the underlying problems. So, I look
    forward to the testimony of our witnesses, Mr. Chairman.
        Senator Ensign. Thank you, Senator Akaka.
        Mr. Walker, why do you not start us off today?

     STATEMENT OF HON. DAVID M. WALKER, COMPTROLLER GENERAL OF THE
             UNITED STATES GENERAL ACCOUNTING OFFICE (GAO)

        Mr. Walker. Thank you, Mr. Chairman, Senator Akaka. It is a
    pleasure to be back before you. I want to commend this
    subcommittee for staying with this issue. I mean, like so many
    issues that have been decades in the making, it is going to
    take time to be able to deal with it. We are going to go from
    patience, to persistence, to perseverance, to pain before
    ultimately we prevail. But it is important that we do prevail.
        I think the bottom line would be as follows: During the
    last 2 years, progress has been made, but much work remains to
    be done. Sounds like a GAO report, does it not?
        I think we have to keep in mind that it took decades for
    DOD to get in the position where it is, that DOD is number one
    in the world in fighting and winning armed conflicts. Nobody is
    even close. But as I have said before, they are a D, graded on
    a curve, in economy, efficiency, transparency, and
    accountability.
        There is no question that Secretary Zakheim, all the way up
    to Secretary Rumsfeld, has been dedicated to trying to deal
    with the process problems of which financial management is only
    a sub-set of a much bigger management challenge. They have made
    some progress. But I think that it is going to take
    considerably more time before they are going to ultimately
    prevail.
        With regard to financial management, there has been a date
    set by DOD and by the administration to try to achieve a clean
    opinion on the financial statements of DOD, namely for fiscal
    year 2007. I think that is an ambitious and an aggressive date.
    But obviously, I think it is important that you have some goals
    and milestones, and you try to do what you can to try to hit
    them.
        Clearly, the lack of an opinion on the financial statements
    of the Department of Defense is the single largest obstacle to
    the GAO being able to render an opinion on the consolidated
    financial statements of the U.S. Government.
        You also mentioned, Senator Akaka, about the issue of the
    enterprise architecture. First, it was talked about as a
    financial management system. Financial management is a sub-set
    of an overall business management information system. Yes, they
    do have the first version of an enterprise architecture but
    they have much more work to do. It is my understanding they
    expect to come up with at least a couple of other versions of
    that architecture this year.
        In my opinion, Mr. Chairman and Senator Akaka, I think if
    you look on page 9 and page 15 of my testimony, I talk about
    some of the underlying causes for the current challenges and
    some of the ways forward in key for successful reform. I will
    just mention a couple of things off the top of my head and then
    turn it over to Secretary Zakheim to be able to cover his
    opening remarks.
        In my view, there are several things that are going to be
    absolutely essential, two of which may require legislation. We
    need to have a top-level management official at level-two level
    within DOD. It could be Deputy Secretary for Management; it
    could be Principal Under Secretary for Management; call it
    whatever you want--the title is not important. However, the
    level-two is important. This position should be focused full
    time on trying to deal with DOD's business transformational
    challenges. That means financial management, information
    technology, human capital strategy, contract management, et
    cetera, et cetera, et cetera.
        DOD has currently 9 of 25 high-risk areas in the Federal
    Government. The Secretary, the Deputy Secretary, the Under
    Secretaries, including Secretary Zakheim, have full-time jobs
    just dealing with the tremendous complexity of the Department
    of Defense, which is arguably the largest single entity on
    Earth, as a single entity.
        So, we need somebody focused full time with the
    responsibility and the accountability to make progress with
    regard these challenges on a strategic, integrated basis. We
    have recommended that there be statutory criteria for what type
    of experience the person should have. This is not a policy
    person. This is a management and leadership professional.
        This person could come from the private sector, they could
    come from the public sector. But the fact of the matter is that
    they would have to have demonstrated successful experience in
    similar positions and also have some understanding of how the
    Federal Government operates and, hopefully, the Department of
    Defense. They need to have a term appointment, preferably 5 to
    7 years; they need to have a performance contract; and, they
    need to be held accountable for results.
        Second, we also need to look at how DOD's resources are
    allocated, especially for systems development on the business
    side, and to have more control over those resources by the
    functional areas, or the so-called domains, rather than by the
    Services. I think that it is critically important to make sure
    that we do not have everybody doing their own thing and a
    further balkanization of the business side of the house.
        Third, Congress gave the Department of Defense the National
    Security Personnel System Act, which gives the Department an
    opportunity to fundamentally reform its human capital policies
    and practices. Secretary of the Navy Gordon England is taking a
    leadership role here, along with Under Secretary of Defense for
    Personnel and Readiness David Chu. One key here will be to make
    sure that in implementing that legislation that DOD aligns
    their institutional, unit, and the individual performance
    measurement reward systems to try to achieve desired outcomes
    and to also do it in a way that prevents abuse of employees. I
    think this is critically important.
        If you do these three things, and if you have sustained
    attention on these issues over a period of time, I think we can
    eventually solve the problem. I question whether we will ever
    solve the problem if we do not do at least those three things.
        Thank you.
        [The prepared statement of Mr. Walker follows:]

                     Prepared Statement by David M. Walker

        Mr. Chairman and members of the subcommittee: It is a pleasure to
    be back again to discuss financial management and related business
    transformation efforts at the Department of Defense (DOD). At the
    outset, I would like to thank the subcommittee for having this hearing
    and acknowledge the important role hearings such as this one serve in
    providing a catalyst for business transformation at DOD. The
    involvement of this subcommittee is critical to ultimately assuring
    public confidence in DOD as a steward that is accountable for its
    finances. DOD's substantial longstanding financial and business
    management problems adversely affect the economy, effectiveness, and
    efficiency of its operations, and have resulted in a lack of adequate
    transparency and appropriate accountability across all major business
    areas. As a result, DOD does not have timely, reliable information for
    management to use in making informed decisions. Further, as our reports
    continue to show, these problems result in significant fraud, waste,
    and abuse and hinder DOD's attempts to develop world-class operations
    and activities to support its forces. Of the 25 areas on GAO's
    government-wide ``high risk'' list, 6 are DOD program areas, and the
    Department shares responsibility for 3 other high-risk areas that are
    government-wide in scope.\1\ The problems we continue to identify
    relate to human capital challenges, ineffective internal control and
    processes, and duplicative and stovepiped business systems. The
    seriousness of DOD's financial management weaknesses underscores the
    importance of no longer condoning ``status quo'' business operations at
    DOD.
    ---------------------------------------------------------------------------
        \1\ U.S. General Accounting Office, High-Risk Series: An Update,
    GAO-03-119 (Washington, DC: January 2003). The nine interrelated high-
    risk areas that represent the greatest challenge to DOD's development
    of world-class business operations to support its forces are: contract
    management, financial management, human capital management, information
    security, support infrastructure management, inventory management, real
    property, systems modernization, and weapon systems acquisition.
    ---------------------------------------------------------------------------
        Although the underlying operational conditions remain fundamentally
    unchanged since I last testified before this subcommittee in March
    2002, DOD has taken action to begin addressing a number of these
    challenges as part of its business transformation effort. Business
    transformation has been a priority of Secretary Rumsfeld. For example,
    DOD has been granted additional human capital flexibilities and is in
    the process of developing a new personnel management system for its
    civilian employees. In addition, through its Business Management
    Modernization Program (BMMP), DOD is continuing its efforts to develop
    and implement a business enterprise architecture and establish
    effective management and control over its business system modernization
    investments. To date, however, tangible evidence of improvements in DOD
    business operations remains limited to specific business process areas,
    such as DOD's purchase card program, where improvements have generally
    resulted from increased management focus and better internal control
    rather than from major modifications to automated systems. It is
    important to note that some of the key elements I highlight in this
    testimony as necessary for successful business transformation were
    critical to the success of several narrowly defined initiatives that I
    will discuss today.
        Because DOD is one of the largest and most complex organizations in
    the world, overhauling its financial management and related business
    operations represents a huge management challenge. In fiscal year 2003,
    DOD reported that its operations involved over $1 trillion in assets,
    nearly $1.6 trillion in liabilities, approximately 3.3 million military
    and civilian personnel, and disbursements of over $416 billion.
    Moreover, execution of DOD operations spans a wide range of defense
    organizations, including the military services and their respective
    major commands and functional activities, numerous large defense
    agencies and field activities, and various combatant and joint
    operational commands that are responsible for military operations for
    specific geographic regions or theaters of operations. To execute these
    military operations, the department performs an assortment of
    interrelated and interdependent business process areas, including
    logistics management, procurement, healthcare management, and financial
    management. Secretary Rumsfeld has estimated that successful
    improvements to DOD's business operations could save the department 5
    percent of its budget a year. Using DOD's reported fiscal year 2004
    budget amounts, this percentage would equate to approximately $22
    billion a year in savings.
        Two years ago, I testified on the challenges DOD faces in
    transforming its financial management and related business operations
    and systems, and I discussed several key elements necessary for reform
    to succeed.\2\ If the past has taught us anything, it is that
    addressing the Department's serious financial and related business
    process weaknesses will not be easy. For several years, we have
    reported on DOD's efforts to improve the effectiveness and efficiency
    of its business operations and actions needed to achieve and sustain
    reform. Many of the same underlying causes, such as lack of sustained
    leadership, cultural resistance to change, parochialism, and stovepiped
    operations, that impeded the success of previous administrations in
    addressing DOD's problems continue today. If DOD is unable to address
    these underlying causes that have resulted in the failure of previous
    broad-based reform efforts, improvements will remain marginal, confined
    to narrowly defined business process areas and incremental improvements
    in human capital policies, business processes, internal control
    systems, and information technologies.
    ---------------------------------------------------------------------------
        \2\ U.S. General Accounting Office, DOD Financial Management:
    Integrated Approach, Accountability, Transparency, and Incentives Are
    Keys to Effective Reform, GAO-02-497T (Washington, DC: Mar. 6, 2002).
    ---------------------------------------------------------------------------
        Today, I will provide my perspectives on: (1) the impact that long-
    standing financial management and related business process weaknesses
    continue to have on DOD's business operations; (2) underlying causes
    that have impeded the success of prior efforts; (3) keys to successful
    reform; and (4) the status of current DOD business transformation
    efforts. In addition, I will offer two suggestions for legislative
    consideration, which I believe will provide the sustained top-level
    leadership and accountability necessary for the overall business
    transformation effort to succeed. My statement is based on previous GAO
    reports as well as on our review of the work of other DOD auditors and
    recent DOD reports and studies.

     IMPACT OF FINANCIAL MANAGEMENT AND RELATED BUSINESS PROCESS WEAKNESSES

        As I previously stated, and we have reported on for several years,
    DOD faces a range of financial management and related business process
    challenges that are complex, longstanding, pervasive, and deeply rooted
    in virtually all business operations throughout the Department. As I
    recently testified and as discussed in our latest financial audit
    report,\3\ DOD's financial management deficiencies, taken together,
    continue to represent the single largest obstacle to achieving an
    unqualified opinion on the U.S. government's consolidated financial
    statements. To date, none of the military services has passed the test
    of an independent financial audit because of pervasive weaknesses in
    internal control and processes and fundamentally flawed business
    systems.
    ---------------------------------------------------------------------------
        \3\ U.S. General Accounting Office, Fiscal Year 2003 U.S.
    Government Financial Statements: Sustained Improvement in Federal
    Financial Management Is Crucial to Addressing Our Nation's Future
    Fiscal Challenges, GAO-04-477T (Washington, DC: Mar. 3, 2004).
    ---------------------------------------------------------------------------
        In identifying improved financial performance as one of its five
    government-wide initiatives, the President's Management Agenda
    recognized that obtaining a clean (unqualified) financial audit opinion
    is a basic prescription for any well-managed organization. At the same
    time, it recognized that without sound internal control and accurate
    and timely financial and performance information, it is not possible to
    accomplish the President's agenda and secure the best performance and
    highest measure of accountability for the American people. The Joint
    Financial Management Improvement Program (JFMIP) \4\ principals have
    defined certain measures, in addition to receiving an unqualified
    financial statement audit opinion, for achieving financial management
    success. These additional measures include: (1) being able to routinely
    provide timely, accurate, and useful financial and performance
    information; (2) having no material internal control weaknesses or
    material noncompliance with laws and regulations; and (3) meeting the
    requirements of the Federal Financial Management Improvement Act of
    1996 (FFMIA). Unfortunately, DOD does not meet any of these conditions.
    For example, for fiscal year 2003, the DOD Inspector General issued a
    disclaimer of opinion on DOD's financial statements, citing 11 material
    weaknesses in internal control and noncompliance with FFMIA
    requirements.
    ---------------------------------------------------------------------------
        \4\ JFMIP is a joint undertaking of the Office of Management and
    Budget, GAO, the Department of Treasury, and the Office of Personnel
    Management, working in cooperation with each other and with operating
    agencies to improve financial management practices throughout the
    government.
    ---------------------------------------------------------------------------
        Recent audits and investigations by GAO and DOD auditors continue
    to confirm the existence of pervasive weaknesses in DOD's financial
    management and related business processes and systems. These problems
    have: (1) resulted in a lack of reliable information needed to make
    sound decisions and report on the status of DOD activities, including
    accountability of assets, through financial and other reports to
    Congress and DOD decisionmakers; (2) hindered its operational
    efficiency; (3) adversely affected mission performance; and (4) left
    the Department vulnerable to fraud, waste, and abuse. For example:

             450 of the 481 mobilized Army National Guard soldiers
            from 6 GAO case study Special Forces and Military Police units
            \5\ had at least one pay problem associated with their
            mobilization. DOD's inability to provide timely and accurate
            payments to these soldiers, many of whom risked their lives in
            recent Iraq or Afghanistan missions, distracted them from their
            missions, imposed financial hardships on the soldiers and their
            families, and has had a negative impact on retention. (GAO-04-
            89, Nov. 13, 2003)
    ---------------------------------------------------------------------------
        \5\ The six case study units reviewed include the Colorado B
    Company, Virginia B Company, West Virginia C Company, Mississippi 114th
    Military Police Company, California 49th Military Police Headquarters
    and Headquarters Detachment, and the Maryland 200th Military Police
    Company. In addition, our limited review of pay experiences of soldiers
    in the Colorado Army Guard's 220th Military Police Company, who are
    recently returned from Iraq, indicated that some of the same types of
    pay problems that we found in our case studies had also affected them.
    ---------------------------------------------------------------------------
             DOD incurred substantial logistical support problems
            as a result of weak distribution and accountability processes
            and controls over supplies and equipment shipments in support
            of Operation Iraqi Freedom activities, similar to those
            encountered during the prior gulf war. These weaknesses
            resulted in: (1) supply shortages; (2) backlogs of materials
            delivered in theater but not delivered to the requesting
            activity; (3) a discrepancy of $1.2 billion between the amount
            of materiel shipped and that acknowledged by the activity as
            received; (4) cannibalization of vehicles; and (5) duplicate
            supply requisitions. (GAO-04-305R, Dec. 18, 2003).
             Inadequate asset visibility and accountability
            resulted in DOD selling new Joint Service Lightweight
            Integrated Suit Technology (JSLIST)--the current chemical and
            biological protective garment used by our military forces--on
            the internet for $3 each (coat and trousers) while at the same
            time buying them for over $200 each. DOD has acknowledged that
            these garments should have been restricted to DOD use only and
            therefore should not have been available to the public. (GAO-
            02-873T, June 25, 2002).
             Inadequate asset accountability also resulted in DOD's
            inability to locate and remove over 250,000 defective Battle
            Dress Overgarments (BDOs)--the predecessor of JSLIST--from its
            inventory. Subsequently, we found that DOD had sold many of
            these defective suits to the public, including 379 that we
            purchased in an undercover operation. In addition, DOD may have
            issued over 4,700 of the defective BDO suits to local law
            enforcement agencies. Although local law enforcement agencies
            are most likely to be the first responders to a terrorist
            attack, DOD failed to inform these agencies that using these
            BDO suits could result in death or serious injury. (GAO-04-
            15NI, Nov. 19, 2003)
             Tens of millions of dollars are not being collected
            each year by military treatment facilities from third-party
            insurers because key information required to effectively bill
            and collect from third-party insurers is often not properly
            collected, recorded, or used by the military treatment
            facilities. (GAO-04-322R, Feb. 20, 2004)
             Our analysis of data on more than 50,000 maintenance
            work orders opened during the deployments of 6 battle groups
            indicated that about 29,000 orders (58 percent) could not be
            completed because the needed repair parts were not available on
            board ship. This condition was a result of inaccurate ship
            configuration records and incomplete, outdated, or erroneous
            historical parts demand data. Such problems not only have a
            detrimental impact on mission readiness, they may also increase
            operational costs due to delays in repairing equipment and
            holding unneeded spare parts inventory. (GAO-03-887, Aug. 29,
            2003)
             DOD sold excess biological laboratory equipment,
            including a biological safety cabinet, a bacteriological
            incubator, a centrifuge, and other items that could be used to
            produce biological warfare agents. Using a fictitious company
            and fictitious individual identities, we were able to purchase
            a large number of new and usable equipment items over the
            Internet from DOD. Although the production of biological
            warfare agents requires a high degree of expertise, the ease
            with which these items were obtained through public sales
            increases the risk that terrorists could obtain and use them to
            produce biological agents that could be used against the United
            States. (GAO-04-81TNI, Oct. 7, 2003)
             Based on statistical sampling, we estimated that 72
            percent of the over 68,000 premium class airline tickets DOD
            purchased for fiscal years 2001 and 2002 was not properly
            authorized and that 73 percent was not properly justified.
            During fiscal years 2001 and 2002, DOD spent almost $124
            million on premium class tickets that included at least one leg
            in premium class--usually business class. Because each premium
            class ticket cost the government up to thousands of dollars
            more than a coach class ticket, unauthorized premium class
            travel resulted in millions of dollars of unnecessary costs
            being incurred annually. (GAO-04-229T, Nov. 6, 2003)
             Some DOD contractors have been abusing the Federal tax
            system with little or no consequence, and DOD is not collecting
            as much in unpaid taxes as it could. Under the Debt Collection
            Improvement Act of 1996, DOD is responsible--working with the
            Treasury Department--for offsetting payments made to
            contractors to collect funds owed, such as unpaid Federal
            taxes. However, we found that DOD had collected only $687,000
            of unpaid taxes over the last 6 years. We estimated that at
            least $100 million could be collected annually from DOD
            contractors through effective implementation of levy and debt
            collection programs. (GAO-04-95, Feb. 12, 2004)
             DOD continues to lack a complete inventory of
            contaminated real property sites, which affects not only DOD's
            ability to assess the potential environmental impact and to
            plan, estimate costs, and fund cleanup activities, as
            appropriate, but also its ability to minimize the risk of
            civilian exposure to unexploded ordnance. The risk of such
            exposure is expected to grow with the increase in development
            and recreational activities on land once used by the military
            for munitions-related activities (e.g., live-fire testing and
            training). (GAO-04-147, Dec. 19, 2003)
             DOD's Space and Naval Warfare Systems Command working
            capital fund activities used accounting entries to manipulate
            the amount of customer orders for the sole purpose of reducing
            the actual dollar amounts reported to Congress for work that
            had been ordered and funded (obligated) by customers but not
            yet completed by fiscal year end. As a result, congressional
            and DOD decisionmakers did not have the reliable information
            they needed to make decisions regarding the level of funding to
            be provided to working capital fund customers. (GAO-03-668,
            July 1, 2003)
             Our review of fiscal year 2002 data revealed that
            about $1 of every $4 in contract payment transactions in DOD's
            Mechanization of Contract Administration Services (MOCAS)
            system was for adjustments to previously recorded payments--$49
            billion of adjustments out of $198 billion in disbursement,
            collection, and adjustment transactions. According to DOD, the
            cost of researching and making adjustments to accounting
            records was about $34 million in fiscal year 2002, primarily to
            pay hundreds of DOD and contractor staff. (GAO-03-727, Aug. 8,
            2003)
             DOD and congressional decisionmakers lack reliable
            data upon which to base sourcing decisions due to weaknesses in
            DOD's data-gathering, reporting, and financial systems. As in
            the past, we have identified significant errors and omissions
            in the data submitted to Congress regarding the amount of each
            military service's depot maintenance work out-sourced or
            performed in-house. As a result, both DOD and Congress lack
            assurances that the dollar amounts of public-private sector
            workloads reported by military services are reliable. (GAO-03-
            1023, Sept. 15, 2003)
             DOD's information technology (IT) budget submissions
            to Congress for fiscal year 2004 contained material
            inconsistencies, inaccuracies, or omissions that limited its
            reliability. For example, we identified discrepancies totaling
            about $1.6 billion between two primary parts of the
            submission--the IT budget summary report and the detailed
            Capital Investments Reports on each IT initiative. These
            problems were largely attributable to insufficient management
            attention and limitations in departmental policies and
            procedures, such as guidance in DOD's Financial Management
            Regulations, and to shortcomings in systems that support
            budget-related activities. (GAO-04-115, Dec. 19, 2003)
             Since the mid-1980s, we have reported that DOD uses
            overly optimistic planning assumptions to estimate its annual
            budget request. These same assumptions are reflected in its
            Future Years Defense Program, which reports projected spending
            for the current budget year and at least 4 succeeding years. In
            addition, in February 2004 the Congressional Budget Office
            projected that DOD's demand for resources would grow to about
            $473 billion a year by fiscal year 2009. DOD's own estimate for
            that same year was only $439 billion.\6\ As a result of DOD's
            continuing use of optimistic assumptions, DOD has too many
            programs for the available dollars, which often leads to
            program instability, costly program stretch-outs, and program
            termination. Over the past few years, the mismatch between
            programs and budgets has continued, particularly in the area of
            weapons systems acquisition. For example, in January 2003, we
            reported that the estimated costs of developing eight major
            weapons systems had increased from about $47 billion in fiscal
            year 1998 to about $72 billion by fiscal year 2003.\7\ (GAO-03-
            98, January 2003)
    ---------------------------------------------------------------------------
        \6\ Congressional Budget Office, The Long-Term Implications of
    Current Defense Plans: Detailed Update for Fiscal Year 2004
    (www.cbo.gov, February 2004). Figures from this report are in constant
    fiscal year 2004 dollars.
        \7\ U.S. General Accounting Office, Major Management Challenges and
    Program Risks: Department of Defense, GAO-03-98 (Washington, DC:
    January 2003). Figures from this report are in constant fiscal year
    2003 dollars.
    ---------------------------------------------------------------------------
             DOD did not know the size of its security clearance
            backlog at the end of September 2003 and had not estimated a
            backlog since January 2000. Using September 2003 data, we
            estimated that DOD had a backlog of roughly 360,000
            investigative and adjudicative cases, but the actual backlog
            size is uncertain. DOD's failure to eliminate and accurately
            assess the size of its backlog may have adverse affects. For
            example, delays in updating overdue clearances for personnel
            doing classified work may increase national security risks and
            slowness in issuing new clearances can increase the costs of
            doing classified government work. (GAO-04-344, Feb. 9, 2004)

        These examples clearly demonstrate not only the severity of DOD's
    current problems, but also the importance of reforming financial
    management and related business operations to improve mission support
    and the economy and efficiency of DOD's operations, and to provide for
    transparency and accountability to Congress and American taxpayers.

          UNDERLYING CAUSES OF FINANCIAL AND RELATED BUSINESS PROCESS
                           TRANSFORMATION CHALLENGES

        The underlying causes of DOD's financial management and related
    business process and system weaknesses are generally the same ones I
    outlined in my prior testimony before this subcommittee 2 years ago.
    For each of the problems cited in the previous section, we found that
    one or more of these causes were contributing factors. Over the years,
    the department has undertaken many initiatives intended to transform
    its business operations department-wide and improve the reliability of
    information for decisionmaking and reporting but has not had much
    success because it has not addressed the following four underlying
    causes:

             a lack of sustained top-level leadership and
            management accountability for correcting problems;
             deeply embedded cultural resistance to change,
            including military service parochialism and stovepiped
            operations;
             a lack of results-oriented goals and performance
            measures and monitoring; and
             inadequate incentives and accountability mechanisms
            relating to business transformation efforts.

        If not properly addressed, these root causes will likely result in
    the failure of current DOD initiatives.
    Lack of Sustained Leadership and Adequate Accountability
        DOD has not routinely assigned accountability for performance to
    specific organizations or individuals who have sufficient authority to
    accomplish desired goals. For example, under the Chief Financial
    Officers Act of 1990,\8\ it is the responsibility of the agency Chief
    Financial Officer (CFO) to establish the mission and vision for the
    agency's future financial management and to direct, manage, and provide
    oversight of financial management operations. However, at DOD, the
    Comptroller--who is by statute the department's CFO--has direct
    responsibility for only an estimated 20 percent of the data relied on
    to carry out the department's financial management operations. The
    other 80 percent comes from DOD's other business operations and is
    under the control and authority of other DOD officials.
    ---------------------------------------------------------------------------
        \8\ Chief Financial Officers Act of 1990, Pub. L. No. 101-576, 104
    Stat. 2842, Nov. 15, 1990 (codified, as amended in scattered sections
    of title 31, United States Code).
    ---------------------------------------------------------------------------
        In addition, DOD's past experience has suggested that top
    management has not had a proactive, consistent, and continuing role in
    integrating daily operations for achieving business transformation
    related performance goals. It is imperative that major improvement
    initiatives have the direct, active support and involvement of the
    Secretary and Deputy Secretary of Defense to ensure that daily
    activities throughout the department remain focused on achieving
    shared, agency-wide outcomes and success. While the current DOD
    leadership, such as the Secretary, Deputy Secretary, and Comptroller
    have certainly demonstrated their commitment to reforming the
    Department, the magnitude and nature of day-to-day demands placed on
    these leaders following the events of September 11, 2001, clearly
    affect the level of oversight and involvement in business
    transformation efforts that these leaders can sustain. Given the
    importance of DOD's business transformation effort, it is imperative
    that it receive the sustained leadership needed to improve the economy,
    efficiency, and effectiveness of DOD's business operations. Based on
    our surveys of best practices of world-class organizations,\9\ strong
    executive CFO and Chief Information Officer leadership is essential to:
    (1) making financial management an entity-wide priority; (2) providing
    meaningful information to decisionmakers; (3) building a team of people
    that delivers results; and (4) effectively leveraging technology to
    achieve stated goals and objectives.
    ---------------------------------------------------------------------------
        \9\ U.S. General Accounting Office, Executive Guide: Creating Value
    Through World-class Financial Management, GAO/AIMD-00-134 (Washington,
    DC: April 2000) and U.S. General Accounting Office, Executive Guide:
    Maximizing the Success of Chief Information Officers: Learning From
    Leading Organizations, GAO-01-376G (Washington, DC: February 2001).
    ---------------------------------------------------------------------------
    Cultural Resistance and Parochialism
        Cultural resistance to change, military service parochialism, and
    stovepiped operations have all contributed significantly to the failure
    of previous attempts to implement broad-based management reforms at
    DOD. The Department has acknowledged that it confronts decades-old
    problems deeply grounded in the bureaucratic history and operating
    practices of a complex, multifaceted organization. Recent audits reveal
    that DOD has made only small inroads in addressing these challenges.
    For example, the Bob Stump National Defense Authorization Act for
    Fiscal Year 2003 \10\ requires the DOD Comptroller to determine that
    each financial system improvement meets the specific conditions called
    for in the act before DOD obligates funds in amounts exceeding $1
    million. However, we found that most system improvement efforts were
    not reviewed by the DOD Comptroller, as required, and that DOD
    continued to lack a mechanism for proactively identifying system
    improvement initiatives. We asked for, but DOD did not provide,
    comprehensive data for obligations in excess of $1 million for business
    system modernization. Based on the limited information provided, we
    found that as of December 2003, business system modernization efforts
    with reported obligations totaling over $479 million were not referred
    to the DOD Comptroller for review for fiscal years 2003 and 2004.
    ---------------------------------------------------------------------------
        \10\ Bob Stump National Defense Authorization Act for Fiscal Year
    2003, Pub. L. No. 107-314, Sec. 1004(d), 116 Stat. 2458, 2629, Dec. 2,
    2002.
    ---------------------------------------------------------------------------
        In addition, in September 2003,\11\ we reported that DOD continues
    to use a stovepiped approach to develop and fund its business system
    investments. Specifically, we found that DOD components receive and
    control funding for business systems investments without being subject
    to the scrutiny of the DOD Comptroller. DOD's ability to address its
    current ``business-as-usual'' approach to business system investments
    is further hampered by its lack of: (1) a complete inventory of
    business systems (a condition we first highlighted in 1998); (2) a
    standard definition of what constitutes a business system; (3) a well-
    defined enterprise architecture; and (4) an effective approach for
    controlling financial system improvements before making obligations
    exceeding $1 million. Until DOD develops and implements an effective
    strategy for overcoming resistance, parochialism, and stovepiped
    operations, reform will fail and ``business-as-usual'' will continue at
    the department.
    ---------------------------------------------------------------------------
        \11\ U.S. General Accounting Office, DOD Business Systems
    Modernization: Important Progress Made to Develop Business Enterprise
    Architecture, but Much Work Remains, GAO-03-1018 (Washington, DC: Sept.
    19, 2003).
    ---------------------------------------------------------------------------
    Lack of Goals and Performance Measures
        At a programmatic level, the lack of clear, linked goals and
    performance measures handicapped DOD's past reform efforts. As a
    result, DOD managers lacked straightforward roadmaps showing how their
    work contributed to attaining the Department's strategic goals, and
    they risked operating autonomously rather than collectively. As of
    March 2004, DOD has formulated Department-wide performance goals and
    measures and continues to refine and align them with the outcomes
    described in its strategic plan--the September 2001 Quadrennial Defense
    Review (QDR). The QDR outlined a new risk management framework,
    consisting of four dimensions of risk--force management, operational,
    future challenges, and institutional--to use in considering trade-offs
    among defense objectives and resource constraints. According to DOD's
    Fiscal Year 2003 Annual Report to the President and Congress, these
    risk areas are to form the basis for DOD's annual performance goals.
    They will be used to track performance results and will be linked to
    resources. As of March 2004, the department is still in the process of
    implementing this approach on a Department-wide basis.
        DOD currently has plans to institutionalize performance management
    by aligning management activities with the President's Management
    Agenda. As part of this effort, DOD linked its fiscal year 2004 budget
    resources with metrics for broad program areas, e.g., air combat,
    airlift, and basic research in the Office of Management and Budget's
    (OMB) Program Assessment Rating Tool.\12\ We have not reviewed DOD's
    efforts to link resources to metrics; however, some of our recent work
    notes the lack of clearly defined performance goals and measures in the
    management of such areas as defense inventory and military pay.\13\
    ---------------------------------------------------------------------------
        \12\ OMB developed the Program Assessment Rating Tool to strength
    the process for assessing the effectiveness of programs across the
    Federal Government. For fiscal year 2004, OMB rated the following 12
    defense program areas: Air Combat; Airlift; Basic Research; Chemical
    Demilitarization; Communications Infrastructure; Defense Health; Energy
    Conservation Improvement; Facilities Sustainment, Restoration,
    Modernization, and Demolition; Housing; Missile Defense; Recruiting;
    and Shipbuilding. DOD linked metrics for these program areas, which
    represent 20 percent of the department's fiscal year 2004 budget; it
    linked another 20 percent in the 2005 budget and 30 percent in the 2006
    budget, for a total of 70 percent.
        \13\ In July 2003, we reported that DOD and the military services
    do not have an effective approach to prevent and mitigate equipment
    corrosion, and that DOD's strategic plan should contain clearly defined
    goals; measurable, outcome-oriented objectives; and performance
    measures. (U.S. General Accounting Office, Defense Management:
    Opportunities to Reduce Corrosion Costs and Increase Readiness, GAO-03-
    753 (Washington, DC: July 7, 2003)). Similarly, in January 2004 we
    testified that existing processes and controls used to provide pay and
    allowances to mobilized Army Guard personnel prevented DOD from being
    able to reasonably assure timely and accurate payroll payments. We
    stated that DOD needs to establish a unified set of policies and
    procedures, as well as performance measures in the pay area (U.S.
    General Accounting Office, Military Pay: Army National Guard Personnel
    Mobilized to Active Duty Experienced Significant Pay Problems, GAO-04-
    413T (Washington, DC: Jan. 28, 2004)).
    ---------------------------------------------------------------------------
    Lack of Incentives for Change
        The final underlying cause of the Department's long-standing
    inability to carry out needed fundamental reform has been the lack of
    incentives for making more than incremental change to existing
    ``business-as-usual'' operations, systems, and organizational
    structures. Traditionally, DOD has focused on justifying its need for
    more funding rather than on the outcomes its programs have produced.
    DOD has historically measured its performance by the amount of money
    spent, people employed, or number of tasks completed. Incentives for
    its decisionmakers to implement changed behavior have been minimal or
    nonexistent.
        The lack of incentive to change is evident in the business systems
    modernization area. Despite DOD's acknowledgement that many of its
    systems are error prone, duplicative, and stovepiped, DOD continues to
    allow its component organizations to make their own investment
    decisions, following different approaches and criteria. These
    stovepiped decisionmaking processes have contributed to the
    department's current complex, error-prone environment of approximately
    2,300 systems. In March 2003, we reported that ineffective program
    management and oversight, as well as a lack of accountability, resulted
    in DOD continuing to invest hundreds of millions of dollars in system
    modernization efforts without any assurance that the projects will
    produce operational improvements commensurate with the amount
    invested.\14\ For example, the estimated cost of one of the business
    system investment projects that we reviewed increased by as much as
    $274 million, while its schedule slipped by almost 4 years. After
    spending $126 million, DOD terminated that project in December 2002,
    citing poor performance and increasing costs. GAO and the DOD Inspector
    General (DODIG) have identified numerous business system modernization
    efforts that cost more than planned, take years longer than planned,
    and fall short of delivering planned or needed capabilities. Despite
    this track record, DOD continues to increase spending on business
    systems while at the same time it lacks the effective management and
    oversight needed to achieve real results. Without appropriate
    incentives to improve their project management, ongoing oversight, and
    adequate accountability mechanisms, DOD components will continue to
    develop duplicative and nonintegrated systems that are inconsistent
    with the Secretary's vision for reform.
    ---------------------------------------------------------------------------
        \14\ U.S. General Accounting Office, DOD Business Systems
    Modernization: Continued Investment in Key Accounting Systems Needs to
    be Justified, GAO-03-465 (Washington, DC: Mar. 28, 2003).
    ---------------------------------------------------------------------------
        To effect real change, actions are needed to: (1) break down
    parochialism and reward behaviors that meet DOD-wide goals; (2) develop
    incentives that motivate decisionmakers to initiate and implement
    efforts that are consistent with better program outcomes, including
    saying ``no'' or pulling the plug on a system or program that is
    failing; and (3) facilitate a congressional focus on results-oriented
    management, particularly with respect to resource-allocation decisions.

         KEYS TO SUCCESSFUL REFORM AND CURRENT STATUS OF REFORM EFFORTS

        Over the years, we have given DOD credit for beginning numerous
    initiatives intended to improve its business operations. Unfortunately,
    most of these initiatives failed to achieve their intended objective in
    part, we believe, because they failed to incorporate key elements that
    in our experience shows are critical to successful reform. Today, I
    would like to discuss two very important broad-based initiatives DOD
    currently has underway that, if properly developed and implemented,
    will result in significant improvements in DOD's business operations.
    In addition to these broad-based initiatives, DOD has undertaken
    several interim initiatives in recent years that have resulted in
    tangible, although limited, improvements. We believe that these
    tangible improvements were possible because DOD incorporated many of
    the key elements critical for reform. Furthermore, I would like to
    offer two suggestions for legislative consideration that I believe
    could significantly increase the likelihood of a successful business
    transformation effort at DOD.

    Keys to Successful Reform
        As I have previously testified,\15\ and the success of the more
    narrowly defined DOD initiatives I will discuss later illustrate, the
    following key elements collectively will enable the department to
    effectively address the underlying causes of its inability to resolve
    its longstanding financial and business management problems. These
    elements are
    ---------------------------------------------------------------------------
        \15\ GAO-02-497T.

             addressing the Department's financial management and
            related business operational challenges as part of a
            comprehensive, integrated, DOD-wide strategic plan for business
            reform;
             providing for sustained and committed leadership by
            top management, including but not limited to the Secretary of
            Defense,
             establishing resource control over business systems
            investments;
             establishing clear lines of responsibility, authority,
            and accountability;
             incorporating results-oriented performance measures
            and monitoring progress tied to key financial and business
            transformation objectives;
             providing appropriate incentives or consequences for
            action or inaction;
             establishing an enterprise architecture to guide and
            direct business systems modernization investments; and
             ensuring effective oversight and monitoring.

        For the most part, these elements, which should not be viewed as
    independent actions but rather as a set of interrelated and
    interdependent actions, are consistent with those discussed in the
    Department's April 2001 financial management transformation report.\16\
    The degree to which DOD incorporates them into its current reform
    efforts--both long and short term--will be a deciding factor in whether
    these efforts are successful.
    ---------------------------------------------------------------------------
        \16\ Department of Defense, Transforming Department of Defense
    Financial Management: A Strategy for Change, (Washington, DC: Apr. 13,
    2001).
    ---------------------------------------------------------------------------
    Human Capital Initiative
        Human capital challenges at DOD are crosscutting and impact the
    effectiveness of all of its business operations. Effective human
    capital strategies are necessary for any business transformation to
    succeed at DOD. For several years, we have reported \17\ that many of
    DOD's business process and control weaknesses were attributable in part
    to human capital issues. Recent audits of DOD's military payroll and
    the individually billed travel card program further highlight the
    adverse impact that outdated and inadequate human capital practices,
    such as insufficient staffing, training, and monitoring of performance,
    continue to have on DOD business operations.
    ---------------------------------------------------------------------------
        \17\ U.S. General Accounting Office, Major Management Challenges
    and Program Risks: Department of Defense, GAO-01-244 (Washington, DC:
    Jan.1, 2001).
    ---------------------------------------------------------------------------
        I strongly support the need for modernizing Federal human capital
    policies both within DOD and for the Federal Government at large. We
    have found that a critical success factor for overall organizational
    transformation is the use of a modern, effective, credible, and
    integrated performance management system to define responsibility and
    assure accountability for achieving desired goals and objectives. Such
    a performance management system can help manage and direct the
    transformation process by linking performance expectations to an
    employee's role in the transformation process. GAO has found that there
    are significant opportunities to use the performance management system
    to explicitly link senior executive expectations for performance to
    results-oriented goals. There is a need to hold senior executives
    accountable for demonstrating competencies in leading and facilitating
    change and fostering collaboration both within and across
    organizational boundaries to achieve results. Setting and meeting
    expectations such as these will be critical to achieving needed
    transformation changes. Simply put, DOD must convince people throughout
    the Department that they must change business-as-usual practices or
    they are likely to face serious consequences, personally and
    organizationally. DOD has already applied this principle at the Defense
    Finance and Accounting Service (DFAS). For example, DFAS managers--and
    sometimes staff--are rated and rewarded based on their ability to reach
    specific annual performance goals. But linking employee pay to the
    achievement of measurable performance goals must be done within the
    context of a credible human capital system that includes adequate
    safeguards.
        The National Defense Authorization Act for Fiscal Year 2004 \18\
    authorized DOD to establish a National Security Personnel System for
    its civilian employees that is modern, flexible, and consistent with
    the merit principles outlined by the act. This legislation requires DOD
    to develop a human capital system that is consistent with many of the
    practices that we have laid out for an effective human capital system,
    including a modern and results-oriented performance management system.
    However, in our opinion, DOD does not yet have the necessary
    institutional infrastructure in place within its organization to
    support an effective human capital transformation effort. This
    institutional infrastructure must include, at a minimum,
    ---------------------------------------------------------------------------
        \18\ National Defense Authorization Act for Fiscal Year 2004, Pub.
    L. No. 108-136, Sec. 1101, 117 Stat. 1392, 1621, Nov. 24, 2003
    (amending subpart I of part III of title 5, United States Code).

             a human capital planning process that integrates the
            department's human capital policies, strategies, and programs
            for both civilian (including contractors) and military
            personnel, with its program goals, mission, and desired
            outcomes;
             the capabilities to effectively develop and implement
            a new human capital system, and
             a modern, effective, credible, and hopefully validated
            performance management system that includes a set of adequate
            safeguards, including reasonable transparency and appropriate
            accountability mechanisms, to ensure the fair, effective, and
            credible implementation of the system.

        The results of our review of DOD's strategic human capital planning
    efforts along with the use of human capital flexibilities and related
    human capital efforts across government underscore the importance of
    such an institutional infrastructure in developing and effectively
    implementing new personnel authorities. In the absence of this critical
    element, the new human capital authorities will provide little
    advantage and could actually end up doing damage if not properly
    implemented.
        As DOD develops regulations to implement its new civilian personnel
    system, the Department needs to do the following.

             Ensure the active involvement of the Office of
            Personnel Management (OPM) in the development process, given
            the significant implications that changes in DOD regulations
            may have on governmentwide human capital policies.\19\
    ---------------------------------------------------------------------------
        \19\ U.S. General Accounting Office, Defense Transformation:
    Preliminary Observations on DOD's Proposed Civilian Personnel Reforms,
    GAO-03-717T (Washington, DC: Apr. 29, 2003).
    ---------------------------------------------------------------------------
             Ensure the involvement of civilian employees and
            unions in the development of a new personnel system. The law
            calls for DOD to involve employees, especially in the design of
            its new performance management system. Involving employees in
            planning helps to develop agency goals and objectives that
            incorporate insights about operations from a front-line
            perspective. It can also serve to increase employees'
            understanding and acceptance of organizational goals and
            improve motivation and morale.
             Use a phased approach to implementing the system in
            recognition that different parts of the organization will have
            different levels of readiness and different capabilities to
            implement new authorities. Moreover, a phased approach allows
            for learning so that appropriate adjustments and midcourse
            corrections can be made before the regulations are fully
            implemented Department-wide. In this regard, DOD has indicated
            that it plans to implement its new human capital system for
            300,000 civilian employees by October 1, 2004. It is highly
            unlikely that DOD will have employed an appropriate process and
            implemented an appropriate infrastructure to achieve this
            objective.

        It is worth mentioning here that the Department of Homeland
    Security (DHS) is also currently developing a new human capital system.
    DHS is using a collaborative process that facilitates participation
    from all levels of DHS, and directly involves OPM. We found that the
    DHS process to date has generally reflected the important elements of a
    successful transformation, including effective communication and
    employee involvement.\20\ In addition, DHS plans to implement the job
    evaluation, pay, and performance management system in phases to allow
    time for final design, training, and careful implementation. I believe
    that DOD could benefit from employing a more inclusive process and
    phased implementation approach similar to the process used by DHS.
    ---------------------------------------------------------------------------
        \20\ U.S. General Accounting Office, Human Capital: DHS Personnel
    System Design Effort Provides for Collaboration and Employee
    Participation, GAO-03-1099 (Washington, DC: Sep. 30, 2003).
    ---------------------------------------------------------------------------
                BUSINESS MANAGEMENT MODERNIZATION PROGRAM (BMMP)

        Another broad-based initiative that is vital to the Department's
    efforts to transform DOD business operations is the BMMP, which the
    Department established in July 2001. The purpose of the BMMP is to
    oversee development and implementation of a Department-wide business
    enterprise architecture (BEA), transition plan, and related efforts to
    ensure that DOD business system investments are consistent with the
    architecture. A well-defined and properly implemented business
    enterprise architecture can provide assurance that the Department
    invests in integrated enterprise-wide business solutions and,
    conversely, can help move resources away from nonintegrated business
    system development efforts. As we reported in July 2003,\21\ within 1
    year DOD developed an initial version of its Department-wide
    architecture for modernizing its current financial and business
    operations and systems. Thus far, DOD has expended tremendous effort
    and resources and has made important progress towards complying with
    legislative requirements. However, substantial work remains before the
    architecture will begin to have a tangible impact on improving DOD's
    overall business operations. I cannot overemphasize the degree of
    difficulty DOD faces in developing and implementing a well-defined
    architecture to provide the foundation that will guide its overall
    business transformation effort.
    ---------------------------------------------------------------------------
        \21\ U.S. General Accounting Office, Business Systems
    Modernization: Summary of GAO's Assessment of the Department of
    Defense's Initial Business Enterprise Architecture, GAO-03-877R
    (Washington, DC: July 7, 2003).
    ---------------------------------------------------------------------------
        On the positive side, during its initial efforts to develop the
    architecture, the Department established some of the architecture
    management capabilities advocated by best practices and Federal
    guidance,\22\ such as establishing a program office, designating a
    chief architect, and using an architecture development methodology and
    automated tool. Further, DOD's initial version of its BEA provides a
    foundation on which to build and ultimately produce a well-defined
    business enterprise architecture. For example, in September 2003,\23\
    we reported that the ``As Is'' descriptions within the BEA include an
    inventory of about 2,300 systems in operation or under development and
    their characteristics. The ``To Be'' descriptions address, to at least
    some degree, how DOD intends to operate in the future, what information
    will be needed to support these future operations, and what technology
    standards should govern the design of future systems.
    ---------------------------------------------------------------------------
        \22\ U.S. General Accounting Office, Information Technology: A
    Framework for Assessing and Improving Enterprise Architecture
    Management (Version 1.1), GAO-03-584G (Washington, DC: April 2003).
        \23\ GAO-03-1018.
    ---------------------------------------------------------------------------
        While some progress has been made, DOD has not yet taken important
    steps that are critical to its ability to successfully use the
    enterprise architecture to drive reform throughout the Department's
    overall business operations. For example, DOD has not yet defined and
    implemented the following.

             Detailed plans to extend and evolve its initial
            architecture to include the missing scope and detail required
            by the Bob Stump National Defense Authorization Act for Fiscal
            Year 2003 and other relevant architectural requirements.
            Specifically: (1) the initial version of the BEA excluded some
            relevant external requirements, such as requirements for
            recording revenue, and lacked or provided little descriptive
            content pertaining to its ``As Is'' and ``To Be'' environments;
            and (2) DOD had not yet developed the transition plan needed to
            provide a temporal road map for moving from the ``As Is'' to
            the ``To Be'' environment.
             An effective approach to select and control business
            system investments \24\ for obligations exceeding $1 million.
            As I previously stated, and it bears repeating here, DOD
            components currently receive direct funding for their business
            systems and continue to make their own parochial decisions
            regarding those investments without having received the
            scrutiny of the DOD Comptroller as required by the Bob Stump
            National Defense Authorization Act for Fiscal Year 2003. Later,
            I will offer a suggestion for improving the management and
            oversight of the billions of dollars DOD invests annually in
            system modernization efforts.
    ---------------------------------------------------------------------------
        \24\ Business systems include financial and non-financial systems,
    such as civilian personnel, finance, health, logistics, military
    personnel, procurement, and transportation, with the common element
    being the generation or use of financial data to support DOD's business
    operations.

        Until DOD completes its efforts to refine and implement its
    enterprise architecture and transition plan, and develop and implement
    an effective approach for selecting and controlling business system
    investments, DOD will continue to lack (1) a comprehensive and
    integrated strategy to guide its business process and system changes,
    and (2) results-oriented measures to monitor and measure progress,
    including whether system development and modernization investment
    projects adequately incorporate leading practices used by the private
    sector and Federal requirements and achieve performance and efficiency
    commensurate with the cost. These elements are critical to the success
    of DOD's BMMP.
        Developing and implementing a business enterprise architecture for
    an organization as large and complex as DOD is a formidable challenge
    but it is critical to effecting the change required to achieve the
    Secretary's vision of relevant, reliable, and timely financial and
    other management information to support the Department's vast
    operations. As mandated, we plan to continue to report on DOD's
    progress in developing the next version of its architecture, developing
    its transition plan, validating its ``As Is'' systems inventory, and
    controlling its system investments.

    Interim Initiatives
        Since DOD's overall business process transformation is a long-term
    effort, in the interim it is important for the Department to focus on
    improvements that can be made using, or requiring only minor changes
    to, existing automated systems and processes. As demonstrated by the
    examples I will highlight in this testimony, leadership, real
    incentives, accountability, and oversight and monitoring--key elements
    to successful reform--have brought about improvements in some DOD
    operations, such as more timely commercial payments, reduced payment
    recording errors, and significant reductions in individually billed
    travel card delinquency rates.
        To help achieve the Department's goal of improved financial
    information, the DOD Comptroller has developed a Financial Management
    Balanced Scorecard that is intended to align the financial community's
    strategy, goals, objectives, and related performance measures with the
    Department-wide risk management framework established as part of DOD's
    QDR, and with the President's Management Agenda. To effectively
    implement the balanced scorecard, the Comptroller is planning to
    cascade the performance measures down to the military services and
    defense agency financial communities, along with certain specific
    reporting requirements. DOD has also developed a Web site where
    implementation information and monthly indicator updates will be made
    available for the financial communities' review. At the Department-wide
    level, certain financial metrics will be selected, consolidated, and
    reported to the top levels of DOD management for evaluation and
    comparison. These ``dashboard'' metrics are intended to provide key
    decisionmakers, including Congress, with critical performance
    information at a glance, in a consistent and easily understandable
    format.
        The DFAS has been reporting the metrics cited below for several
    years, which, under the leadership of DFAS' Director and DOD's
    Comptroller, have reported improvements, including

             From April 2001 to January 2004, DOD reduced its
            commercial pay backlogs (payment delinquencies) by 55 percent.
             From March 2001 to December 2003, DOD reduced its
            payment recording errors by 33 percent.
             The delinquency rate for individually billed travel
            cards dropped from 18.4 percent in January 2001 to 10.7 percent
            in January 2004.

        Using DFAS' metrics, management can quickly see when and where
    problems are arising and can focus additional attention on those areas.
    While these metrics show significant improvements from 2001 to today,
    statistics for the last few months show that progress has slowed or
    even taken a few steps backward for payment recording errors and
    commercial pay backlogs. Our report last year on DOD's metrics program
    \25\ included a caution that, without modern integrated systems and the
    streamlined processes they engender, reported progress may not be
    sustainable if workload is increased.
    ---------------------------------------------------------------------------
        \25\ U.S. General Accounting Office, Financial Management: DOD's
    Metrics Program Provides Focus for Improving Performance, GAO-03-457,
    (Washington, DC: Mar. 28, 2003).
    ---------------------------------------------------------------------------
        Since we reported problems with DOD's purchase card program, DOD
    and the military services have taken actions to address all of our 109
    recommendations. In addition, we found that DOD and the military
    services took action to improve the purchase card program consistent
    with the requirements of the Bob Stump National Defense Authorization
    Act for Fiscal Year 2003 and the DOD Appropriation Act for Fiscal Year
    2003.\26\ Specifically, we found that DOD and the military services had
    done the following.
    ---------------------------------------------------------------------------
        \26\ The Department of Defense Appropriations Act for Fiscal Year
    2003, Pub. L. No. 107-248, Sec. 8149, 116 Stat. 1519, 1572, Oct. 23,
    2002.

             Substantially reduced the number of purchase cards
            issued. According to GSA records, DOD had reduced the total
            number of purchase cards from about 239,000 in March 2001 to
            about 134,609 in January 2004. These reductions have the
            potential to significantly improve the management of this
            program.
             Issued policy guidance to field activities to (1)
            perform periodic reviews of all purchase card accounts to
            reestablish a continuing bona fide need for each card account,
            (2) cancel accounts that were no longer needed, and (3) devise
            additional controls over infrequently used accounts to protect
            the government from potential cardholder or outside fraudulent
            use.
             Issued disciplinary guidelines, separately, for
            civilian and military employees who engage in improper,
            fraudulent, abusive, or negligent use of a government charge
            card.

        In addition, to monitor the purchase card program, the DODIG and
    the Navy have prototyped and are now expanding a data-mining capability
    to screen for and identify high-risk transactions (such as potentially
    fraudulent, improper, and abusive use of purchase cards) for subsequent
    investigation. On June 27, 2003, the DODIG issued a report \27\
    summarizing the results of an indepth review of purchase card
    transactions made by 1,357 purchase cardholders. The report identified
    182 cardholders who potentially used their purchase cards
    inappropriately or fraudulently.
    ---------------------------------------------------------------------------
        \27\ Department of Defense, Office of the Inspector General,
    Summary Report on Joint Review of Selected DOD Purchase Card
    Transactions, D2003-109 (Washington, DC: June 27, 2003).
    ---------------------------------------------------------------------------
        We believe that consistent oversight played a major role in
    bringing about these improvements in DOD's purchase and travel card
    programs. During 2001, 2002, and 2003, seven separate congressional
    hearings were held on the Army and Navy purchase and individually
    billed travel card programs. Numerous legislative initiatives aimed at
    improving DOD's management and oversight of these programs also had a
    positive impact.
        Another important initiative underway at the Department pertains to
    financial reporting. Under the leadership of Comptroller Zakheim, DOD
    is working to instill discipline into its financial reporting processes
    to improve the reliability of the Department's financial data.
    Resolution of serious financial management and related business
    management weaknesses is essential to achieving any opinion on the DOD
    consolidated financial statements. Pursuant to the requirements in
    section 1008 of the National Defense Authorization Act for Fiscal Year
    2002,\28\ DOD has reported for the past 3 years on the reliability of
    the department's financial statements, concluding that the Department
    is not able to provide adequate evidence supporting material amounts in
    its financial statements. Specifically, DOD stated that it was unable
    to comply with applicable financial reporting requirements for (1)
    property, plant, and equipment, (2) inventory and operating materials
    and supplies, (3) environmental liabilities, (4) intragovernmental
    eliminations and related accounting entries, (5) disbursement activity,
    and (6) cost accounting by responsibility segment. Although DOD
    represented that the military retirement health care liability data had
    improved for fiscal year 2003, the cost of direct health care provided
    by DOD-managed military treatment facilities was a significant amount
    of DOD's total recorded health care liability and was based on
    estimates for which adequate support was not available. DOD has
    indicated that by acknowledging its inability to produce reliable
    financial statements, as required by the act, the Department saves
    approximately $23 million a year through reduction in the level of
    resources needed to prepare and audit financial statements. However,
    DOD has set the goal of obtaining a favorable opinion on its fiscal
    year 2007 Department-wide financial statements. To this end, DOD
    components and agencies have been tasked with addressing material line
    item deficiencies, in conjunction with the BMMP. This is an ambitious
    goal and we have been requested by Congress to review the feasibility
    and cost effectiveness of DOD's plans for obtaining such an opinion
    within the stated time frame.
    ---------------------------------------------------------------------------
        \28\ National Defense Authorization Act for Fiscal Year 2003, Pub.
    L. No. 107-107, Sec. 1008, 115 Stat. 1012, 1204, Dec. 28, 2001.
    ---------------------------------------------------------------------------
        To instill discipline in its financial reporting process, the DOD
    Comptroller requires DOD's major components to prepare quarterly
    financial statements along with extensive footnotes that explain any
    improper balances or significant variances from previous year quarterly
    statements. All of the statements and footnotes are analyzed by
    Comptroller office staff and reviewed by the Comptroller. In addition,
    the midyear and end-of-year financial statements must be briefed to the
    DOD Comptroller by the military service Assistant Secretary for
    Financial Management or the head of the defense agency. We have
    observed several of these briefings and have noted that the practice of
    preparing and explaining interim financial statements has led to the
    discovery and correction of numerous recording and reporting errors.
        If DOD continues to provide for active leadership, along with
    appropriate incentives and accountability mechanisms, improvements will
    continue to occur in its programs and initiatives.

    Suggestions for Legislative Consideration
        I would like to offer two suggestions for legislative consideration
    that I believe could contribute significantly to the Department's
    ability to not only address the impediments to DOD success but also to
    incorporate needed key elements to successful reform. These suggestions
    would include the creation of a chief management official and the
    centralization of responsibility and authority for business system
    investment decisions with the domain \29\ leaders responsible for the
    Department's various business process areas, such as logistics and
    human resource management.
    ---------------------------------------------------------------------------
        \29\ DOD has one Enterprise Information Environment Mission, and
    six departmental domains including (1) acquisition/procurement, (2)
    finance, accounting, and financial management, (3) human resource
    management, (4) logistics, (5) strategic planning and budgeting, and 6)
    installations and environment.
    ---------------------------------------------------------------------------
        Chief Management Official
        Previous failed attempts to improve DOD's business operations
    illustrate the need for sustained involvement of DOD leadership in
    helping to assure that the DOD's financial and overall business process
    transformation efforts remain a priority. While the Secretary and other
    key DOD leaders have certainly demonstrated their commitment to the
    current business transformation efforts, the long-term nature of these
    efforts requires the development of an executive position capable of
    providing the strong and sustained executive leadership--over a number
    of years and various administrations. The day-to-day demands placed on
    the Secretary, the Deputy Secretary, and others make it difficult for
    these leaders to maintain the oversight, focus, and momentum needed to
    resolve the weaknesses in DOD's overall business operations. This is
    particularly evident given the demands that the Iraq and Afghanistan
    postwar reconstruction activities and the continuing war on terrorism
    have placed on current leaders. Likewise, the breadth and complexity of
    the problems preclude the Under Secretaries, such as the DOD
    Comptroller, from asserting the necessary authority over selected
    players and business areas.
        While sound strategic planning is the foundation upon which to
    build, sustained leadership is needed to maintain the continuity needed
    for success. One way to ensure sustained leadership over DOD's business
    transformation efforts would be to create a full-time executive level
    II position for a chief management official who would serve as the
    Principal Under Secretary of Defense for Management.\30\ This position
    would provide the sustained attention essential for addressing key
    stewardship responsibilities such as strategic planning, performance
    and financial management, and business systems modernization in an
    integrated manner, while also facilitating the overall business
    transformation operations within DOD. This position could be filled by
    an individual, appointed by the President and confirmed by the Senate,
    for a set term of 7 years with the potential for reappointment. Such an
    individual should have a proven track record as a business process
    change agent in large, complex, and diverse organizations--experience
    necessary to spearhead business process transformation across the
    department and serve as an integrator for the needed business
    transformation efforts. In addition, this individual would enter into
    an annual performance agreement with the Secretary that sets forth
    measurable individual goals linked to overall organizational goals in
    connection with the Department's overall business transformation
    efforts. Measurable progress towards achieving agreed upon goals would
    be a basis for determining the level of compensation earned, including
    any related bonus. In addition, this individual's achievements and
    compensation would be reported to Congress each year.
    ---------------------------------------------------------------------------
        \30\ On September 9, 2002, GAO convened a roundtable of executive
    branch leaders and management experts to discuss the Chief Operating
    Officer concept. For more information see U.S. General Accounting
    Office, Highlights of a GAO Roundtable: The Chief Operating Officer
    Concept: A Potential Strategy to Address Federal Governance Challenges,
    GAO-03-192SP (Washington, DC: Oct. 4, 2002).
    ---------------------------------------------------------------------------
        Central Control Over System Investments
        We have made numerous recommendations to DOD intended to improve
    the management oversight and control of its business systems
    modernization investments. However, as previously mentioned, progress
    in achieving this control has been slow and, as a result, DOD has
    little or no assurance that current business systems modernization
    investment money is being spent in an economically efficient and
    effective manner. DOD's current systems investment process has
    contributed to the evolution of an overly complex and error-prone
    information technology environment containing duplicative,
    nonintegrated, and stovepiped systems. Given that DOD plans to spend
    $19 billion on business systems and related infrastructure for fiscal
    year 2004--including an estimated $5 billion in modernization money--it
    is critical that actions be taken to gain more effective control over
    such business systems investments.
        One suggestion we have for legislative action to address this issue
    that is consistent with our open recommendations to DOD, is to
    establish specific management oversight, accountability, and control of
    funding with the ``owners'' of the various functional areas or domains.
    This legislation would define the scope of the various business areas
    (e.g., acquisition, logistics, finance, and accounting) and establish
    functional responsibility for management of the portfolio of business
    systems in that area with the relevant Under Secretary of Defense for
    the six departmental domains and the Chief Information Officer for the
    Enterprise Information Environment Mission (information technology
    infrastructure). For example, planning, development, acquisition, and
    oversight of DOD's portfolio of logistics business systems would be
    vested in the Under Secretary of Defense for Acquisition, Technology,
    and Logistics.
        We believe it is critical that funds for DOD business systems be
    appropriated to the domain owners in order to provide for
    accountability, transparency, and the ability to prevent the continued
    parochial approach to systems development that exists today. The
    domains would establish a hierarchy of investment review boards with
    DOD-wide representation, including the military services and Defense
    agencies. These boards would be responsible for reviewing and approving
    investments to develop, operate, maintain, and modernize business
    systems for the domain portfolio, including ensuring that investments
    were consistent with DOD's BEA. All domain owners would be responsible
    for coordinating their business system modernization efforts with the
    chief management official who would chair the Defense Business Systems
    Modernization Executive Committee. Domain leaders would also be
    required to report to Congress through the chief management official
    and the Secretary of Defense, on applicable business systems that are
    not compliant with review requirements and to include a summary
    justification for noncompliance.

                                   CONCLUSION

        As seen again in Iraq, the excellence of our military forces is
    unparalleled. However, that excellence is often achieved in the face of
    enormous challenges in DOD's financial management and other business
    areas, which have serious and far-reaching implications related to the
    department's operations and critical national defense mission. Our
    recent work has shown that DOD's longstanding financial management and
    business problems have resulted in fundamental operational problems,
    such as failure to properly pay mobilized Army Guard soldiers and the
    inability to provide adequate accountability and control over supplies
    and equipment shipments in support of Operation Iraqi Freedom. Further,
    the lack of adequate transparency and appropriate accountability across
    all business areas has resulted in certain fraud, waste, and abuse and
    hinders DOD's attempts to develop world-class operations and activities
    to support its forces. As our Nation continues to be challenged with
    growing budget deficits and increasing pressure to reduce spending
    levels, every dollar that DOD can save through improved economy and
    efficiency of its operations is important.
        DOD's senior leaders have demonstrated a commitment to transforming
    the department and improving its business operations and have taken
    positive steps to begin this effort. We believe that our two suggested
    legislative initiatives will greatly improve the likelihood of
    meaningful, broad-based reform at DOD. The continued involvement and
    monitoring by congressional committees will be critical to ensure that
    DOD's initial transformation actions are sustained and extended and
    that the Department achieves its goal of securing the best performance
    and highest measure of accountability for the American people. I
    commend the subcommittee for holding this hearing and I encourage you
    to use this vehicle, on an annual basis, as a catalyst for long overdue
    business transformation at DOD.
        Mr. Chairman, this concludes my statement. I would be pleased to
    answer any questions you or other members of the subcommittee may have
    at this time.

                          CONTACTS AND ACKNOWLEDGMENTS

        For further information about this testimony, please contact
    Gregory D. Kutz at (202) 512-9095 or kutzg@gao.gov, Randolph Hite at
    (202) 512-3439 or hiter@gao.gov, or Evelyn Logue at (202) 512-3881.
    Other key contributors to this testimony include Sandra Bell, Meg Best,
    Molly Boyle, Mary Ellen Chervenic, Cherry Clipper, Francine Delvecchio,
    Abe Dymond, Gayle Fischer, Geoff Frank, John Kelly, Elizabeth Mead,
    John Ryan, Cary Russell, Lisa Shames, Darby Smith, Edward Stephenson,
    Derrick B. Stewart, Carolyn Voltz, Marilyn Wasleski, and Jenniffer
    Wilson.

        Senator Ensign. Secretary Zakheim.

     STATEMENT OF HON. DOV S. ZAKHEIM, UNDER SECRETARY OF DEFENSE
                             (COMPTROLLER)

        Dr. Zakheim. Mr. Chairman, Senator Akaka, Senator Pryor, I
    am happy to be here today to update you on the ongoing
    transformation of DOD financial management. I have a relatively
    long oral statement. I debated in my own mind whether I should
    abbreviate it the way David Walker just did or whether I should
    give it to you in full. It seems to me that, as you both
    expressed, Senator Ensign and Senator Akaka, this is a major
    top-level issue. So I hope you are going to indulge me and hear
    me out as I go through a lot of different issues, because I do
    think we have made some progress.
        Also, I thank you for your kind words. This is going to be,
    most likely, my last appearance before the committee as Under
    Secretary of Defense (Comptroller). I want to thank the members
    and the staff for the support and also the courtesy that has
    been given me over the past 3 years. I remain convinced, as I
    did before I took this job, that congressional oversight of all
    facets of our national security posture is vital. The
    committee's leadership has been very important to helping the
    President and DOD fulfill their responsibilities. On behalf of
    the Department and on my own behalf, I want to thank you.
        I also want to thank my colleague sitting next to me. With
    all due respect to separation of powers, David Walker has been
    a major source of ideas, creative and constructive criticism
    for the Department of Defense. We have acted on those ideas in
    many cases. In some cases, we are moving ahead with them, as
    you will see. But always, he and his staff have been people
    with whom we could cooperate on a highly professional basis. I
    want to thank him personally for that.
        Turning to the subject of the hearing; first, I do want to
    underscore the resolve of the Department of Defense. That
    resolve goes beyond just those who are here for some period,
    whether it is longer or shorter, to sustain and expand the
    substantial financial management progress of the last 3 years.
        It is not a simple matter, as you both have said. But we
    have had to face a number of challenges. I want to talk a
    little bit about what they were, how we have tried to overcome
    them, and where we are headed.
        Under my Secretary of Defense's strong leadership and
    determination, the Department has made enormous progress in
    overcoming challenges that developed and persisted over the
    past several decades. Financial management generally has been a
    backwater. Only in the government could the job of a chief
    financial officer be less important, be less than that of
    comptroller. I recently read in the paper about a major
    corporation that promoted someone to the job of comptroller and
    she is going to report to the chief financial officer. It does
    not work that way in government.
        For many years, DOD business management systems have been
    unable, satisfactorily, to interact with one another and
    facilitate the synthesis of management processes, or to provide
    DOD decisionmakers with timely, accurate, and reliable
    information, or to fulfill all financial management laws,
    standards, and requirements, or to produce auditable financial
    statements, as has already been mentioned.
        The primary cause of this situation was that, for decades,
    each military service and most Defense Department agencies and
    functional communities were permitted to develop and use its
    own business processes and systems. There was no requirement to
    adhere to a DOD-wide architecture or a DOD-wide set of
    standards.
        Inevitably, these independent systems rarely could interact
    with others. Their information cannot easily be exchanged nor
    could it be aggregated for use by senior DOD leaders. The
    Department's inability to produce clean, auditable financial
    statements reflected the fact that DOD business systems were
    not designed to produce the data necessary for them.
        It is important to remember that the information required
    for financial statement must come from very different, from
    many different, DOD business systems: logistics, acquisition,
    human resources management, and others. Most of these systems
    were designed primarily to manage inventory, people, and
    purchases, not to feed into financial statements.
        In 2001, Secretary Rumsfeld and his leadership team
    embarked on an aggressive path to achieve the comprehensive
    solution needed to give the Department integrated management
    processes and systems and to meet Federal Government
    requirements, notably auditable financial statements resulting
    in clean, unqualified, that is, audit, opinions.
        On our path to reform, we have been fortunate to have had
    access to private sector expertise through the Secretary of
    Defense's business board, 20 distinguished private sector
    business executives who advise the Secretary and senior DOD
    leaders on business management and related subjects. Defense
    Business Board (DBB) recommendations have been especially
    valuable for the management of DOD-wide reform, development of
    financial management metrics, reform of the defense working
    capital fund, and development of balanced scorecard metrics
    that align measurement with management risk areas.
        One example that David Walker just mentioned, the idea of
    having an under secretary or deputy secretary for management,
    is a subject that was tackled by the business board. They have
    made recommendations for the Secretary. So, this issue is under
    active consideration.
        Again, I am grateful to David Walker, as well as the
    Comptroller of the Office of Management and Budget. Both have
    served as observers on this board since its inception.
        Now, to transfer DOD financial management, my fellow DOD
    leaders and I realized that we needed to transform management
    processes and systems in all major functional areas, not just
    financial. To transfer all DOD business management, we created
    the Business Management Modernization Program (BMMP). The
    centerpiece of BMMP is the transformational tool known as the
    Business Enterprise Architecture (BEA).
        The BEA will help DOD's diverse business communities guide
    and constrain the transformation of their processes and
    systems. As we have already discussed, BMMP is a massive
    undertaking and will take several more years to complete. This
    program is as much about changing our business processes as it
    is about eliminating redundant and noncompatible systems. We
    are working to streamline, re-engineer, and standardize our
    business processes, not simply to improve the handling of
    information from those processes.
        BMMP will enable us to transition from the current
    collection of mostly incompatible and inadequate management
    systems to an integrated network of systems based on the
    uniform implementation of requirements across the Department.
        Our last completed inventory identified about 2,300
    business systems. Our ongoing efforts to identify all business
    systems indicate that the real total is much higher, probably
    at least twice as high as the number we now have. It is
    important to remember that we are necessarily taking a top-down
    incremental approach to business transformation. Our task is to
    transform an extraordinarily complex conglomeration of business
    systems. Our only practical option is to do that in increments.
    We cannot shut down the Department of Defense for nearly a
    decade, throw out all old business processes and systems, and
    start from scratch, guided by a fully developed comprehensive
    enterprise architecture.
        The Department's ongoing and planned actions for BMMP are
    consistent with the recommendations in GAO Report 03-1018. Most
    of those recommendations were related to continuing development
    of the BEA, which we are implementing. Our aim is that each
    successive BEA version, and there will be successive versions,
    includes more of the detail needed to guide and complete fully
    the transformation of DOD business processes and systems.
        The fiscal year 2005 budget requests $122 million to
    continue the transformation efforts of BMMP, including the
    evolution and extension of the business enterprise
    architecture. I urge congressional support for that request,
    which is critical to the business transformation that DOD, the
    Office of Management and Budget, and GAO all agree is vitally
    needed. You have already heard that our target is to have clean
    financial statements by 2007. You have heard that it is a
    challenging goal. I think it is terribly important that we
    stick to that goal. I think it is terribly important that
    Congress make sure that we stick to that goal. The money that
    we are asking for in order to get the enterprise architecture
    truly up and running is critical to the achievement of that
    objective.
        Even though the BEA is in continuing development, the
    current version is sufficient to enable the Department to
    ensure strong oversight over ongoing and planned investment in
    business systems. We are accomplishing this through what we
    term portfolio management by each of the owners of the seven
    so-called domains or business areas: logistics, acquisition,
    installations environment, human resources management,
    accounting and financial management, strategic planning and
    budgeting, and technical infrastructure.
        Basically, what this means is that you now have the
    various, as it were, czars of these business areas working
    together to deal with one of the issues that Senator Akaka
    raised: how do you get buy-in from the entire Department? You
    cannot just do it through the Comptroller. That is why we
    changed the program from financial management modernization to
    business management modernization. We have the people who are
    in charge of these various business areas working together to
    ensure that their business processes will be in conformity with
    the overall enterprise architecture. So, that is a major
    development that we did not talk about when I was here 2 years
    ago with Comptroller General Walker.
        DOD leaders realized early on that BMMP was the only long-
    term, sustainable solution to its financial reporting
    inadequacies. But we also realized that, since it would take
    several years to complete development and implementation of all
    BMMP initiatives, that we would need faster remedies to fulfill
    financial reporting requirements. So, we have been advancing
    various complementary measures to achieve acceptable DOD
    financial statements by fiscal year 2007.
        I have initiated an unprecedented DOD-wide effort to attain
    an unqualified audit opinion on all of the Department's fiscal
    year 2007 financial statements. Central to this effort has been
    the requirement that all major DOD reporting components develop
    a financial management improvement plan that details how each
    component will overcome the deficiencies that prevent it from
    obtaining an unqualified audit opinion.
        To ensure progress, my office conducts quarterly top-down
    reviews of financial statements from DOD components and tracks
    ongoing corrective actions year around. As Chief Financial
    Officer, I have required semiannual briefings by all major
    reporting components. I personally review progress, looking at
    each financial statement, including its footnotes. The DOD
    Inspector General (DODIG) is the responsible agent for
    performing audits of DOD financial statements and the systems
    that support the statements and for rendering an opinion on
    their fair presentation of DOD operations.
        The DODIG expects to continue to fulfill some of this
    responsibility by contracting with outside auditing
    organizations with the requisite qualifications. To fulfill
    this responsibility, the DODIG estimates that its fiscal year
    2004 costs will be $115 million. During fiscal year 2004, these
    costs will be covered by the components that are being audited.
        For fiscal year 2005, the Department has requested $231
    million to enable the DODIG to perform these assessments and
    audits. This request funds the increased involvement of the
    auditors, which is vital to sustaining our progress toward
    clean financial statements. My office, the DODIG, OMB, and the
    GAO continue to work together to guide this progress.
        We will also be working together to ensure the wise
    expenditure of these fiscal year 2005 funds. This is a lot of
    money. But if we are going to be serious, we have to pay for
    the auditors. We have to pay for the people to do the job. If
    we want clean statements, we have to give the auditors, the
    Inspector General, the wherewithal to review and audit what we
    give them.
        So, yes, there is a price to pay, but I believe it is
    worthwhile. I would also say that in my reviews of financial
    statements, sitting with me at all times are representatives of
    OMB and GAO and the Inspector General. You can imagine the
    first few times when the components came in with their
    financial statements and saw that there were not just going to
    be briefing me but GAO, DODIG, and OMB. I can tell you that has
    made a huge difference.
        Of the 21 DOD components required to submit financial
    reports, 5 received clean audit opinions. One received the
    qualified audit opinion in fiscal year 2003, which means that
    one-quarter of our components already are getting opinions.
        Other DOD advances toward ensuring an unqualified audit
    opinion on its financial statements include continuing to make
    corrections on the reporting of environmental liabilities,
    needed changes on expenditure reconciliation, and continuing
    progress to correct weakness in inventory evaluation. Nearly 50
    percent of the Department's reporting of liabilities received
    favorable audit results in fiscal year 2003.
        We have improved the timeliness of financial statements by
    reducing annual financial report production time by 45 percent
    in fiscal year 2004. We have improved the clarity, formatting,
    and footnoting of our financial statements. We are establishing
    a DOD audit committee. Again, this was a suggestion made by
    some of our partner agencies to provide a concerted senior
    leadership focus to achieve and sustain a favorable audit
    opinion and to import the best practices from other
    organizations who have achieved success in obtaining a
    favorable audit opinion.
        Now, besides BMMP and direct action to achieve auditable
    financial statements, the Department has had other
    accomplishments related to its financial management. We have
    adopted a new approach to the management of retirement funds.
    In response to a recommendation by the DOD Inspector General,
    the Department created the DOD Investment Board to provide
    additional oversight over the management of eight retirement
    and trust funds with assets now totaling almost $250 billion.
        These funds include the Medicare Eligible Retirement Health
    Care Fund begun in fiscal year 2003. Its assets right now total
    about $37 billion. But it is expected to eventually grow to
    over $400 billion. The new board has approved an investment
    strategy that aims to minimize risk and maximize return on
    investments. As a result of our new strategy, currently the
    Military Retirement Fund, with assets of about $200 billion, is
    earning returns that are better than those of equivalent funds,
    notably Vanguard and T. Rowe Price funds holding similar
    government securities. We are doing better than the supposed
    pros. Our retirement fund has better returns over a 1-year, 5-
    year, and 10-year period.
        We have also been using another initiative that we brought
    into the Department's management structure over the past few
    years, called management initiative decisions (MIDs) to improve
    business processes directly. For example, we used the so-called
    MIDs to make two especially significant changes. We initiated
    the extensive use of performance metrics to measure program
    results and began the use of metrics to improve programs and
    guide budget decisions.
        As my Secretary frequently says, ``If you can't measure it,
    you don't know if you're making progress.''
        We also designed and launched a new 2-year planning,
    programming, budgeting, and execution process, whose features
    include a combined program and budget review and a more
    intensive focus on enhancing joint war-fighting capabilities.
    Execution leads directly into reporting that goes into
    financial management. So, we now have a complete flow from the
    planning end to the reporting end that ultimately will lead to
    those clean audits.
        We have overhauled policies and management of DOD
    government charge cards, both the purchase cards and the travel
    cards. The problems we found centered on inadequate management
    control, too many cards being issued and delinquent payments on
    individually billed accounts. To remedy these problems, we
    strengthened our internal controls, increased training,
    curtailed and restricted cards, and developed automated
    surveillance tools. Reflecting our progress, for purchase cards
    since fiscal year 2001, we have reduced the number issued by 42
    percent and we have cut delinquency payments rate in half.
        For the delinquency rate for travel card, we surpassed our
    fiscal year 2003 balance score-card goal of 3 percent for
    centrally billed accounts, ending the year at 1.3 percent. For
    individually billed accounts, we ended the year at 5.1 percent
    of delinquencies, a significant reduction from the January
    2003, level of 11.5 percent, which was more than twice as high.
        In fiscal year 2003, we canceled 490,000 travel cards for
    non-use and 9,000 due to separations and retirements. There
    were roughly a half-million travel cards floating around that
    were not being used and we have gotten rid of them.
        We have made progress in eliminating Anti-Deficiency Act
    (ADA) violations. We increased the spread of ADA
    investigations, which helped us to determine what went wrong in
    each violation and made the appropriate corrections.
        Now, violations are frequently addressed with minor
    disciplinary actions. While some may disagree with the
    disciplinary decisions that were made, commanders and
    supervisors have been given discretion and responsibility
    appropriate to the facts and circumstances. But in my view, my
    personal view, that is still unsatisfactory. Violators tend to
    receive only minor punishments far too often. What kind of a
    signal does that send to somebody who may be contemplating an
    ADA violation?
        If the word goes around that all you are going to get, if
    you are caught, is a slap on the wrist, then how are you going
    to deter people from trying to do just that? Spending
    government money inappropriately where there is no
    authorization to do so. I find this, and have found this,
    extremely frustrating. There is very little that senior
    civilian leaders can do to strengthen punishments because of
    prohibitions on command influence on the military's punishment
    decisions.
        As long as that is the system, our hands are tied. The
    problem is not with individual military officers, the problem
    is with the system. This is a system that essentially has
    translated essentially a non-military impropriety into
    something that only the military can correct. There is a
    disconnect there. We need your help to fix that.
        Among our other accomplishments over the past 3 years--and
    I will go through these quickly--we have reduced problem
    disbursements from $4.1 billion in January 2001 to $1 billion
    at the end of fiscal year 2003. Now, to say that we have $1
    billion in problem disbursements is not to brag, obviously. But
    it is not $4.1 billion, as it was a few years back. We are now
    at 24 percent of the earlier level.
        Problem disbursements consist of negative, unliquidated
    obligations; that is to say, money that you paid that you
    should not have and unmatched disbursements. But negative,
    unliquidated obligations dropped from $1.4 billion in January
    2001 to only $125 million in fiscal year 2003. That is quite a
    drop. Unmatched disbursement dropped from $2.8 billion in
    January 2001, to $854 million at the end of 2003.
        We have also strengthened internal controls to detect and
    prevent financial management mistakes. We have intensified
    procedures to prevent erroneous commercial payments and to
    recover such payments, if made. We have initiated measures to
    detect, reverse, and prevent the use of closed appropriations.
    We have initiated changes in partnership with the Treasury
    Department so that we could improve the collection of Federal
    debts from delinquent DOD contractors.
        We have progressed towards strengthening the professional
    qualifications of the DOD financial management work force; and
    we have, so far, cut 236 systems. That is a drop in the bucket
    of all those systems that are out there. But it demonstrates
    that we are actually eliminating systems.
        In closing, I again want to thank this committee and the
    GAO for their interest and their support for the Department of
    Defense effort to transform its business management and to
    fulfill its financial reporting responsibilities. We are at a
    critical stage in our transformation. We are off to a strong
    start but a lot does remain to be done. We do face difficult
    challenges as we maneuver our way through these next several
    years.
        This transformation is as complex and difficult as any
    challenge the Department has faced. I make no presumptuous
    statements that it compares to any war, large or small. But as
    a management challenge, it is as tough as any. What is at stake
    is nothing less than the future quality and cost of DOD
    management of its hundreds of billions of dollars in assets,
    liabilities, and appropriations; and frankly, its credibility
    to the American taxpayer.
        Successful transformation is essential to ensuring the very
    best management of our defense resources and also is key to
    sustaining strong support to America's Armed Forces. The
    Department finally has a program, the Business Management
    Modernization Program, that is comprehensive enough, truly, to
    transform its business processes and systems in a sustainable
    way. We owe our taxpaying citizens nothing less. We need and
    welcome Congress' support and assistance to complete this
    historic undertaking.
        Thank you so much.
        [The prepared statement of Dr. Zakheim follows:]

                   Prepared Statement by Hon. Dov S. Zakheim

        Mr. Chairman, members of the subcommittee, I am happy to be here to
    update you on the ongoing transformation of Department of Defense (DOD)
    financial management.
        Before doing that, since this is likely to be my last appearance
    before the Senate Armed Services Committee as Under Secretary of
    Defense (Comptroller), I want to thank committee members and staff for
    the support and courtesy given me these past 3 years. Congress's
    oversight of all facets of America's national security posture is
    vital, and the committee's leadership has been very important to
    helping the President and DOD fulfill their responsibilities. On behalf
    of the Department and myself, thank you.
        Turning now to the subject of this hearing, Mr. Chairman, I first
    want to underscore the resolve of the DOD to sustain and expand the
    substantial financial management progress of the last 3 years. I am
    happy that the Comptroller General, David Walker, is joining the
    discussion today because he and his people have provided key support
    for our efforts. We in the Department continue to find the General
    Accounting Office (GAO) a major ally as we seek to improve DOD
    financial management. Both our Department and the GAO agree that much
    remains to be done. With the support of Congress and continued help
    from the GAO, the DOD can and must complete the planned overhaul of its
    financial management.
        Today I want to summarize the financial management challenges DOD
    has faced, what we have done to overcome these challenges, and the work
    ahead to finish the task.

                 FINANCIAL MANAGEMENT CHALLENGES DOD HAS FACED

        Over the past 3 years, under Secretary Rumsfeld's strong leadership
    and determination, the DOD has made enormous progress in overcoming
    financial management challenges that developed and persisted over the
    past several decades. Financial management generally has been a
    backwater. Only in government could the job of Chief Financial Officer
    be less important than that of Comptroller.
        For many years, DOD business management systems have been unable
    satisfactorily to:

             Interact with one another and facilitate the synthesis
            of management processes;
             Provide DOD decisionmakers with timely, accurate, and
            reliable information;
             Fulfill all financial management laws, standards, and
            requirements; or
             Produce auditable financial statements.

        The primary cause of this situation was that for decades each
    military service and most DOD agencies and functional communities were
    permitted to develop and use its own business processes and systems.
    There was no requirement to adhere to a DOD-wide architecture or set of
    standards. Inevitably these independent systems rarely could interact
    with others. Their information could not easily be exchanged nor
    aggregated for use by senior DOD leaders.
        The Department's inability to produce clean, auditable financial
    statements reflected the fact that DOD business systems were not
    designed to produce the data necessary for such statements. It is
    important to remember that the information required for financial
    statements must come from many different DOD business systems:
    logistics, acquisition, human resources management, and others. Most of
    these systems were designed primarily to manage inventory, people, and
    purchases--not to feed into financial statements. Moreover, DOD
    accounting and finance systems were developed to track and ensure the
    proper expenditure of appropriated funds, not to produce auditable
    financial statements. Therefore, when the Government Management Results
    Act of 1994 mandated that the DOD and 23 other Federal agencies produce
    auditable financial statements, DOD systems simply were not capable of
    complying.
        One of the most important actions of the Bush administration
    regarding DOD financial management was to decide that marginal changes
    would not be sufficient to overcome challenges that had been developing
    for decades. In previous administrations, marginal changes had produced
    only marginal results. So in 2001, Secretary Rumsfeld and his
    leadership team embarked on an aggressive path to achieve the
    comprehensive solution needed to give the Department superlative,
    integrated management processes and systems and to meet Federal
    Government requirements--notably, auditable financial statements
    resulting in clean (unqualified) audit opinions.
        On our path to reform, we have been fortunate to have had access to
    private sector expertise through the Secretary's Defense Business Board
    (DBB)--20 distinguished private sector business executives who advise
    the Secretary of Defense and senior DOD leaders on business management
    and related subjects. DBB recommendations have been especially valuable
    for the management of DOD-wide reform, development of financial
    management metrics, reform of the defense working capital fund, and
    development of balanced scorecard metrics that align measurement with
    the key management risk areas. I am especially grateful that David
    Walker of the GAO, as well as the Comptroller of the Office of
    Management and Budget (OMB), have served as observers on this board
    since its inception.

                   BUSINESS MANAGEMENT MODERNIZATION PROGRAM

        To transform DOD financial management, my fellow DOD leaders and I
    realized that we needed to transform management processes and systems
    in all major functional areas--not just financial. To transform all DOD
    business management, we created the Business Management Modernization
    Program. The centerpiece of the BMMP is the transformational tool known
    as the Business Enterprise Architecture (BEA). The BEA will help DOD's
    diverse business communities guide and constrain the transformation of
    their processes and systems.
        BMMP is a massive undertaking and will take several more years to
    complete. This program is as much about changing our business processes
    as it is about eliminating redundant and non-compatible systems. We are
    working to streamline, reengineer, and standardize our business
    processes--not simply improve the handling of information from those
    processes. BMMP will enable us to transition from the current
    collection of mostly incompatible and inadequate management systems to
    an integrated network of systems, based on the uniform implementation
    of requirements across the Department. Our last completed inventory
    identified about 2,300 DOD business systems. Our ongoing efforts to
    identify all DOD business systems indicate that the real total is a
    much higher number.
        The Department's business transformation is being guided through an
    extensive governance process that includes all senior DOD managers.
    Specific responsibilities for business transformation will be detailed
    in a directive to be published soon.
        It is important to remember that we are necessarily taking a top-
    down, incremental approach to business transformation. Our task is to
    transform an extraordinarily complex conglomeration of business
    systems, and our only practical option is to do that in increments. We
    cannot shut down the DOD for a decade, throw out all old business
    processes and systems, and start from scratch guided by a fully
    developed, comprehensive enterprise architecture.

    BMMP evolution
        The Department's ongoing and planned actions for BMMP are
    consistent with the recommendations in GAO Report 03-1018. Most of
    those recommendations were related to continuing development of the
    BEA, which we are implementing. Our aim is that each successive BEA
    version includes more of the detail needed to guide and complete fully
    the transformation of DOD business processes and systems.
        We also are aggressively building a comprehensive, detailed
    transition plan, which will depict the systems and schedules for
    migration from our legacy systems environment to the new mix of systems
    needed to achieve DOD business transformation goals. The transition
    plan will guide us from our ``As Is'' inefficient and ineffective
    environment to a ``To Be'' fully transformed state, which we are
    continuing to refine and specify.
        The fiscal year 2005 budget requests $122 million to continue the
    transformation efforts of BMMP, including the evolution and extension
    of the BEA. I urge congressional support for that request, which is
    critical to the business transformation that DOD, OMB, and GAO all
    agree is vitally needed.

    Controlling business systems investments
        Even though the BEA is in continuing development, the current
    version is sufficient to enable the Department to ensure strong
    oversight over ongoing and planned investments in business systems. We
    are accomplishing this through what we term ``portfolio management'' by
    each of the owners of the 7 so-called domains or business areas:
    Logistics, Acquisition, Installations and Environment, Human Resources
    Management, Accounting and Financial Management, Strategic Planning and
    Budgeting, and Technical Infrastructure. Portfolio management efforts
    of the components that serve as ``domain owners'' are coordinated and
    integrated by the Business Modernization and Systems Integration
    Office, which is the program office and leader of BMMP.
        Each domain owner--for example, the Under Secretary of Defense
    (Acquisition, Technology, and Logistics) for the acquisition domain--
    oversees investments in business systems for that domain. The owner is
    responsible for ensuring that those investments are consistent with the
    BEA, Transition Plan, and requirements of section 1004 of the National
    Defense Authorization Act for Fiscal Year 2003. Especially critical is
    ensuring that these investments support achievement of an unqualified
    audit opinion. The Department has certified some new system initiatives
    with investments of more than $1 million and is setting up the
    processes needed to review thoroughly all other like investments
    exceeding $1 million, as required by law.
        Each domain owner will also have the lead in determining what
    business systems need to be phased out--and when to do so to best
    complement the investment in new initiatives necessary to achieve an
    unqualified audit opinion. Since the Department began its business
    transformation in early 2001, we have eliminated about 238 systems. We
    still have a long way to go.

                    PRODUCING AUDITABLE FINANCIAL STATEMENTS

        DOD leaders realized early on that BMMP was the only long-term,
    sustainable solution to its financial reporting inadequacies. But we
    also realized that--since it would take several years to complete
    development and implementation of all BMMP initiatives--we would need
    faster remedies to fulfill financial reporting requirements. We,
    therefore, have been advancing various complementary measures to
    achieve acceptable DOD financial statements by fiscal year 2007.
        I have initiated an unprecedented DOD-wide effort to attain an
    unqualified audit opinion on all of the Department's fiscal year 2007
    financial statements. Central to this effort has been the requirement
    that all major DOD reporting components develop a Financial Management
    Improvement Plan that details how each component will overcome the
    deficiencies that prevent it from obtaining an unqualified audit
    opinion. To ensure progress my office conducts quarterly top-down
    reviews of financial statements from DOD components and tracks ongoing
    corrective actions year-round. As Chief Financial Officer, I require
    semi-annual briefings by all major reporting components--and I
    personally check progress, reviewing each financial statement--
    including its footnotes.
        DOD Improvement Plans follow a process designed to ensure that the
    Department complies with section 1008 of the National Defense
    Authorization Act for Fiscal Year 2002, which is aimed at minimizing
    DOD expenditures for preparing and auditing financial statements that
    are not likely to be reliable. The essence of the improvement plan
    process is:

             Components identify and correct problems with their
            accounting systems and financial reporting processes--problems
            that prevent favorable audit opinions.
             Components validate that corrections have been made
            and then inform the DOD Inspector General (IG) that their
            systems corrections and statement are ready for its review.
             The DODIG performs a limited review to confirm that a
            component's accounting system and financial statement is ready
            for a complete review.

        The DODIG is the responsible agent for performing audits of DOD
    financial statements and the systems that support the statements and
    for rendering an opinion on their fair presentation of DOD operations.
    The IG expects to continue to fulfill some of this responsibility by
    contracting with outside auditing organizations with the requisite
    qualifications. To fulfill this responsibility, the DODIG estimates its
    fiscal year 2004 costs will be $115 million. During fiscal year 2004,
    these costs will be covered by the components being audited.
        For fiscal year 2005 the Department has requested $231 million to
    enable the DODIG to perform these assessments and audits. This request
    funds the increased involvement of the auditors, which is vital to
    sustaining our progress toward clean financial statements. My office,
    the DODIG, OMB, and GAO continue to work together to guide this
    progress, and we will also be working together to ensure the wise
    expenditure of these fiscal year 2005 funds.
        Of the 21 DOD components required to submit financial reports, 5
    received clean audit opinions and 1 received a qualified audit opinion
    in fiscal year 2003. Other DOD advances toward ensuring an unqualified
    audit opinion on its financial statements include:

             We continue to make corrections on the reporting of
            environmental liabilities and needed changes on expenditure
            reconciliation.
             We continue progress to correct weaknesses in
            inventory valuation.
             Nearly 50 percent of the Department's reporting of its
            liabilities received favorable audit results in fiscal year
            2003.
             We improved the timeliness of financial statements by
            reducing annual financial report production time by 45 percent
            in fiscal year 2004.
             We substantially improved the clarity, formatting, and
            footnoting of DOD financial statements. The statements and
            notes are more citizen-focused and carry a reader friendly
            analysis to show variances between comparative periods. Our
            ability to communicate our financial position better enables us
            to convey more clearly the challenges we face and the services
            we provide.
             We are establishing the DOD Audit Committee to provide
            a concerted senior leadership focus to achieve and sustain a
            favorable audit opinion, and import best practices from other
            organizations who have achieved success in obtaining a
            favorable audit opinion. The committee will review accounting
            and auditing issues and provide advice and counsel to the
            Secretary on solutions to resolve Department-wide challenges.
            It also will review DOD progress on implementing improvement
            plans and resolving major financial reporting deficiencies.

                             OTHER ACCOMPLISHMENTS

        Besides BMMP and direct action to achieve auditable financial
    statements, the Department has had other accomplishments related to its
    financial management.
        We have adopted a new approach to the management of retirement
    funds. In response to an DODIG recommendation, the Department created
    the DOD Investment Board to provide additional oversight over the
    management of eight retirement and trust funds with assets now totaling
    almost $250 billion. These funds include the Medicare-Eligible
    Retirement Health Care Fund, begun in fiscal year 2003; its assets now
    total $37 billion, but it is expected to grow eventually to over $400
    billion. The new Board has approved an investment strategy that aims to
    minimize risk and maximize returns on investments. As a result of our
    new strategy, currently the Military Retirement Fund, with assets of
    about $200 billion, is earning returns that are better than those of
    equivalent funds--notably, Vanguard and T. Rowe Price funds holding
    similar government securities. Our retirement fund has better returns
    over a 1-year, 5-year, and 10-year period.
        We have been using Management Initiative Decisions (MIDs) to
    improve business processes directly. For example, we used MIDs to make
    two especially significant changes:

             We initiated the extensive use of performance metrics
            to measure program results, and began the use of those metrics
            to improve programs and guide budget decisions.
             We designed and launched a new 2-year Planning,
            Programming, Budgeting, and Execution process, whose features
            include a combined program and budget review and a more intense
            focus on enhancing joint warfighting capabilities.

        We inaugurated the DOD Financial Management Balanced Scorecard
    Program to align financial management performance measures to the
    Department's overall priorities. Examples of our scorecard actions
    include:

             Our fiscal year 2003 goal for interest penalties for
            late commercial payments was that we not exceed $206 per
            million dollars paid. We surpassed that goal, ending fiscal
            year 2003 at $160 per million. We have reduced our interest
            penalties from $291 per million in April 2001 to $124 per
            million in January 2004.
             Our fiscal year 2003 goal was that we not exceed 5
            percent of over aged invoices as compared to the total number
            of invoices on hand. We surpassed that goal, ending fiscal year
            2003 at 3.66 percent backlog.

        We have overhauled policies and management of DOD government charge
    cards (purchase cards and travel cards). The problems we found centered
    on inadequate management control, too many cards being issued, and
    delinquent payments on individually billed accounts. To remedy these
    problems, we strengthened our internal controls, increased training,
    curtailed and restricted cards, and developed automated surveillance
    tools. Reflecting our progress:

             For purchase cards, since fiscal year 2001 we have
            reduced the number issued by 42 percent and cut the delinquency
            payments rate in half.
             For the delinquency rate for travel cards, we
            surpassed our fiscal year 2003 balanced scorecard goal of 3
            percent for centrally billed accounts, ending the year at 1.3
            percent. For individually billed accounts, we ended the year at
            5.1 percent, a significant reduction from the January 2003
            level of 11.5 percent.
             In fiscal year 2003 we cancelled 490,000 travel cards
            for non-use and 9,000 due to separations and retirements.

        We have made progress in eliminating Antideficiency Act violations.
    We increased the speed of ADA investigations, which helps us determine
    what went wrong in each violation and make the appropriate corrections.
    Violations are frequently addressed with minor disciplinary actions.
    While some may disagree with the disciplinary decisions made,
    commanders and supervisors have been given discretion and
    responsibilities appropriate to the facts and circumstances. In my
    personal view, violators receive only minor punishment far too often.
    This is frustrating, and there is little senior civilian leaders can do
    to strengthen punishments because of prohibitions on command influence
    on the military's punishment decisions. Perhaps Congress can help and
    find a way through this major complicating factor.
        Among our other accomplishments over the past 3 years, we have:

             Reduced problem disbursements from $4.1 billion in
            January 2001 to $1.0 billion at the end of fiscal year 2003--
            just 24 percent of that earlier level. (The end of the fiscal
            year is the best time to measure our progress.) Problem
            disbursements consist of negative unliquidated obligations and
            unmatched disbursements.

                     Negative unliquidated obligations dropped from
                    $1.4 billion in January 2001 to $125 million at the end
                    of fiscal year 2003.
                     Unmatched disbursements dropped from $2.8
                    billion in January 2001 to $854 million at the end of
                    fiscal year 2003.

             Strengthened internal controls to detect and prevent
            financial management mistakes.
             Intensified procedures to prevent erroneous commercial
            payments and to recover such payments if made.
             Initiated measures to detect, reverse, and prevent use
            of closed appropriations.
             Initiated changes in partnership with the Treasury
            Department to improve our collection of Federal debts from
            delinquent DOD contractors.
             Progressed toward strengthening the professional
            qualifications of the DOD financial management workforce.

                                    CLOSING

        In closing, I again want to thank this committee, and the GAO, for
    their interest in the DOD effort to transform its business management
    and to fulfill its financial reporting responsibilities. We are at a
    critical stage in our transformation. We are off to a strong start, but
    much remains to be done. We face difficult challenges as we maneuver
    our way during these next several years.
        This transformation is as complex and difficult as any challenge
    the Department has faced. What is at stake is nothing less than the
    future quality and cost of DOD management of its hundreds of billions
    of dollars in assets, liabilities, and appropriations. Successful
    transformation is essential to ensuring the very best management of our
    defense resources, and also is key to sustaining strong support to
    America's Armed Forces. The Department finally has a program, the
    Business Management Modernization Program, comprehensive enough truly
    to transform its business processes and systems in a sustainable way.
    We owe our taxpaying citizens nothing less. We need and welcome
    Congress's support and assistance to complete this historic
    undertaking. Thank you.

        Senator Ensign. Well, thank both of you for your excellent
    testimony. I think you have laid out the challenges before us.
    I agree that they are great. A big reason that they are great
    is because of the size of the Department of Defense. But they
    are not overwhelming. We must believe that we can overcome
    these.
        Just quickly, maybe both of you can make a quick comment on
    this. This gets to the culture in the Services themselves. I
    mean, you look at the private sector, whatever their focus is,
    building cars, providing services, whatever it is, you have
    certain people in management where that is their focus. They do
    not want to answer, they do not want to answer, basically, to
    the people over here that are saying, well, what, we are public
    company. We have to answer to the Securities and Exchange
    Commission (SEC). We have to answer to our shareholders. But
    also, for efficiency's sake, we need to have computer systems
    and information systems that talk to each other, not just on
    financial matters but just so it is well coordinated.
        Without a strong Chief Executive Officer (CEO) driving and
    understanding that importance, that stuff never happens in the
    private sector the way that it needs to happen. So, I thought
    it was interesting, both of you talking about the idea of
    somebody with the authority at the Department of Defense, and
    especially, Mr. Walker, your point about it being somebody who
    is not really a political appointee but being somebody who is
    there long term, who has the authority to carry through.
    Because you know, we have mentioned time and again that
    political appointments come and go and the bureaucracy just
    kind of says ``bye-bye, I know I am still going to be here.''
    When they welcome you in, they say: ``Do not worry. Whatever
    you are going to try, I know I am going to be here after you
    leave.''
        So, it is very important to change the culture and the
    services, this person does have to have the authority and has
    to have the blessing of whoever the Secretary of Defense
    (SECDEF) is, whether it's this administration or another
    administration. They certainly have to have--even if they are a
    non-political appointment, they still have to have the support
    of the SECDEF.
        Mr. Walker. I think from a practical standpoint, in order
    for the person to be empowered and in order to be able to have
    the credibility both within the Department, as well as the
    ability for Congress to call that individual to testify, which
    I think would be very important, I think from a practical
    standpoint, you are talking about a presidential appointee with
    Senate confirmation.
        But what you are talking about that is different is you are
    talking about an individual who would have specified statutory
    responsibilities, that would have specified qualification
    requirements to be appointed, who would have a term appointment
    of, let us say, a 5-year to 7-year period of time, and
    therefore would be there hopefully long enough to really see
    through some of these challenging initiatives, who----
        Senator Ensign. By the way, just getting to the 5-year to
    7-year period----
        Mr. Walker. Yes.
        Senator Ensign. I like that aspect. But I like the aspect
    where you talked about performance contracts and having a
    provision in there to be able to remove them, if they are not
    doing their job.
        Mr. Walker. Exactly. That would not take a statutory
    provision, but you could couple it with that. To have a
    performance contract to get things done, and if the person is
    not performing, then be able to remove them. They potentially
    could be reappointed, if they were doing a great job.
        I think you could also look at some performance-based
    compensation here, as well as part of it. But I believe that,
    frankly, Dov and Secretary Wolfowitz and Secretary Rumsfeld,
    and the other key players at the Department of Defense have
    more than a full-time job. What happens is, is that people
    focus on the policy issues. People focus on the day-to-day
    issues of this large and complex and important enterprise. We
    do not have somebody focused over a long enough period of time
    solely on these business transformation challenges. I think it
    is critically important.
        Now whether or not you need legislation, one of the things
    that I know that the Defense Business Board is looking at is
    options that may not require legislation. I think the jury is
    out as to whether or not you will need legislation but I
    believe this is of critical importance.
        Dr. Zakheim. As you just heard and as I had mentioned, the
    Defense Business Board has been looking at this and is making
    some recommendations to the Secretary of Defense and to Deputy
    Secretary Wolfowitz. I know that Dave Walker has also met with
    the Deputy Secretary and briefed him on this.
        But one has to at the same time say, ``okay, this may
    happen. What do we do in the interim?'' One of the things that
    I did when I came in was to appoint two additional deputy
    undersecretaries, one of whom focused full time on financial
    management, actually management reform. I also cleaned house in
    my financial management office. I have a new Deputy Chief
    Financial Officer (DCFO), who is with me, JoAnn Boutelle. She
    has been with me for some time now. We actually went through
    two DCFOs before we chose her.
        We have a whole new senior staff in that office, and they
    know that their reputations are going to stand or fall on how
    the system works. In my years in and out of the Pentagon the
    only way I have found to move the bureaucracy, is to give it a
    stake in something. Once their reason for being is tied into a
    particular program, then you are going to have advocates for
    that program.
        We also found, and I mention this in terms of the so-called
    domain owners, that we could not do it on our own. We did have
    to get buy-in. We do, I believe, have buy-in for most of the
    OSD, if not all of the OSD senior leadership. Does that mean
    there are not pockets of resistance? Of course there are.
        We are going to need help, I believe, from Congress, to
    keep shining a light on what we are doing. One suggestion I
    might make is that instead of having a hearing like this every
    2 years, you might want to think about twice a year or at least
    once a year, so that you get progress reports.
        One of the difficulties that I constantly encounter is that
    those who are less inclined to move ahead keep coming back at
    me and saying: ``Look, do not give us timetables. Do not force
    us to give you dates. Let us just have it all be event driven.
    We will accomplish X. We will move on to Y.''
        Now it sounds logical, except it begs the question: How
    long are you going to take to accomplish X? The answer is: We
    just told you. Do not make us give you a timetable.
        On the contrary--and I understand where Dave Walker is
    coming from when he says 2007 is very ambitious. If you do not
    have an ambitious goal, you do not have a goal. If you do not
    have a goal, nothing is going to happen.
        So, you could help us by challenging us and saying: You
    gave us a timetable. How are you doing relative to that
    timetable? Senator Akaka raised that today. You are absolutely
    right.
        Now, there are reasons why we slipped; and we can talk
    about those. But the point is, you ask us that question. You
    force us to be accountable. The combination of your doing that
    and a staff, at least in the CFO's office--a career staff that
    is dedicated to the success of this project, I think will help
    us go a long way. Hopefully we will continue to have people
    like Secretary Rumsfeld, who believe in this as a prime
    concern.
        Mr. Walker. Mr. Chairman, I would add that I do think it
    would be highly desirable to have this hearing at least once a
    year and ideally more than once a year. We are in a critical
    juncture at the Department of Defense. Irrespective of what the
    election outcome is, having ongoing oversight by this
    committee, and other appropriate subcommittees, and other
    appropriate entities in Congress, I think it is critically
    important, in order to maintain momentum and assure appropriate
    accountability for results.
        Senator Ensign. Thank you, both.
        We will just go back and forth, Senator Akaka.
        Senator Akaka. Thank you very much, Mr. Chairman.
        Dave Walker and Dov Zakheim, I feel that you are making a
    plea to us. I am glad we started 2 years ago, putting our
    finger on this. I know at that time we were optimistic. But
    this is why I am commending both of you for what you are doing
    and for working together in meeting this challenge, as you said
    that we have set forth here.
        I want to commend both of you for working so hard these 2
    years. Our hope, of course, is that you would come back with
    answers. I would tell you that I am looking upon what you said
    as a springboard, a springboard into accomplishing something
    more definite in the future. But you have put your fingers on
    some of the, I guess, challenges that we have. I like the so-
    called simple statement that Mr. Walker had and laid down three
    things for us.
        One was a top level official, who would have the power to
    make differences and top level, too. You also mentioned that we
    need to determine how to control our resources. The third thing
    was human capital. Individually, these are huge challenges. But
    you have put your finger on those. I am so glad to hear that
    you two are working on this and, of course, saying that we need
    other agencies to work with you on this.
        So, let me start out by saying I really appreciate what you
    have done. This is a springboard to the future challenges.
        Mr. Walker and Dr. Zakheim, when you testified--I am going
    back in history--2 years ago, you agreed that DOD needed
    investment controls to avoid wasting money on systems that
    would be inconsistent with the new architecture. Let me use the
    word architecture. I will quote Mr. Walker at that time saying,
    ``We recommend DOD take action to establish centralized control
    over transformation investments to ensure that funding is
    provided for only those proposed investments, and systems, and
    business processes that are consistent with the Department's
    overall business process transformation strategy.''
        Dr. Zakheim agreed with you at that time. We included a
    provision requiring such an investment control system in our
    annual authorization. Unfortunately, GAO has told us that ``the
    vast majority of the billions of dollars that DOD invests in
    business system improvements annually have not been subject to
    the specific investment control process'' established pursuant
    to this requirement.
        Do you both still believe that the Department needs to
    establish controls over proposed investments in business
    management systems? If so, why has the current process not
    worked? What do we need to fix it?
        Mr. Walker. Well, Senator, I will start. First, there are a
    number of circumstances in which people did seek and receive
    permission for the million dollar plus systems approval
    requirements. But there were many circumstances, as our report
    pointed out, where they did not.
        The step that you took was obviously a step in the right
    direction. However, it was a system that says: ask permission.
    Many are not asking permission. They are asking for
    forgiveness.
        The simple fact of the matter is, once you pass the money
    out, you lose control. I think that one of the things that has
    to be considered at the Defense Department is, the way I look
    at it is, there are two types of primary systems. There are
    warfighting systems, which is what DOD is all about. We are
    number one in the world in fighting and winning armed
    conflicts. On that, you might take one approach and you might
    decentralize the funding more to the different Services.
        Then there are business information systems, which you have
    to approach on an enterprise basis, and which there really are
    not boundaries between the different Services. Therefore, you
    need to approach them on a more centralized basis. I think the
    responsibility, the authority, the control over the related
    resources ought to be more on a centralized basis.
        I also think, as Secretary Zakheim mentioned, DOD has 2,300
    business information systems and counting. As he said, he
    thinks it may be double that. Now first, if we do not know how
    many we have, we have a problem. Second, we need to somehow
    differentiate between which ones are critical stay-in-business
    systems, which is only a sub-set, and which ones are ones that
    are somebody's personal preference or something that somebody
    has designed for themselves over the years. If it is not a
    stay-in-business system, we may need to kill it.
        I think we have to take the money that we free up that is
    not a stay-in-business system, and we have to re-deploy that
    money to create the future. In summary, being able to separate
    between warfighting and staying in-business systems, and to
    centralize more responsibility, authority, and control over the
    business system resources where people have to get approval,
    where they are not seeking permission, they are seeking
    approval; and, therefore, that would change the dynamics.
        Senator Ensign. Before you go on, Mr. Secretary; Mr.
    Walker, could you just maybe give an example or two of a non-
    stay-in-business system?
        Mr. Walker. Well, a system that, in a particular service,
    in a particular command, that somebody has designed, that helps
    them do something that they want done but is not essential or
    integral to management information necessary for that Service
    or the Department of Defense as a whole. We can probably come
    up with some more specific examples. Believe me, I can assure
    you there are plenty out there.
        Senator Ensign. If you could come up with, just for the
    record later on, just----
        Mr. Walker. No problem.
        Senator Ensign. Get that for us, I would appreciate it.
        [The information referred to follows:]

        Our audit work has not focused on identifying non-stay-in-business
    systems, but rather on assessing DOD's ability to manage and control
    system investments and identify non-stay-in-business systems within its
    reported inventory of approximately 2,300 systems. Recent audits reveal
    that DOD has made only small inroads in addressing these management
    challenges. For example, the Bob Stump National Defense Authorization
    Act for Fiscal Year 2003 \2\ requires the DOD Comptroller to determine
    that each financial system improvement meets the specific conditions
    called for in the act before DOD obligates funds in amounts exceeding
    $1 million. However, we found that most system improvement efforts
    involving obligations over $1 million were not reviewed by the DOD
    Comptroller for the purpose of making that determination and that DOD
    continued to lack a mechanism for proactively identifying system
    improvement initiatives. We asked for, but DOD did not provide,
    comprehensive data for obligations in excess of $1 million for business
    system modernization. Based on a comparison of the limited information
    available for fiscal years 2003 and 2004, we identified $479 million in
    reported obligations by the military services that were not submitted
    to the DOD Comptroller for review.
    ---------------------------------------------------------------------------
        \2\ Bob Stump National Defense Authorization Act for Fiscal Year
    2003, Pub. L. No. 107-314, Sec. 1004 (d), 116 Stat. 2458, 2629, Dec. 2,
    2002.
    ---------------------------------------------------------------------------
        Despite DOD's acknowledgement that many of its systems are error
    prone, duplicative, and stovepiped, DOD continues to allow its
    component organizations to make their own investments independently of
    one another and implement different system solutions to solve the same
    business problems. These stovepiped decisionmaking processes have
    contributed to the Department's current complex, error-prone
    environment, and have hindered its ability to identify systems that
    should be phased out. The DOD Comptroller testified at the hearing that
    DOD's actual systems inventory could be twice as many as the number of
    systems the Department currently recognizes as its systems inventory.
    DOD's ability to address its current ``business-as-usual'' approach to
    business system investments, including the identification on non-stay-
    in-business systems, is further hampered by its lack of: (1) a complete
    inventory of business systems (a condition we first highlighted in
    1998); (2) a standard definition of what constitutes a business system;
    (3) a well-defined enterprise architecture; and (4) an effective
    approach for the control and accountability over business system
    investments.
        In March 2003, we reported that ineffective program management and
    oversight, as well as a lack of accountability, resulted in DOD
    continuing to invest hundreds of millions of dollars in system
    modernization efforts without any assurance that the projects will
    produce operational improvements commensurate with the amount
    invested.\3\ We have identified several DOD business system
    modernization efforts in enclosure 1 that were not economically
    justified on the basis of cost, benefits, and risk; will take years
    longer than planned; and have fallen short of delivering planned or
    needed capabilities. For more information, please contact Greg Kutz,
    Director, Financial Management and Assurance at 202-512-9095 or Darby
    Smith, Assistant Director at 202-512-7803, or smithd@gao.gov.
    ---------------------------------------------------------------------------
        \3\ GAO-03-465.
    ---------------------------------------------------------------------------
                  EXAMPLES OF TROUBLED DOD SYSTEM INITIATIVES

    Defense Joint Accounting System (DJAS)
        DJAS was planned as a DOD-wide solution for a portion of the
    Department's general ledger accounting needs only to fall significantly
    short of expectations and cost more than planned. In 1997 DOD selected
    DJAS to be the general fund accounting system for the Army and the Air
    Force as well as for DOD transportation and security assistance areas.
    Subsequently, in February 1998, DFAS decided that the Air Force could
    withdraw from using DJAS, because Air Force and/or DJAS processes would
    need significant reengineering to permit use of the joint accounting
    system. As a result, the Air Force initiated an effort to develop its
    own general fund accounting system-General Fund and Finance System. In
    June 2000, the DOD Inspector General reported \1\ that DFAS was
    developing DJAS at an estimated life-cycle cost of about $700 million
    without demonstrating that the program was the most cost-effective
    alternative for providing a portion of DOD's general fund accounting.
    The report stated that DFAS had not developed a complete or fully
    supportable feasibility study, analysis of alternatives, economic
    analysis, acquisition program baseline, or performance measures, and
    had not reengineered business processes. During fiscal years 1997-2000
    DFAS spent approximately $120 million on the development and
    implementation of DJAS. Although DFAS considers DJAS fully deployed, it
    is only operational at two locations--Fort Benning, Georgia, and the
    Missile Defense Agency. In October 2003, the DOD Comptroller placed
    DJAS in sustainment--that is, the system will continue to operate at
    existing locations, but will not be enhanced further.
    ---------------------------------------------------------------------------
        \1\ Department of Defense Office of the Inspector General,
    Acquisition of the Defense Joint Accounting System, Report No. D-2000-
    151 (Arlington, VA: June 16, 2000).
    ---------------------------------------------------------------------------
    Defense Procurement Payment System (DPPS)
        DFAS determined the need for DPPS in April 1995. DPPS was intended
    to be the standard, automated information system for contract and
    vendor pay authorization and addressing deficiencies associated with
    overpayments, negative unliquidated obligations,\2\ and unmatched
    disbursements \3\--all of which are longstanding problems in DOD. DPPS
    also was to incrementally replace eight contract and vendor systems.
    DFAS awarded a contract in June 1998 for the acquisition of a system
    that was intended to address DOD's contract and vendor pay
    deficiencies. In its assessment of the economic analysis, DOD's Program
    Analysis and Evaluation office questioned the validity of the estimated
    savings and the ability to implement DPPS within the original estimated
    cost and schedule. Despite these concerns, the DOD CIO granted
    permission to continue the project. The original full operational
    capability date of April 2002 slipped to December 2005--a delay of over
    3 years--with the estimated cost almost doubling to $552 million. In
    December 2002, following our discussion with DOD Comptroller officials
    of DPPS cost increases and schedule slippages, the DOD Comptroller
    terminated DPPS.\4\ In making this decision, the DOD Comptroller noted
    that the project was being terminated due to poor program performance
    and increasing costs. At the time the decision was made, DOD had
    invested 7 years of effort and $126 million.
    ---------------------------------------------------------------------------
        \2\ Negative unliquidated obligations occur when recorded
    disbursements exceed recorded obligations, indicating that expenditures
    may exceed amounts obligated,
        \3\ Unmatched disbursements occur when a disbursement cannot be
    matched to an obligation.
        \4\ DOD Business Systems Modernization: Continued Investment in Key
    Accounting Systems Needs to be Justified, GAO-03-465 (Washington, DC:
    March 28, 2003).
    ---------------------------------------------------------------------------
    Defense Standard Disbursing System (DSDS)
        Disbursing activities for DOD are largely accomplished through
    systems that were designed 15-20 years ago. In 1997, DFAS launched DSDS
    to be the single, standard DFAS automated information system for
    collecting, processing, recording, and reporting disbursement data and
    transactions for the military services and defense agencies. These
    disbursing functions are currently being provided by multiple automated
    information systems and manual activities at various DFAS locations.
    For DSDS, an economic analysis was prepared in September 2000. However,
    it had not been updated to reflect material changes in the project. For
    example, the full operational capability date (FOC) \5\ at the time the
    economic analysis was prepared was February 2003. However, according to
    information provided by DFAS, the current FOC date was delayed to
    December 2005--a schedule slippage of almost 3 years.\6\ In December
    2003, the DOD terminated further development of DSDS after an
    investment of approximately $53 million.
    ---------------------------------------------------------------------------
        \5\ The full operational capability date represents the date that a
    system will be operating at all intended locations.
        \6\ DOD Business Systems Modernization: Continued Investment in Key
    Accounting Systems Needs to be Justified, GAO-03-465 (Washington, DC:
    March 28, 2003).
    ---------------------------------------------------------------------------
    Joint Computer Aided Acquisition and Logistics System (JCALS)
        JCALS was established in 1992 to provide the functionality to
    manage, acquire, stock, and distribute inventory to the warfighter. In
    September 2002, the DOD Comptroller directed the Army to stop
    development of JCALS and enter the program in the sustainment mode
    until an updated economic analysis was approved and a determination was
    made to confirm that the program was affordable through the Future
    Years Defense Plan. In May 2003, a DOD contractor reviewed the cost,
    efficiency, and effectiveness of the JCALS program to ascertain whether
    it can provide the intended level of service to the users within
    budget. Overall, the contractor reported that JCALS was an inefficient
    program and it had not been effective in satisfying user requirements.
    Specifically, JCALS was costly to operate, maintain, and develop and
    its key stakeholders were not involved in the making of critical
    decisions. The study, among other things, recommended freezing all
    JCALS software and technology spending and improving overall program
    management. Acting on the results of the study, DOD has placed JCALS in
    sustainment. According to DOD's fiscal year 2004 IT budget submission,
    DOD has invested over $1 billion in JCAL since the inception of the
    program.

    Standard Procurement System (SPS)
        In November 1994, DOD began the SPS program to acquire and deploy a
    single automated system to perform all contract management-related
    functions within DOD's procurement process for all DOD organizations
    and activities. The goal of SPS was to replace 76 existing procurement
    systems with a single Departmental system. DOD estimated that SPS had a
    life cycle cost of approximately $3 billion over a 10-year period.
    According to DOD, SPS was to support about 43,000 users at over 1,000
    sites worldwide and was to interface with key financial management
    functions, such as payment processing. Additionally, SPS was intended
    to replace the contract administration functions currently performed by
    the Mechanization of Contract Administration Services (MOCAS), a system
    implemented in 1968. Our July 2001 report \7\ and February 2002
    testimony \8\ identified weaknesses in the Department's management of
    its investment in SPS. Specifically:
    ---------------------------------------------------------------------------
        \7\ U.S. General Accounting Office, DOD Systems Modernization:
    Continued Investment in the Standard Procurement System Has Not Been
    Justified, GAO-01-682 (Washington, DC: July 31, 2001).
        \8\ U.S. General Accounting Office, DOD's Standard Procurement
    System: Continued Investment Has Yet to Be Justified, GAO-02-392T
    (Washington, DC: Feb. 7, 2002).

             The Department had not economically justified its
            investment in the program because its latest (January 2000)
            analysis of costs and benefits was not credible. Further, this
            analysis showed that the system, as defined, was not a cost-
            beneficial investment.
             The Department had not effectively addressed the
            inherent risks associated with investing in a program as large
            and lengthy as SPS because it had not divided the program into
            incremental investment decisions that coincided with
            incremental releases of system capabilities.
             Although the Department committed to fully
            implementing the system by March 31, 2000, this target date had
            slipped by over 3\1/2\ years to September 30, 2003. In an
            October 2003 briefing to the DOD Comptroller, the SPS Program
            Manager estimated that SPS would be completed in fiscal year
            2006.
             Defense Travel System (DTS). In July 2002,\9\ the DOD
            Inspector General raised concerns that DTS remained a program
            at high risk of not being an effective solution in streamlining
            the DOD travel management process. The report stated that ``The
            Defense Travel System was being substantially developed without
            the requisite requirements, cost, performance, and schedule
            documents and analyses needed as the foundation for assessing
            the effectiveness of the system and its return on investment.''
            The report further noted there was increased risk that the
            $114.8 million, and 6 years of effort already invested will not
            fully realize all goals to reengineer temporary duty travel,
            make better use of IT and provide an integrated travel system.
            Additionally, the DOD Inspector General reported that DTS was
            to cost approximately $491.9 million (approximately 87 percent
            more than the original contract cost of $263.7 million), and
            DOD estimated that deployment will not be completed until
            fiscal year 2006, approximately 4 years behind schedule.
    ---------------------------------------------------------------------------
        \9\ Department of Defense Office of the Inspector General,
    Allegations to the Defense Hotline on the Management of the Defense
    Travel System, D-2002-124 (Arlington, VA: July 1, 2002).

        Dr. Zakheim. As you just heard, I think part of the problem
    is having visibility into what is out there. For instance, just
    in the logistics area alone, we reckon there are about 3,000
    systems that we still have to get our hands around. Well, that
    would already kick the number up from about 2,400 to about
    5,400, more than twice as much.
        What has been happening is that we get requests from the
    Services, from the components, to approve their moving ahead
    with new systems that invariably, we are told, will eliminate
    some others. Then the question becomes: Are these systems just
    optimized for the Service or do they fit within this enterprise
    architecture? That is the key question. Because you know, you
    sub-optimize at the level above the optimal.
        So if it as the commander's level, it is optimal. At the
    admiral's level or the general's level, it is sub-optimal. By
    the time you get to the top, it is chaotic.
        We have eliminated 238 systems. In terms of the systems
    that are a million dollars or above, we have reviewed 60
    systems, and approved 44, because they are consistent with our
    understanding of the architecture. We have essentially thrown
    out 16. For systems under a million dollars, we have reviewed
    53 systems and approved 27, and 26 are still under review.
        But the real key is to get each of these business sectors,
    like logistics or health or installations and environment, to
    be responsible for the modernization of the systems within
    their sector. We have a steering committee that brings the
    heads of all these sectors together. Nevertheless, these
    sector's offices have only just been established.
        So, it is going to take a little time before they are able
    to do what we have pretty much been doing in the financial
    management arena. I still believe, as I said 2 years ago, that
    we can get rid of 90 percent of these systems. That will still
    leave maybe 500 systems. That is a lot. But I think it is do-
    able. The fact that we have got rid of nearly 250 systems, even
    without the system being fully established, where we have all
    these domain owners working together, gives you an indication
    that we are on the right track.
        Senator Ensign. Senator Allard.
        Senator Allard. Mr. Chairman, thank you.
        Secretary Zakheim, I understand that you are retiring and I
    want to wish you well.
        Dr. Zakheim. Thank you.
        Senator Allard. I do have a question that came up last
    November. I hope nobody has asked this question, Mr. Chairman.
    There was a GAO report issued about the Army National Guard
    being mobilized. Out of the 481 guardsman in the case study,
    450 had problems associated with their pay. I wondered how you
    were dealing with this problem and if we were getting this
    issue pretty well resolved within the Department.
        Dr. Zakheim. First of all, of course, DFAS, the finance and
    accounting system, is working with the Army. The problem is
    that the system was set up so that we paid Reserve component
    soldiers for their monthly drills. It was not really set up to
    do what it is doing now, which is to pay tens of thousands of
    Reserve component soldiers who are on extended active duty.
        Should it have taken that into account? In theory, of
    course it should have. Because when someone signs up, he or she
    does not just sign up to do monthly drills. You sign up for the
    potential of being on extended duty. But that is what the
    system was designed to do.
        So, you are starting with a system that was not entirely
    appropriate for the challenge at hand. So, what have we done?
    We are increasing training at the mobilization and
    demobilization sites, at the U.S. property and finance offices,
    and in theaters overseas. We are increasing compliance review.
    We are having staff assistant visits to ensure that whoever is
    processing National Guard pay understands and complies with
    these procedures, that we pay our Guard in a timely fashion. We
    have a new review process for mobilization and demobilization.
        Part of the problem was that when people came home, they
    were not necessarily being paid by the right organization or
    the right place for the right activity. So, we are doing a lot
    in the way of training, a lot in the way of oversight, to deal
    with what seems to have been a systemic problem.
        Senator Allard. The bottom line is that if that GAO study
    was done today, would the results be substantially better?
        Dr. Zakheim. Substantially? I do not know. I would not
    venture to say. Would they be better? Yes. Would we be able to
    point to system improvements? I think the answer is yes.
        Senator Allard. Well, you know and I know it is an
    inconvenience for your Department; but it is an inconvenience
    for these guys to go overseas and serve. They never counted on
    this. It is a inconvenience for the employers; a lot of people
    are being inconvenienced. I think that it is inexcusable for
    them to have to wait any length of time for them to get their
    money. It is something that we need to get resolved.
        Dr. Zakheim. I could not agree more. I do not think it is
    an inconvenience for the Department; it is our responsibility.
        Senator Allard. Yes.
        Dr. Zakheim. We have to fix it; and we are trying to.
        Senator Allard. Well, I hope you can.
        Yes, Mr. Walker?
        Mr. Walker. Senator Allard, I think this is a good example
    of how poor financial management systems have real-life
    consequences on people's lives. This is not just some
    theoretical or arcane kind of issue. The fact of the matter is,
    in the absence of having modern, effective, integrated
    financial management systems, you cannot pay people the right
    amount on time. That will, in time, have very real
    implications, not only with regard to their quality of life
    today and their family situation today, but it could very well
    have very real implications on the ability to attract and
    retain a motivated and qualified force.
        These are not just financial management issues or business
    issues. They have long-range implications, as well as real-life
    implications for our troops and their families.
        Dr. Zakheim. One other thing. May I, Senator?
        Senator Allard. Yes.
        Dr. Zakheim. One other thing. When you get rid of a system,
    you have to have a replacement. That is part of the difficulty.
    I mean, we have a system we are going to bring in called
    forward compatible pay (FCP), which is going to help with a lot
    of this. It is not going to be ready until 2006. Now could it
    be accelerated? The people who are experts tell me that they
    cannot. That is why we are doing a lot more in the way of
    training and just oversight until the system comes into play.
    It is a problem.
        Again, when you talk about 5,000 systems out there, every
    single one of those has some kind of implication. Each time you
    want to get rid of one, you had better have something to
    replace it or else you have nothing at all.
        Senator Allard. Yes. Well, I understand. But I just cannot
    over-emphasize how strong I feel. I do not think I am the only
    one on the committee that feels that our Reserve and Guard
    people are making a lot of sacrifices. We do not want to
    inconvenience them. Their families are making a huge sacrifice.
    So, I think even more so in some regard than what the regular
    enlisted people are, because this is something that was
    unexpected. All of a sudden they feel they are being used in
    their deployment in operation tempos (OPTEMPOs) much higher
    than what they had ever counted on.
        So, I think the whole committee would probably be very
    appreciative if you can get this turned around. So that, if
    there is another GAO study, we are not looking at something
    like this. That is the only thing I can say. I know you are
    doing your best but just to let you know how important it is to
    many of us.
        Dr. Zakheim. We all understand that. I was out in Iraq 3
    weeks ago; and Afghanistan. Better than half the time, it
    seems, I am speaking to a reservist.
        Senator Allard. Yes. Most of the morale over there is
    pretty good.
        Dr. Zakheim. Excellent.
        Senator Allard. I was over last week myself. I think the
    food is pretty good. They are happy about that.
        Dr. Zakheim. We have worked on it.
        Senator Allard. The question is the problem, I think. I
    mean, the paychecks.
        Dr. Zakheim. Yes, I agree.
        Senator Allard. We do need to resolve that, if you would,
    please.
        Mr. Chairman, I think my time has expired. If not, I have
    another question or two.
        Senator Ensign. Senator Levin?
        Senator Levin. Thank you, Mr. Chairman.
        Welcome to both of you. Dr. Zakheim, good luck to you.
        Dr. Zakheim. Thank you.
        Senator Levin. I know, as others have said, you are
    leaving. You have worked hard to improve the systems we are
    talking about today. Hopefully, you will have great success in
    wherever you land.
        Dr. Zakheim. Thank you.
        Senator Levin. A couple years ago, before this
    subcommittee, I think both you, Mr. Walker, and I think it was
    the DODIG, spoke about the auditing issue, whether we put the
    plans in place before we do the auditing and whether it is
    worth it to spend a lot of money on auditing before our
    financial management is reformed. This is what you told us, Mr.
    Walker, and I want to just see if this is still your position:

            ``Previous financial management improvement plans that
            the DOD submitted to Congress have simply been
            compilations of data on the stove-piped approaches to
            financial management improvements received from the
            various DOD components. It is our understanding that
            DOD plans to change its approach and anchor its plans
            in an enterprise system architecture. Given the size,
            complexity, and deeply ingrained nature of the
            financial management problems facing DOD, heroic end-
            of-the-year efforts relied upon by some agencies to
            develop auditable financial statement balances are not
            feasible at DOD. Instead, a sustained focus on the
            underlying problems impeding the development of
            reliable financial data throughout the Department will
            be necessary and is the best course of action.''

        Is that still your position?
        Mr. Walker. I agree with that. They need to get their
    systems and controls in place. Frankly, not only is it not
    possible or appropriate to engage in heroic actions after the
    end of the year, the Secretary of the Treasury, the Director of
    OMB, and I have agreed to accelerate the due dates for
    financial statement audits for the individual agencies and the
    government as a whole. Specifically, in fiscal year 2004, the
    agencies are supposed to report by November 15, which is 45
    days after the end of the year, with audited financial
    statements. The consolidated audit due date will be 75 days
    after the end of year. So, it would be physically impossible to
    engage in the historical type of ``heroic efforts.''
        But yes, I believe it is important we focus on the systems
    and controls to make sure that we get it right and that we need
    to be concerned about cost benefit considerations in allocating
    resources to various activities.
        Senator Levin. Okay. Now, this is what the DODIG said at
    the same hearing along the same lines. ``Due to overall
    resource constraints, it would be impossible to provide audit
    support in the crucial systems improvement area, if we were
    forced to expend resources on labor-intensive efforts to audit
    the convoluted work-arounds and poorly documented transaction
    that currently characterize most major DOD financial
    statements. By rejecting the notion that financial statements
    compiled by special efforts would bypass or override official
    accounting systems are worth their high cost or constitute
    progress, you have reintroduced an appropriate sense of
    proportion.''
        Now, that was the DODIG, which was similar to what you have
    told us here again today, Mr. Walker.
        Here is the question: Dr. Zakheim, when you appeared before
    the committee a couple years ago, you agreed that the
    Department's financial problems had to be attacked at the root
    by developing and fielding new systems. By the way, then the
    Department had a goal: establish an objective of achieving
    financial statements that could be audited by the end of fiscal
    year 2004. The military services were required to draft plans
    for achieving that objective.
        Then the Inspector General came in, reviewed the plans, and
    determined that it would cost billions of dollars and would not
    achieve sustainable results, so the Department dropped that
    objective. Now, the Department has established a goal of
    achieving financial statements that can be audited by the end
    of fiscal year 2007. The military services, however, tell us
    that they cannot have business management systems in place
    before 2012.
        So, you are proposing to increase your audit spending by
    $231 million in fiscal year 2005 and $1 billion over the Future
    Years Defense Program (FYDP). So, would that not lead to
    exactly the same kind of labor-intensive efforts to audit
    convoluted work-arounds and poorly documented transactions, to
    use the IG's words of a couple years ago, that we have been
    warned against? In other words, would we not be better off
    spending the $1 billion that we are talking about on new
    systems to address the underlying problems?
        Dr. Zakheim. The figure that we are requesting was
    developed together with the IG. We have worked together with
    the IG on the principle that we are not asking them to audit
    where bandaids are really what are being put in place. I do not
    challenge the statement you just read, Senator. In fact, in a
    number of cases where certain of the components said that they
    thought they were auditable, the IG took a look and said, ``No,
    we don't think they're ready.''
        2007 is definitely a reach. What I cannot have, and I do
    not think anybody would want, is to allow a kind of rolling
    objective. So, one year we will be told 2009, and as we come
    closer to it, it will be 2010. In fact, this is the first I
    have heard of 2012, because one of the Services came back to us
    and said, no, they could not do it until 2009. I consulted with
    OMB. I consulted with the IG. We made it very clear to them
    that they were supposed to go for 2007. They gave us a list of
    milestones and achievements, literally line by line by in the
    financial statements, when they are going to get things done.
    They did not like having to do it.
        What we need, I believe, Senator, is continued pushing from
    this subcommittee and others to make sure that, in fact, they
    stick with the timetables they have already given us. I am not
    even going to ask you who went and told you this. All I will
    say is it does not do anyone any good, if they come to me and
    my staff and the IG and their staff and OMB and their staff,
    because we work all together on this and say, okay, here is the
    timetable you asked for. Then they go off and say, well, we
    cannot really meet that.
        That means that they are not serious with either you or us.
    I think that we need your help to keep their feet to the fire.
        Senator Levin. Okay. My time is up, but I would like you to
    look at the Navy template. This is for improving their systems,
    not for their statements. But this goes out to fiscal year
    2012/2013, depending on----
        Dr. Zakheim. Systems improvement, Senator, we are going to
    continue to improve our systems even after we have clean
    audits. My concern is that we do not waste taxpayer money on
    coming up with phony clean audits. That is not what we want. We
    want to have the information available that generates the
    audits from the bottom up; 2007 is a goal that the DOD
    components have signed up to, at least one Service quite
    reluctantly. But they have done it.
        They will continue to modernize their systems. We will
    continue to have the oversight. We ask you to oversee us.
        Senator Levin. Well, we will do that even without a
    request. [Laughter]
        Thank you, Mr. Chairman.
        Senator Ensign. Senator McCain.
        Senator McCain. Thank you.
        Mr. Walker, in your written testimony, you report that
    billions of dollars are lost through fraud, waste, and abuse
    resulting from poor financial management within the Department
    of Defense. Can you give us some examples of that?
        Mr. Walker. Well, examples are, as Secretary Zakheim
    mentioned, they have thousands of legacy, non-integrated
    systems. In many cases, you can have a circumstance in which
    DOD has inventory, they just do not know where it is.
    Therefore, they have difficulty in being able to identify it;
    and, therefore, being able to recover it. Or in certain
    circumstances they may have more items in their inventory than
    the system notes. Therefore they continue to order items when
    they do not really need to order items.
        Those would be a couple of examples and those can be big
    ticket numbers.
        Senator McCain. As we know, when defense spending is
    restrained, which some of us think is going to happen within
    the next couple of years, because of pressures of the deficit,
    readiness suffers usually first and then new acquisitions. Do
    you think that we are going to have a tough choice to make when
    we are talking about new aircraft, tactical aircraft?
        Mr. Walker. Senator, I think we are going to have a number
    of tough choices to make in the Defense Department. That is one
    of them, yes.
        Senator McCain. Do you think that we can afford both an F-
    22 and a Joint Strike Fighter?
        Mr. Walker. Well, Senator, what I can tell you is, if you
    look at the difference between what the Services want and what
    the likely funding patterns are going to be, there is a huge
    gap. We have said on the record that we believe that there
    needs to be a new business case done, with a comprehensive
    threat and risk assessment, with regard to the F-22. It is not
    a matter of if we are going to build it. It is a matter of how
    many we are going to build and at what cost and with what
    consequences.
        Senator McCain. Are you concerned about the cost escalation
    of the F-22?
        Mr. Walker. Absolutely.
        Senator McCain. That cost has been roughly?
        Mr. Walker. It is now up over $255 million a copy.
        I can provide that for the record. But it has escalated
    tremendously.
        [The information referred to follows:]

        The average total acquisition unit cost of the F/A-22 is
    approximately $255.9 million. For more information regarding the F/A-22
    program, please contact Allen Li at 202-512-4841 or Michael Hazard at
    937-258-7917, or hazardm@gao.gov.

        Senator, all too frequently what ends up happening, it is
    the plug-and-pray approach. By that, I mean Congress will
    appropriate X amount of money, you divide the cost per copy to
    tell you how many you can buy, and you pray that Congress will
    give you more money.
        But as you properly pointed out, the fact of the matter is
    we are facing real, serious fiscal constrains. It is only a
    matter of time before it is going to hit the Defense
    Department.
        I might also mention, Senator, and then I will stop, if you
    want to ask a follow-up----
        Senator McCain. No. Please.
        Mr. Walker. One of the biggest problems that they have is
    not just the platforms, it is the personnel cost. The personnel
    costs are really rising very dramatically. The health care
    costs are really out of control. The fact of the matter is, one
    of the things I think that Congress needs to consider is that
    while there may be certain aspects of the military that need to
    get more money and are not being compensated adequately, I
    would respectfully suggest that it is not necessarily the same
    at all levels and all Services and all occupations; and that we
    might need to think about a more targeted approach, just as on
    the civilian side as to how we compensate people.
        Senator McCain. For example?
        Mr. Walker. Well, for example, one of the things that is
    being talked about is an across-the-board 3.5 percent
    adjustment for every level, every Service, and every
    occupation. My question is: what is the empirical data for
    that? I have seen surveys, both conducted by GAO, as well as
    some conducted by DOD, saying that the single biggest problem
    they have in attracting and retaining qualified people is the
    OPTEMPO and the quality of life. While there are selected
    compensation problems at certain levels and occupations, there
    is not a pervasive problem in the Services. Health care is
    clearly a major challenge.
        Senator McCain. Well, before we got on to health care, we
    do things like sea pay and hazardous pay, overseas pay, and
    separation allowances. There are a number of things that we
    already do. You are suggesting we do more?
        Mr. Walker. Well, I am suggesting that just as in the
    civilian work force, where we end up having across-the-board
    adjustments that everybody ends up getting it, no matter what
    your level, no matter what your skills are, no matter what your
    location is, no matter what your performance is, we might need
    to think about taking a more targeted approach to allocating
    those resources.
        Senator McCain. Describe the health care problem. Is it the
    expansion of health care for veterans? Is it the overall health
    care costs? Is it eligibility for health care? What are the
    prime sources of this challenge that we face?
        Mr. Walker. It is a multi-dimensional problem, Senator.
        Senator McCain. Dr. Zakheim, I would be glad for you to
    follow up.
        Mr. Walker. In fact, I would hope he would.
        Senator McCain. Go ahead.
        Mr. Walker. Senator, I think it is a multi-dimensional
    problem. First, I think DOD is a sub-set of the health care
    problem that the Federal Government has, which is a sub-set of
    the health care problem our entire nation has. Health care
    spending is growing much faster than inflation, and much faster
    than Gross Domestic Product (GDP) growth. The cost growth is
    driven not just by cost of health care well in excess of
    inflation, but additional utilization and intensity. Congress
    has, over the past several years, expanded health care benefits
    for the military and for their families to the extent of----
        Senator McCain. Including guardsmen and reservists.
        Mr. Walker. That is correct. It has also considered doing
    even more. I think one of the things----
        Senator McCain. These are congressional actions more than
    executive branch actions.
        Mr. Walker. These are congressional actions.
        Senator McCain. They, for once, take the side of the
    executive branch.
        Mr. Walker. Thank you, Senator; and I am not in the
    executive branch. Let the record show I am in the legislative
    branch. I am an Article I person myself. But----
        Senator McCain. Yes. Go ahead.
        Mr. Walker. But I think----
        Senator McCain. I am saying that for Dr. Zakheim's benefit.
        Mr. Walker. Well, I am saying that for my benefit and
    GAO's, quite frankly, Senator.
        Senator McCain. You hope he will take it back, right?
        Mr. Walker. But Senator, I think one point--I testified
    before the House Rules Committee this morning about the budget
    situation. One of the things I think we need to realize is,
    when Congress is debating fiscal proposals, whether it is
    spending or taxes, one of the things that it needs to do is
    think about the long-term cost implications of short-term
    actions; that does not currently get done.
        You stood up on the floor, for example, of the Senate and
    talked about the long-term costs of the Medicare Part D
    benefit. The trustees came out today, $8.1 trillion on a
    discounted present value basis. That is how much money you
    would have to have today invested at Treasury rates to deliver
    on that promise over the next 75 years.
        Similar issues with regard to health care costs for
    military, civilians, or others.
        Senator McCain. I understand that. I would like Dr. Zakheim
    to respond. But I would just very quickly--but when we hear
    about soldiers coming back from Iraq in inadequate facilities,
    we act. We have no other choice. We hear about guardsmen and
    reservists who are on active duty and serving in Iraq or
    Afghanistan and their families are not getting health care.
    Then we react.
        It is hard for any of us to stand up and talk about the
    long-term implications when we are in a war. But I think it is
    very helpful to have your voice out there. I think you have a
    15-year term. Is that----
        Mr. Walker. That is it, Senator. I have 9\1/2\ years left.
    I hope we get a clean opinion on the financials before the end
    of my term.
        Senator McCain. Well, about 6 years from now we will start
    questioning your judgment. [Laughter.]
        But it is very helpful to have your voice warning us of
    these things. But I also hope you understand, and I know you
    do, that we see on the front page of the newspaper soldiers
    coming back wounded from Iraq, who are living in substandard
    conditions at Fort whatever-it-was; I have forgotten now. We
    need your continued voice of caution.
        Yours, too, Dr. Zakheim. Secretary Zakheim, please go
    ahead.
        Dr. Zakheim. Yes. Thank you, Senator. I certainly share Mr.
    Walker's concerns about the defense health program. I just
    wanted really to point out two additional factors that he did
    not mention.
        The first is, as you well know, TRICARE is still a
    relatively new system. The first few years of TRICARE, people
    were not really sure whether this system would work out or not.
    So, they hung on to their own individual health care plans.
    Word of mouth has now spread that TRICARE is a very good system
    and so, we are now seeing more and more people transfer,
    particularly veterans, to TRICARE.
        That means that the original estimated costs of what this
    would--the impact on the defense budget, if I could use that
    term, is likely to be much higher than we originally
    anticipated, precisely because the system is so good.
        Senator McCain. Has there ever been an entitlement program
    whose costs were not more than anticipated in history?
        Dr. Zakheim. I will not argue that point with you, sir.
        The second factor is, when we talk about the Reserves in
    particular, as you well know, when they are on active duty,
    they are covered by the defense health program, TRICARE.
        Senator McCain. I think I might have been speaking of
    Guard.
        Dr. Zakheim. Guard is a little bit different, yes. But
    nevertheless, the question is how far to extend the benefit.
    How many of these folks are really not covered by anything
    else? In other words, are we going to be providing an
    additional subsidy to the people so they can simply buy health
    care more cheaply than they otherwise would in their civilian
    life? Then the question really becomes are we now shortchanging
    the active folks because they do not have that privilege?
        Mr. Walker. Senator, that is a key point, the targeting. If
    you look at how the benefit was expanded, it was available to a
    broad range of people. Many of these people already had private
    health insurance through their employer. Since there is a huge
    subsidy available through the TRICARE program, then you are
    going to get adverse selection. If the program is good and you
    can end up getting it at a small fraction of the cost of what
    you pay for your employer-provided coverage, then they are
    going to end up dumping their employer-provided coverage, and
    they are going to go with TRICARE.
        Senator McCain. Well, I think obviously this is an issue we
    need to pursue a lot more, because of the unintended
    consequences, as well as intended. I thank you.
        Secretary Zakheim, I wish you every success in your future
    endeavors. Thank you for your service.
        Dr. Zakheim. Thank you, Senator.
        Senator Ensign. I want to follow up. Secretary Zakheim, you
    had talked about the 5000 systems.
        Senator McCain. Mr. Chairman, may I submit my questions? I
    have to leave.
        Senator Ensign. Yes, indeed.
        Senator McCain. Secretary Zakheim, if you would, provide to
    the committee the Service's plans to meet that 2007 deadline
    for clean financial statements. Could you provide that----
        Dr. Zakheim. Certainly, sir.
        [The information referred to follows:]

        Response retained in committee files.

        Senator McCain. Thank you.
        Sorry to interrupt you.
        Senator Ensign. No problem.
        The 5,000 total systems that you all talked about; and I
    believe you said about 90 percent of them you believe can be
    done away with and replaced. There could be some huge cost
    savings. Do you have just a gut-level feeling? I am not going
    to hold you to the numbers. Obviously, you are not going to be
    here anyway. But do you have any just gut-level, are we talking
    billions of dollars, though?
        Dr. Zakheim. My guess is probably. I cannot give you the
    foggiest notion of what it will total to, in part because some
    of these systems are smaller than others. The ones that we have
    the least visibility into, the ones below the radar screen, are
    likely to be the smaller ones, are likely to be the less
    expensive ones. Logic points in that direction.
        But clearly, you are talking about efficiencies. I think,
    though, the real issue is not so much the savings, which there
    will be. The real issue is the visibility. I do not know how
    one can continue to make decisions, quick decisions, money
    management and cash flow decisions, in the middle of a year
    with a $400 billion budget, without that kind of visibility.
        I mean, we have always been geared, and rightly so, to
    having all our figures essentially responding to the demands of
    Congress that we provide budgets. So, everything is in terms of
    budgets. But budgets are just estimates. I mean, I have been on
    the soap box for the last 2 years saying I need more transfer
    authority, simply because right now I only have three-quarters
    of a percent to manage within a $400 billion budget. It is all
    the same thing. It is a question of visibility. It is a
    question of how you move your monies. It is a question of how
    you make your choices.
        So yes, I believe there will be savings. But more
    important, I think we are going to have better, more efficient
    management.
        Senator Ensign. I have a follow-up question. But Mr.
    Walker, you wanted to respond.
        Mr. Walker. Billions. On the business side, the DOD spends
    right now about $19 billion a year just on management
    information systems, and another $10 billion plus a year on
    warfighting information systems. Of the $19 billion, about $14
    billion is for current legacy systems and about $5 billion is
    for modernization. But sometimes you have to spend money up
    front to save money down the road and that is part of the
    issue.
        Senator Ensign. I just want to kind of paint a picture
    here, so I get what you are recommending, Mr. Secretary. I will
    just start with a quick anecdote. When I was first running for
    office in my State, and I met with the person in charge of the
    welfare systems in the State of Nevada, she told me that within
    6 months, they were going to have this new computer system to
    help manage everything. It was a proprietary system, and it was
    going to cost, oh, I forget how many million dollars that it
    was going to cost.
        That computer system came on-line last year, 10 years
    later, and at a cost of about, I think it was, six to seven
    times more than the original cost, because it was a proprietary
    system. The first year that it was in place, as I recall, the
    State of Nevada, because the system did not work very well,
    became subject to some of the penalties under the Welfare
    Reform Law.
        The bottom line was that proprietary system. When the
    systems themselves are centralized, and not the architecture,
    not basically the oversight, I can see a need for centralizing.
    But I am hoping that you are not calling for a centralizing of
    the system, you are calling for a centralizing of the
    oversight. As long as things are compatible with the
    architecture, and as much as possible, that it would be off-
    the-shelf-type of systems, whether they are financial or
    otherwise.
        Could you just kind of give me a picture of what you are
    looking at?
        Dr. Zakheim. That is absolutely right. I mean, the thing
    that has to be central is the architecture. Everything has to
    be compatible. When I say 90 percent, again, as I said, we are
    still talking about 500 systems. Maybe it will be 80 percent.
    Maybe it will be 1,000 systems.
        The point is, first, we will know what systems we use.
    Second, they will all interact. Right now, we do not know all
    the systems we have; and by definition, they do not interact.
        Now obviously, if you build the great computer HAL or
    something, you are going up the wrong path. That is not what we
    are talking about here. What we are talking about is nicking
    down the number of systems, having the visibility and the
    compatibility amongst them so that we can make decisions. What
    is central is the architecture. That is absolutely right.
        Senator Ensign. Well, I appreciate the time lines. Dr.
    Zakheim, Secretary Zakheim, what you said concerning not having
    goals, that maybe they are unrealistic goals. First of all,
    coming--I have had a lot more experience in a private sector, I
    realize we are dealing with probably one of the best
    performing, most inefficient bureaucracies in the entire
    government. I realize the challenges are much greater than a
    private sector system. But coming from the private sector, it
    seems to me that these goals seem even way too far out. It
    almost boggles my mind that those goals that people are saying
    are unrealistic.
        I guess that tells us the enormity of the challenge that is
    before us. I appreciate, Mr. Walker, what you said about how
    you have to spend money sometimes to save money, especially
    when you are looking at long-term costs. A lot of this is long-
    term. If we spend more money up front, do we save more money in
    the long run, if I may be so bold?
        Dr. Zakheim. First of all, to deal with the first part of
    your question, one of the things we did when we were initiating
    how we were going to approach this enterprise architecture is
    go around to private industry, see what they had done. The one
    that keeps sticking in my mind is Gillette, a $9 billion
    company at the time. It took them 5 years.
        Here we are $400 billion, revenues from Congress, as it
    were. Now by that measure, it would take us 1,000 years. So
    obviously that does not work. On the other hand, we saw that
    even companies that had done this, and there were some that
    were still working the problem, some that thought they had
    finished and really had not finished. We even went to the
    British Ministry of Defense, who thought they had finished and
    were still improving, that it was going to take longer.
        So, what we had to do was balance the desire to get this
    thing done with the reality that this is just a huge operation.
    Now clearly, on the one hand, we were unrealistic when we
    testified 2 years ago and said this thing can be done in 2004.
    At the same time, I do not want people saying, well, let us
    kick it off until 2010.
        2007 seems to me to be a reach but not an unreasonable
    reach, sort of like a kid who applies to a college that you
    just might make it but it is a reach. It is that idea. We want
    to push as hard as we can.
        If we spent more money, frankly, one has to be judicious
    about that, too. We are asking again for something over $100
    million, in addition to what we are asking for the IG's audit
    capability. But frankly, I do not think that if we doubled the
    request, we would halve the time.
        Senator Ensign. Thank you. Yes, Mr. Walker?
        Mr. Walker. Mr. Chairman, I think----
        Senator Ensign. Mr. Walker and then Senator Akaka is next.
        Mr. Walker. I think you need a detailed project plan, which
    obviously has a lot of other interim milestones. I hate to use
    a sports analogy, but I will. You have to hit some doubles and
    singles. You have to make sure that you are building towards
    the ultimate objective and that each of the key milestones are
    generating a positive return on investment.
        I do think that Congress is going to need to very closely
    monitor how progress is being made, all the more reason for
    more frequent oversight hearings, and to determine an
    appropriate resource allocation on building the systems,
    enhancing the controls, versus the audit side. Because I think
    it is going to take the periodic and ongoing monitoring to make
    sure you get that right.
        Dr. Zakheim. Perhaps I was not clear, if I may add. In the
    plans that we have from the Services, from the various
    components, to get to 2007, we have intermediate milestones.
    That is why, I think, as David Walker just said, it is so
    important that we do a check on those.
        Senator Ensign. Well, here is how this subcommittee can
    partner with you. First of all, we will have more frequent
    oversight hearings. That is a commitment from the chairman. But
    also, if we can get a fairly detailed plan from you that we can
    help you in holding your feet to the fire and the various
    branches' feet to the fire, as well.
        Dr. Zakheim. We have those and we will get them to you for
    the record.
        [The information referred to follows:]

        Response retained in committee files.

        Senator Ensign. Senator Akaka.
        Senator Akaka. Thank you very much, Mr. Chairman.
        When I think back about the reports that we have received
    from you in 1999 and also in 2001, how high risk this financial
    management is with DOD, it makes it very important that we
    really bear down on this. As I mentioned earlier, I thank you
    for your efforts in doing this and to detail some of the
    challenges that we are facing.
        One of them that you mentioned and that was mentioned here,
    Mr. Walker, was the reform of human capital practices. You
    prepared a statement that included a discussion of the
    implementation of new civilian personnel system authorized by
    last year's Defense bill. You say that in your view, DOD does
    not yet have the necessary institutional infrastructure in
    place to support an effective human capital transformation
    effort.
        What in your view, Mr. Walker, is the likely consequence of
    implementing a new civilian personnel system of the kind
    envisioned by the Department without putting the necessary
    institutional infrastructure in place? Are you aware of any
    specific DOD plan or time line for addressing the three
    elements of an effective infrastructure outlined in your
    testimony? In the absence of such a plan or time line, what is
    the likelihood that the Department will have the needed
    infrastructure in place when they implement the new National
    Security Personnel System next fall?
        Mr. Walker. Well, first, Senator, let me say that I think
    the risk is that if the DOD does not go about this in the
    proper manner, if it does not have an adequate infrastructure
    in place, if it does not end up having appropriate safeguards,
    then there is a chance that they will get it wrong. If they get
    it wrong, not only does that have adverse consequences for the
    Department of Defense and its employees, it potentially has
    adverse consequences for the entire Federal Government, because
    it could undercut momentum for much needed modernization of our
    human capital policies and practices.
        I will say that last week I sat down the Secretary of the
    Navy, Gordon England, who Secretary Rumsfeld has tasked to
    provide some additional executive oversight as a supplement to,
    not a substitute for, Under Secretary Chu, who is Under
    Secretary for Manpower, et cetera. In my conversations with
    Secretary England, he made it very clear that they were not
    going to rush to try to hit the maximum numbers that were
    provided for in the statute, that he agreed very much with a
    lot of the recommendations that we had made, and that it is
    important that you get it right rather than get it quick.
        Yes, you want to move expeditiously but you need to make
    sure that you have adequate systems and safeguards in place.
    Under the statute, DOD would be allowed to implement the new
    system for up to 300,000 people by October 1, 2004. There is no
    way that they can realistically do that. I think Secretary
    England knows that now. He is now going back to try to work
    with Under Secretary Chu and others to come up with a plan that
    will ultimately get them to where they need to be within a
    realistic time frame and also implementing it on an installment
    basis.
        I think that is the way you have to do it. That is the way
    we did it at GAO and I am encouraged by his comments.
        Dr. Zakheim. Senator, I just would like to add that both
    Secretary England and my colleague, Under Secretary Chu, are
    working with the Office of Personnel Management (OPM) on this.
    They also have the experience and the benefit of a number of
    pilot projects that we already had in this regard, so that we
    are not working off a clean slate. With the kind of high-level
    fire power we have behind us, I am optimistic that we can make
    the kinds of changes that Congress legislated.
        Mr. Walker. Senator, I would agree, except for the fact
    that, as I have already testified on the record, that while
    there were some demonstration projects within the Department of
    Defense, they represented less than 5 percent of the DOD's work
    force. In addition, they were not representative of the balance
    of DOD's work force.
        But that being said, I am very encouraged by the meeting
    that I had last week with Secretary England. We had a number of
    GAO experts on human capital, both externally and internally,
    go over and meet with a lot of DOD personnel this week. We are
    going to try to play a constructive role, because I think it is
    in DOD's interest. It is in the Federal Government's interest.
    It is in the country's interest.
        Senator Akaka. Mr. Walker, you stated in your testimony
    that as DOD develops regulations to implement its new civilian
    personnel system, the Department needs to ensure the active
    involvement of OPM, ensure the involvement of civilian
    employees and unions, and use a phased approach to allow for
    appropriate adjustments and mid-course corrections.
        Are you currently reviewing the Department's efforts to
    implement its new National Security Personnel System? Do you
    know to what extent the Department is addressing these three
    issues? If not, will you review the implementation on our
    behalf and report to us on the Department's progress in
    developing the necessary institutional infrastructure in
    addressing the issues raised in your testimony?
        Mr. Walker. Senator, we do plan to monitor the design and
    implementation of the National Security Personnel System on an
    ongoing basis. After I met with Secretary England last week, it
    is my understanding that he has a team pulled together to try
    to come up with a proposed project plan within the next several
    weeks. I think that will be very informative as to how they
    plan to proceed from here. So, we will keep this subcommittee,
    as well as other committees and subcommittees in Congress,
    apprised.
        Senator Akaka. Thank you.
        Mr. Chairman, my time has expired. But let me wish
    Secretary Zakheim well in your future plans.
        Dr. Zakheim. Thank you.
        Senator Ensign. Senator Allard.
        Senator Allard. Thank you, Mr. Chairman. I just have one
    more issue that basically I want to cover. I do not think I
    will require my full amount of time.
        But Dr. Zakheim, the last few years this committee has been
    responding to some media reports on abuse of credit cards that
    personnel in the Defense Department were using. As a result of
    that, they have inserted some provisions in previous bills
    about disciplinary actions when those cards are abused. This is
    my question: how successful has the Department been in
    enforcing these provisions? Have they approved accountability
    among their users?
        Dr. Zakheim. The answer is yes, we have been quite
    successful. As you may recall, when this thing really blew up
    in a big way, I put together a task force that came up, not
    just with an analysis of what went wrong but with real
    proposals as to what to do. We have been measuring our success.
        For example, in the first quarter of this fiscal year 2004,
    we canceled 68,000 cards. We canceled 490,000 cards in fiscal
    year 2003 for non-use. Too many cards floating around, and
    people not using them. We canceled 3,000 cards in the first
    quarter of this year and 9,000 cards in fiscal year 2003
    because of retirements. People were retiring and held onto
    their cards. We canceled those.
        We have implemented what is called mandatory split
    disbursement for military personnel. That is to say, if you are
    at a hotel, we pay that hotel. We do not pay you. It eliminates
    a lot of problems that way. We also have salary offsets for
    both military and civilian personnel. We can take money back,
    if there has been some kind of irregularity.
        Delinquencies, 1.7 percent of our total card holders were
    delinquent in February. That was on 18,000 accounts, on $10.4
    million. That is quite a drop from the past.
        So, whether you are looking at delinquencies, whether you
    are looking at the number of card holders, at the kinds of card
    holders--also, by the way, some of the things that have
    appeared in the press when people have been prosecuted, that is
    due to our data mining techniques. One of the things that we
    encourage, and we actually implemented, was checking in and
    finding patterns. For obvious reasons, I do not want to get
    into too much detail about that.
        Senator Allard. Sure.
        Dr. Zakheim. But we have been able to catch folks and catch
    them with much more regularity. When potential fraudulent-type
    people realize that we are going to catch them, because others
    have been caught, that is a tremendous deterrent.
        We have had help from Congress on this, as you well know,
    Senator. I believe we have made tremendous progress here. Now
    as far as I am concerned, one card abused is one card too many.
    But we are working the numbers down.
        Senator Allard. I guess the follow-up question is, is there
    anything else we can do to help you continue keeping this
    accountability? Is there something that we can include in
    legislation this year, we have not had in the past, that would
    help you in that regard?
        Dr. Zakheim. Right now I cannot think of anything off hand.
    On the other hand, with a little bit of time, I probably could.
    So, I will get you some for the record.
        Senator Allard. Well, if you think of something, please let
    us know.
        Dr. Zakheim. Absolutely. We will get you some things for
    the record.
        [The information referred to follows:]

        Section 1009b of the National Defense Authorization Act for Fiscal
    Year 2004 established the requirement to evaluate an individual's
    credit worthiness prior to issuing a travel card and prohibits issuance
    if an individual is found to be not creditworthy. Similar requirements
    have been included in the Defense Appropriation Acts in fiscal year
    2003 and fiscal year 2004. The creditworthiness requirement presents a
    conflict in enforcing the mandatory use provisions of the Travel and
    Transportation Reform Act. The creditworthiness requirement in section
    1009b did not provide the authority to conduct a credit check without
    the individual's consent. Therefore, an individual could avoid
    mandatory use of the card simply by not consenting to a credit check.
    This poses a potential problem to the Department in that historically
    20 percent of applicants decline a credit check and receive a
    restricted card, limited to a credit line of $2,000. The Department has
    already implemented a minimum cut score for military personnel below
    which no card is issued and has initiated its bargaining unit
    obligations to apply the same score to civilian applicants. However, we
    can implement the cut off score until bargaining obligations are met
    which is a lengthy process to negotiate separately with approximately
    1400 bargaining units. Compounding the problem is that there is no
    contractual mechanism to provide credit checks on centrally billed
    travel cards and some suggestions that the banks may not be able to
    perform credit checks because those accounts are issued to the
    government and not the individual. Therefore the Department would have
    to establish an administrative structure to identify and have credit
    checks conducted on individuals assigned to centrally billed accounts.
    Prepaid cards have not been widely implemented because they do not
    provide the same administrative savings that the travel card provides.
        In the meantime the Department has been working to establish a
    self-certification form that would ask the individual to attest to
    their current financial circumstances with penalties for providing
    false information. While the Department would prefer not to rely on
    self-certification, we do not want to lose the administrative savings
    provided through use of the travel card that could result from large
    numbers of individuals declining a credit check in order to avoid use
    of the card or assignment of duties related to centrally billed travel
    cards. Since providing the Department the authority to conduct credit
    check without individual consent would require a change to the Fair
    Credit Reporting Act, we would suggest the following change to section
    1009b:

        (1) The Secretary of Defense shall evaluate the creditworthiness of
    an employee of the Department of Defense or a member of the Armed
    Forces before issuing a Defense travel card to such an employee or
    member. The evaluation may include an examination of the individual's
    credit history in available credit records. The Secretary will
    establish a minimum credit score below which no card will be issued to
    the individual. Individuals who decline to consent to a credit check
    will only be issued a travel card with restricted limits or a prepaid
    card.
        (2) In circumstances where a credit check is not available, such as
    where an individual does not provide consent to the credit check as
    required by law, or is assigned responsibilities related to a centrally
    billed account, the Secretary may develop and use an alternate approach
    to evaluating the creditworthiness of the individual.

        Senator Allard. Yes. Because I was one that was in favor at
    one time just taking the cards away from them if they are going
    to abuse them. I think you have done that on those that are not
    using their cards and those who are retired. I think that is
    responsible action, and I commend you for it. But there is a
    savings that goes with the use of cards, apparently----
        Dr. Zakheim. Yes, there is.
        Senator Allard.--that is pretty substantial. I guess you
    concur that there is a savings. So, I guess whenever we can
    save taxpayer dollars, we want to do that, too.
        Dr. Zakheim. Well, that is true. Otherwise----
        Senator Allard. But we just need to reach a proper balance
    here so we can take out the abuse.
        Dr. Zakheim. Right.
        Senator Allard. If you come up with any ideas, well, please
    let us know.
        Dr. Zakheim. We will do that for the record. You are
    absolutely right, Senator. Otherwise, you would have to start
    up disbursing offices again. That is really quite expensive,
    both in terms of money and in terms of personnel.
        Senator Ensign. Good comment, Senator.
        Just both of you, I want to thank you both. It has been, I
    think, a terrific hearing. If we had more people, I think, like
    yourselves that wanted to solve problems throughout our
    government and working together--I just want to compliment the
    work that you all are doing and to stay with it. Especially
    Secretary Zakheim, because you will not be here, we wish you
    the best. But we have to figure out how to continue until we
    get somebody maybe that is going to be there a long period of
    time. The appointment-type process. In the meantime with you
    changing jobs, regardless of which administration comes in, we
    cannot afford to let the ball drop on this.
        So I appreciate your commitment and what you have done. Mr.
    Walker, and you also, for the great work that you all have done
    at GAO. Just keep up the good work. Thank you very much.
        Dr. Zakheim. Thank you.
        Mr. Walker. Thank you.
        Senator Ensign. Hearing adjourned.
        [Questions for the record with answers supplied follow:]

                   Questions Submitted by Senator John McCain

                              LEASING REVIEW PANEL

        1. Senator McCain. Dr. Zakheim, in December 2001, you and Secretary
    Aldridge established by memorandum the Department of Defense (DOD)
    Leasing Review Panel. Did the leasing review panel recommend favorably
    the Boeing 767 tanker lease? Please explain fully.
        Dr. Zakheim. The Leasing Review Panel never formally approved the
    767 lease. As the co-chair of the panel, I believe that leasing has
    several potential benefits to the Department and provides greater
    flexibility in dealing with changing requirements. I believe that the
    use of multiyear leases as a means of acquiring capital assets is valid
    where it makes good business sense. In the case of the 767 tanker
    lease, the leasing review panel provided direction to the Air Force on
    the negotiations of a lease arrangement, but never approved the Boeing
    767 tanker lease.

        2. Senator McCain. Dr. Zakheim, are there other leases that are
    being considered by this panel? Please list all programs by Service and
    the disposition of each.
        Dr. Zakheim. At the present time, there are no other leases being
    considered by the Leasing Review Panel. Prior to the review of the 767
    tanker lease, the panel approved the multiyear lease of four 737
    aircraft in June 2002.
                                     ______

                  Questions Submitted by Senator Jeff Sessions

                       PRIVACY PROTECTION ON TRAVEL CARDS

        3. Senator Sessions. Dr. Zakheim, I understand that your agency is
    aggressively pursing the travel card program consistent with provisions
    in the 1998 Travel and Transportation Reform Act (TTRA), which I
    supported. Recently, it has come to my attention that one of my
    constituents has been having difficulty in obtaining assurances that
    his privacy data is being protected if and when he participates in the
    program. Mr. Gene Lenning works for the Missile Defense Agency in
    Huntsville, and his case was featured in the headlines of yesterday's
    (March 22, 2004) Federal Times (see attached). My office has also sent
    a letter to Secretary Rumsfeld recently on this issue as well and I am
    sure he is working on this case. From your perspective as comptroller,
    could you address for the committee if the benefits that we anticipated
    when we passed the TTRA, and from the travel card program are being
    realized. Are there savings accruing to the Department and please
    characterize the magnitude of efficiencies resulting from process
    improvements you have seen from this program?

          ARMY CIVILIAN REASSIGNED JOB OVER REFUSAL TO GET TRAVEL CARD

    Federal Times
    Published: March 22, 2004--By Stephen Losey
        Come April, Gene Lenning will have a new job for the first time in
    14 years. But not by his choice.
        Lenning enjoys his work as a chief engineer at the Missile Defense
    Agency''s ground-based interceptor project in Huntsville, AL, and wants
    to stay. He says the quality of his work is not an issue. In fact, he
    said, half an hour after he found out about the move, Lenning received
    a $2,000 cash award for outstanding performance.
        Lenning says he is being moved to the Space and Missile Defense
    Command also in Huntsville--and off the ground-based interceptor
    project--because he refuses to sign up for a government travel card.
        Lenning has two objections to the travel card: First, he said,
    using a travel card puts him at risk of identity theft. He does not
    want to give his Social Security number to Bank of America, which
    provides travel cards for Defense Department employees. Lenning is
    concerned that the bank could sell his Social Security number to
    another party.
        Lenning has a personal credit card with another company, but he
    said that bank will withhold his information if he asks. He said Bank
    of America's travel card does not have that option.
        Second, Lenning said, waiting for Defense to reimburse him and the
    bank for charges on a card under his name puts his credit rating at
    risk. If Defense is late repaying Bank of America, Lenning said, the
    bank could turn his account over to a collection agency or credit
    agency, which will hurt his credit.
        Under a system called split disbursement, Defense divides money it
    pays for travel expenses. Out-of-pocket expenses are paid to the
    traveler, and payments for card charges go directly to Bank of America.
        Under the 1998 Travel and Transportation Reform Act, frequent
    Defense travelers are required to use government-issued credit cards
    for travel expenses. The Defense Department says it can better manage
    finances with the cards.
        But Lenning said the Missile Defense Agency has not addressed any
    of his concerns since he first learned in 2000 that he was expected to
    get a travel card. At that time, he asked the government if it would
    provide him with legal and other support in the event his identity was
    stolen after receiving a travel card. The Pentagon said no.
        He applied for a travel card in 2000 using his payroll
    identification number, but was turned down. The regulations at the time
    allowed people with pending card applications to charge trips to their
    offices, and Lenning took advantage of that option. He used his
    office's account to Reserve trips through an online booking system
    called the Internet Redstone Arsenal Travel System (IRATS). But an
    August 2003 revision to Defense's financial management regulations
    closed that loophole.
        In November, Lenning's travel office canceled his planned trip to
    Tucson, Arizona, and told him he would have to book his travel on his
    own, without using the online booking system. He would no longer be
    able to use his office's account to book trips online.
        Lenning rebooked his canceled Tucson trip on his own. That was the
    last time he would travel for the agency. On January 6, his superiors
    told him not to book trips on his own, he said.
        The Missile Defense Agency did not allow Lenning to book trips on
    IRATS because he didn't have a card, and said he could not book trips
    himself. Lenning was out of options, and his superiors told him he
    could no longer travel. Because travel is a necessary part of his job,
    his bosses said, he would not be able to remain there.
        Army Lt. Col. Kyle Haase, Lenning's boss, declined to comment when
    reached on March 9. Haase is program manager for the Missile Defense
    Agency's ground-based interceptor's kill vehicle project, part of a
    multibillion-dollar defense against intercontinental ballistic
    missiles. The kill vehicle is the part of the interceptor that tracks
    and destroys an incoming nuclear missile.
        Lenning said the travel problems have disrupted his job. The latest
    problem was that, because Lenning could not travel, he was forced to
    miss an important March 9 meeting in Tucson to review designs for the
    project.
        ``It's really something I should be participating in,'' Lenning
    said.
        Lenning is chief engineer for the kill vehicle project and oversees
    22 engineers.
        Lenning said the Missile Defense Agency never told him why he could
    not book his travel on his own. He does not automatically object to
    travel cards; he just says they are not right for him.
        ``I'm not opposed to the card,'' Lenning said. ``On the other hand,
    I don't understand why they need it. Why they're pushing so hard, I
    don't know.''
        Lenning said Defense officials have given him reasons travel cards
    are needed, but he says the reasons do not apply to him. Defense says
    the cards improve DOD cash management, reduce administrative workloads
    and improve service to travelers.
        ``The cards are mainly for the government to control [cash]
    advances,'' Lenning said. He said he has received cash advances three
    times during his 35 years of government service, and never in his
    current job.
        Before Lenning was banned from traveling, he took about 25 trips
    each year.
        Lenning was told March 3 that in about 4 weeks, he will be
    transferred to a similar job at the Space and Missile Defense Command
    in Huntsville.
        The new job will pay the same salary and benefits and is not a
    demotion, Lenning said. But he still does not want to leave his job and
    the relationships he has with his co-workers and bosses.
        ``I've been with the program for 15 years,'' Lenning said. ``I
    would like to see it to deployment.''
        That is why he has not yet retired. But the prospect of moving--and
    not knowing what his new job would be--has Lenning thinking about
    retirement.
        ``I'm much closer to the door now,'' Lenning said. ``I'm old enough
    [that] I'm not looking for a new activity.''
        Lenning is not sure what his next step will be. He is considering a
    legal challenge and talking about his problem with the American
    Federation of Government Employees.
        AFGE representative Garry Freeman said at least four Army employees
    in Huntsville object to applying for the cards. Some have sought
    changes with Bank of America to the terms of the travel card, and some
    cut back on their travel. Lenning is the only employee Freeman knows of
    who is losing his job because of his refusal to get a travel card.
        A systems engineer at the Space and Missile Defense Command said
    his career has ground to a halt because of his objections to the travel
    card. The engineer, a GS-14 who asked to have his name withheld for
    fear of reprisal, applied for a card in November 2000, but he tried to
    change the terms of the Bank of America travel card contract that he
    did not like. For example, he said, the Defense Department should not
    be able to garnish cardholders' wages to settle unpaid bills without a
    court order. His application was refused.
        Before he applied for the card, the engineer traveled at least once
    a month. Since then, he has traveled only once. The engineer said his
    superiors assign him less work because he cannot travel, and as a
    result, he cannot get promoted.
        Bryan Hubbard, a spokesman for the Defense Finance and Accounting
    Service, said the Pentagon does not know how many employees refuse to
    apply for a travel card. That issue is handled locally and is not
    reported to the National office, he said.
        Hubbard said Bank of America is required under contract to keep
    Defense employees' personal information safe.
        According to the Postal Inspection Service, identity theft cost
    almost 10 million Americans about $5.5 billion in 2003.

        Dr. Zakheim. The concerns relating to privacy protections on the
    government travel card are addressed in the response to question #4
    which follows.
        With respect to benefits and savings realized through the passage
    and implementation of the Travel and Transportation Reform Act (TTRA),
    we can not provide specific dollar amounts. The intent of the TTRA was
    to provide a more automated and efficient method for providing the
    funds required to meet the Department's travel requirements. The travel
    card accomplishes that. The travel card is a far more efficient means
    of funding travel requirements than issuing cash advances, even with
    electronic funds transfers. The average fee on ATM transactions is
    approximately $3.50 compared to an administrative cost of approximately
    $32.00 to process a travel advance (based on fiscal year 2004 rates
    charged by the Defense Finance and Accounting Service). One of Mr.
    Lenning's objections to the travel card was that he would not request a
    travel advance and thus it would not cost the Department anything to
    allow him to use his personal card. While that may be true for Mr.
    Lenning, it is unlikely that the majority of the 1.1 million current
    Department of Defense travel card holders, who travel more than twice
    per year, would be equally willing to fund their own travel
    requirements without receiving a travel advance. Furthermore, the
    Department, as well as other government agencies, receives discounted
    airfares through the General Service Administration city pair contracts
    with the airlines. The government travel card is the required
    instrument to obtain those discounts. Since the discount varies by
    carrier and location, we do not have annual savings resulting from city
    pair usage. Prior year estimates of savings by GSA were as much as $2
    billion annually of which it is reasonable to assume the Department of
    Defense accounts for roughly half given that the Department's travel
    card spend is slightly more than half of the total government spend.
    While city pair discounts may also be accessed through a centrally
    billed travel card, those cards are government liability instruments
    that require additional administrative work to reconcile and pay the
    balances due in a timely manner. Centrally billed accounts are a
    valuable tool to the Department to obtain access to the city pair
    discounts but are not the more efficient solution to providing travel
    funds for all other official expenses the traveler may incur.

        4. Senator Sessions. Dr. Zakheim, I ask for your thoughts on the
    assurances in place for the protection of privacy data, such as our
    employees social security and financial information? Can you, along
    with Secretary Rumsfeld, ensure that Mr. Lenning at MDA receives
    assistance and answers to his questions as soon as possible?
        Dr. Zakheim. Your letter to Secretary Rumsfeld was assigned to the
    Defense Finance and Accounting Service for immediate response given
    that organization's assigned responsibilities for program management of
    the travel card program. A response was mailed to your office on April
    9, 2004. That response explained that the General Service
    Administration's SmartPay master contract contains a restriction
    against selling, sharing, or releasing information for any purpose
    other than those described in the contract to any third party. In
    addition, Bank of America uses the same identity theft process to
    monitor transactions for suspicious transactions that it uses on its
    commercial cards. Just as with a consumer card, the individual would be
    asked to confirm the validity of transactions that were flagged for
    further review.
        Social Security numbers are required by the bank in order to issue
    a card under provisions of the USA Patriot Act. We also match split
    disbursement of payments to the Bank of America to the individual's
    travel card account by their Social Security number.
        All credit cards are vulnerable to being lost or stolen which could
    lead to identity theft. Use of a personal credit card instead of a
    government credit card would provide no additional protection while
    depriving the government of the administrative savings resulting from
    use of the government credit card.
                                     ______

                 Questions Submitted by Senator James M. Talent

                   BUSINESS MANAGEMENT MODERNIZATION PROGRAM

        5. Senator Talent. Dr. Zakheim, your March 15, 2004, Business
    Management Modernization Program (BMMP) Annual Report to Congress
    indicated that the DOD is committed to transform business operations so
    that accurate and timely business information is regularly available to
    support decisionmaking at all levels in the Department. The report
    states that the first of three parts of the BMMP transformation is
    further development planning for processes and modeling for the
    business enterprise architecture and estimating the total cost of the
    business transformation enterprise wide. This phase is not targeted to
    be completed until quarter 1 of fiscal year 2007. With this in mind,
    what near-term steps are currently being undertaken by DOD to take
    advantage of the innovative solutions provided by small businesses that
    can be in operation in 6 months, that parallel ongoing modernization
    efforts and accelerate the infusion of new processes, enhanced
    security, and technology upgrades at costs of less than 1 percent of
    Defense Finance and Accounting Service (DFAS) fiscal year 2004
    technology investment?
        Dr. Zakheim.  DOD encourages small business participation in
    ongoing modernization efforts through existing small business set
    asides and small business utilization offices at the Service and
    component level. DOD will continue to seek small business participation
    as solutions are implemented by the Services and components. The
    Department is currently assessing opportunities to competitively
    acquire additional support for the BMMP and will give small businesses
    every opportunity to participate.

        6. Senator Talent. Dr. Zakheim, recent General Accounting Office
    (GAO) reports and the December 23, 2003, DOD Inspector General (DODIG)
    report found numerous and serious payment problems for active and
    Reserve military personnel. All have made recommendations on the need
    for new processes and technology applications to revamp DOD financial
    management systems. I am concerned that after more than 2 years of
    study and the expenditure of more than $2 billion, DFAS efforts are
    still in the planning stage. Knowing this, what innovative processes
    are currently available to you as near-term solution at relatively low
    cost that can be implemented over the next several months?
        Dr. Zakheim. DOD has established a long-term plan for the
    management of military personnel and pay that resolves problems
    currently affecting service members. The Defense Integrated Military
    Human Resource System (Personnel and Pay) (DIMHRS (Pers/Pay)) program,
    under the sponsorship of the Under Secretary of Defense, Personnel and
    Readiness, has established a requirements baseline and has acquired a
    developer/implementer contractor to support development of DIMHRS. The
    DIMHRS program manager is currently reviewing the schedule to determine
    the feasibility of accelerating the deployment of the system.
        Due to the complexity and scope of delivering an integrated
    personnel and pay system for all military services, DOD has approved
    the DFAS strategy for a near term replacement of the Defense Joint
    Military Pay System (DIMS), the current legacy military pay system, to
    solve immediate payroll problems facing service members. This
    replacement system is called Forward Compatible Payroll (FCP). FCP is
    configured using the same software (People Soft HRMS/Global Payroll)
    and requirements as DIMHRS to ensure seamless transition to DIMHRS.
    Implementation of FCP will begin with the Army's Reserve components in
    the spring of 2005, with final implementation by the spring of 2006.
        In addition to these systems solutions, we have embarked on many
    other initiatives to improve pay for all our service members. An
    executive oversight committee has been established consisting of the
    acting ASA (FM&C), the Director of the Army National Guard, and the
    acting Director of the DFAS. This committee cooperatively oversees the
    progress and reports on 52 action items that have been developed to
    address the pay problems of mobilized Guard and Reserve soldiers. This
    oversight committee made a commitment to provide quarterly updates to
    the House Government Reform Committee regarding progress made to
    improve pay for mobilized soldiers. The following highlights some of
    these actions:

        a. Inspect and review. DFAS currently has a Field Compliance Team
    inspecting the finance sections of every mobilization/demobilization
    station in the Army. The team is addressing shortcomings on the spot,
    and is providing lessons learned across the network. A complete review
    of all sites will be completed by the end of May 2004.
        b. Improve training and education. DFAS deploys training teams on a
    regular basis to Kuwait to assist finance personnel in theater. The
    first team completed its training in November 2003, and the second
    iteration will occur 16-28 May 2004. A joint team from DFAS, the United
    States Army Finance Command, and the Reserve Component have developed
    new training materials, have increased training capacity, and have
    taken steps to emphasize strict adherence to established finance
    procedures both in the continental United States and in theater.
    Training has also been provided to selected United States Property and
    Fiscal Officers and selected mobilization sites where the greatest need
    existed.
        c. Develop a military pay ``safety net'' through a series of
    automated data reconciliation actions. DFAS conducts automated checks
    with the goal of ensuring that all mobilized and deployed soldiers are
    receiving their combat entitlements as appropriate, and with the goal
    of ensuring that all demobilized soldiers get their combat entitlements
    stopped in accurate and timely fashion. The safety net has already
    produced results; for example, the data reconciliation's for
    demobilized soldiers directly resulted in the correction of over 300
    soldiers' pay accounts in March-April 2004.
        d. Enhance ``myPay'' functionality and access. This is DFAS's web-
    based tool which soldiers, sailors, airmen, and marines can use to view
    and manage their own military pay accounts. Some of the enhancements
    include: capability to manage financial allotments, availability of
    viewing 1 year's worth of Leave and Earning statements, restricted
    access with view only PIN number for spouses and the capability to
    purchase savings bonds.
        e. Automate certain entitlements on Defense Joint Military Pay
    System-Reserve Component (DJMS-RC). For example, Hardship Duty Pay-
    Location was automated in April 2004.

        7. Senator Talent. Dr. Zakheim, recent testimony and DODIG reports
    have stated that DFAS has spent over $2 billion to plan, study, and
    develop transition timelines for technology hardware in an attempt to
    change the system in its entirety. In the private sector, successful
    technology transition is often best managed by transforming the whole
    through introducing scalable innovative solutions to the parts,
    allowing for continued upgrades and integrations. As the bulk of these
    innovative solutions have come from quick moving agile small
    businesses, it concerns me that according to the BMMP Web site there is
    no small business office. What steps have you taken to get small
    business more involved in the process of transforming the DOD financial
    management system?
        Dr. Zakheim. The Department's program office with responsibility
    for implementing business transformation, Business Modernization System
    Integration, conducts regular industry day conferences to alert small
    businesses about DOD business and financial transformation efforts. We
    also post industry day related information to the BMMP Web site.

        8. Senator Talent. Dr. Zakheim, Web based financial services allow
    real-time accounting and data retrieval in the credit card, debit card,
    securities trading, and commercial banking sectors. Utilizing service
    provider solutions for these applications has measurably increased
    internet security without large infrastructure costs. Knowing these
    facts, what steps have you taken to infuse these technologies and
    processes into the current financial management systems at DOD?
        Dr. Zakheim. The Business Enterprise Architecture is a blueprint to
    guide DOD's diverse business communities in transforming their
    processes and systems. It will describe the requirements that DOD
    business processes and systems must meet to achieve goals of business
    transformation. DOD is implementing the Architecture and re-engineering
    related business practices incrementally using subject matter experts
    from the Department's business domains. The Architecture defines
    security requirements and mechanisms, such as Web based services, and
    other leading practices for DOD. It also extends the Department's net-
    centric strategy which includes services and data. The BMMP is using
    nine core net-centric enterprise services and is illustrating them in
    the architecture.
        Business system improvements greater than $1 million must be
    certified by Office of Secretary of Defense (Comptroller) as compliant
    with the Business Enterprise Architecture in accordance with Section
    8084 of the Fiscal Year 2004 DOD Appropriations Act. To ensure
    compliance with the law, DOD is implementing portfolio management
    policies and guidance to direct and constrain business system
    investments.

        9. Senator Talent. Dr. Zakheim, recent staff reductions at DFAS and
    a lack of upgraded technology applications and hardware are creating a
    number of difficult situations, to include the growing discrepancy
    account balances between the DOD and U.S. Treasury accounts, and the
    growing ``unbilled hours' to the various military services and DOD
    agencies that DFAS services. What steps are you taking to alleviate the
    DFAS staffs administrative burden so that personnel can be reallocated
    to managing these issues?
        Dr. Zakheim. DFAS will continue to meet operational challenges by
    being strategy-based, customer-focused, and metrics-driven. Facing
    these challenges, DFAS will employ several important mechanisms
    including continual strategic planning, mid-term strategic target
    setting, and balanced scorecard measurement. The strategy development
    process at DFAS continually evaluates how DFAS can best satisfy
    customers' needs, and, by establishing mid-term strategic targets,
    helps DFAS identify flexible solutions that best accomplish those
    objectives. In addition, DFAS strategic targets allow for appropriate
    concentration of resources and focus DFAS staff members on solving
    specific problems.
        To this end, DFAS has identified five key strategic targets to
    pursue. Achieving these five strategic targets will enable DFAS to
    deliver higher-value to the customer.

        1. achieve unqualified audit opinions on the fiscal year 2007
    financial statements
        2. implement electronic commerce for all Commercial Pay Business
    Line processing by fiscal year 2005
        3. pay service members what they are entitled to on the scheduled
    pay date
        4. develop a corporate capability to deliver client unique business
    intelligence by fiscal year 2005
        5. retain, recruit, and train a DFAS workforce capable of
    developing and implementing the DFAS Strategic Plan

        In addition to allocating resources to important issues, these
    strategic targets give the workforce specific objectives, and allow for
    improved efficiency and productivity using outcome-based metrics that
    measure success in delivering products and services. Using a Balanced
    Scorecard approach to metrics measurement keeps a corporate focus on
    key indicators of success and enables all DFAS employees to remain
    alert to specific customer desired outcomes.
                                     ______

                Question Submitted by Senator Lindsey O. Graham

              PAY AND ALLOWANCES TO MOBILIZED ARMY NATIONAL GUARD

        10. Senator Graham. Dr. Zakheim, according to a recent GAO report,
    the existing processes and controls used to provide pay and allowances
    to mobilized Army National Guard personnel are so cumbersome and
    complex that neither DOD nor, more importantly, the mobilized Army
    National Guard soldiers could be reasonably assured of timely and
    accurate payroll payments. In light of the significant contributions
    being made by members of the Guard to the war on terror, could you
    please comment on the steps that the Department is taking to correct
    this ongoing situation and when we might expect a resolution to the
    problem?
        Dr. Zakheim. We have taken immediate actions, such as, simplified
    remarks for special incentive pays on the Leave and Earnings Statement,
    provided better soldiers' instructions, and automated many of the pay
    transactions on the Reserve pay system. I expect that DFAS, the Army,
    and the Army National Guard will continue to work jointly their efforts
    to apply interim measures to solve pay problems by applying short-term
    strategies to keep the expertise of the network up to expectations
    regarding timely payment of our mobilized forces. At the same time. we
    will continue work on our interim solution, the FCP system. We have a
    very robust plan to field FCP to put both the active and Reserve
    components on one platform by next spring. Of course, continue our
    development of the ultimate solution, the DIMHRS, to greatly improve
    pay support to our soldiers.

        [Whereupon, at 4:10 p.m., the subcommittee adjourned.]

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                      2005

                                  ----------

                            THURSDAY, APRIL 1, 2004

                               U.S. Senate,
                  Subcommittee on Readiness and
                                    Management Support,
                                   Committee on Armed Services,
                                                        Washington, DC.

                         MILITARY INSTALLATION PROGRAMS

        The subcommittee met, pursuant to notice, at 2:32 p.m. in
    room SR-232A, Russell Senate Office Building, Senator John
    Ensign (chairman of the subcommittee) presiding.
        Committee members present: Senators Ensign, Inhofe, Allard,
    Cornyn, and Akaka.
        Committee staff member present: Leah C. Brewer, nominations
    and hearings clerk.
        Majority staff members present: L. David Cherington,
    counsel; William C. Greenwalt, professional staff member; and
    Lucian L. Niemeyer, professional staff member.
        Minority staff members present: Peter K. Levine, minority
    counsel; and Michael J. McCord, professional staff member.
        Staff assistants present: Andrew W. Florell and Pendred K.
    Wilson.
        Committee members' assistants present: John A. Bonsell,
    assistant to Senator Inhofe; Lance Landry and Jayson Roehl,
    assistants to Senator Allard; D'Arcy Grisier, assistant to
    Senator Ensign; Russell J. Thomasson, assistant to Senator
    Cornyn; Davelyn Noelani Kalipi, assistant to Senator Akaka;
    William K. Sutey, assistant to Senator Bill Nelson; and Andrew
    Shapiro, assistant to Senator Clinton.

           OPENING STATEMENT OF SENATOR JOHN ENSIGN, CHAIRMAN

        Senator Ensign. Good afternoon. The Readiness and
    Management Support Subcommittee meets today to receive
    testimony on installation programs in the fiscal year 2005
    budget request. We have also asked our witnesses to be prepared
    to answer questions about the base realignment and closure
    process.
        Along with Senator Akaka, we welcome our witnesses: Raymond
    DuBois, Deputy Under Secretary of Defense for Installations and
    the Environment; Major General Larry Lust, Assistant Chief of
    Staff for Installation Management, United States Army; Rear
    Admiral Christopher Weaver, Commander, Naval Installations;
    Brigadier General Willie Williams, Assistant Deputy Commandant,
    Installations and Logistics, Commandant of the Marine Corps;
    Major General Dean Fox, the Air Force Civil Engineer.
        The fiscal year 2005 budget request for United States
    installations programs presents a range of new and old
    challenges in our committee. For example, environmental policy
    poses many challenges. Yet the Department continues to show its
    commitment to environmental stewardship by turning challenges
    into opportunities for success.
        One area where the Department of Defense (DOD) demonstrates
    forward thinking is in its sustainable range management plan, a
    plan to help maintain ranges necessary for training and live
    fire testing while remaining compliant with environmental
    requirements.
        In a parallel effort to the sustainable range management
    plan, the Department of Defense has requested legislation under
    the Readiness and Range Preservation Initiative (RRPI), which
    the committee has addressed in part over the past 2 years. To
    date the committee has passed legislation resolving three of
    the six RRPI legislative issues requested, but encroachment
    still remains a large problem for the Department, and resolving
    the problems laid out in RRPI will not answer all encroachment
    challenges facing the Armed Forces.
        When the Department listed the eight issues most affecting
    the military's training and testing areas, four were not
    addressed by RRPI. Urban growth and incompatible development
    near military ranges and the corresponding airborne noise
    concerns indicate a large encroachment problem that will
    require active planning by the Armed Forces for decades to
    come. It is often not the weight of a single type of
    encroachment which is debilitating to a base or range, but the
    aggregate of several restrictions which hampers military
    readiness.
        Turning to facility investment programs, the fiscal year
    2005 budget request for military construction continues to
    underinvest in the replacement of deteriorated infrastructure
    and facilities. The Department's goal to invest in facilities
    by fiscal year 2008 at a rate that recapitalizes facilities
    every 67 years will require DOD to triple the amount of funding
    historically requested, a level that the General Accounting
    Office (GAO), in a report released in February 2004, believes
    is not realistic.
        Another goal set by the Department is to fund the annual
    average facilities sustainment requirement at 95 percent. The
    funding for the vital maintenance necessary to keep facilities
    in working order has fallen victim to shortfalls in accounts
    for base operations, support, and facility repairs. Only a
    fraction of the high sustainment funding level proclaimed in
    budget presentations to Congress is being realized at the
    installation level.
        This year the committee will also address the continued use
    of housing privatization authorities to enable the Department
    of Defense to quickly and efficiently upgrade or replace over
    110,000 inadequate houses for our service members and their
    families. We are faced with a revised interpretation by the
    Congressional Budget Office (CBO) of the budget impact caused
    by the public-private ventures. This interpretation reverses
    CBO's views over the past 8 years and conflicts with guidance
    by the Office of Management and Budget (OMB).
        We look forward to testimony today by our witnesses on the
    successes and merits of housing privatization. Throughout this
    year's budget request for military construction, family housing
    and environmental programs, we see projects that support
    Defense Department initiatives to transform the organization,
    basing, and posture of the total force. For example, the
    Department continues to fund construction projects supporting
    homeland defense, antiterrorism, and enhanced protection for
    our personnel.
        From a global perspective, the Secretary of Defense is
    currently negotiating with our allies to establish new concepts
    for the basing of U.S. forces while maintaining our traditional
    commitments. These agreements promise to enhance training
    opportunities and burdensharing by host countries while
    improving flexibility and responsiveness to our national
    security requirements.
        We recognize that this year's request for a prudent
    overseas construction investment responds to the current
    dynamics of global basing plans. We look forward to more
    definitive information soon on agreements and burdensharing
    arrangements. We must continue to pursue every opportunity to
    save money so as to free up funds for our Services'
    transformation efforts and additional security initiatives at
    home.
        A potentially significant source of savings to the
    Department is the upcoming round of base realignment and
    closure (BRAC) in 2005. If properly executed, it will provide
    an opportunity for our military to enhance our joint
    capabilities by realigning functions to improve joint testing
    and basing, improve the use of our ranges by concentrating our
    investments on technology and infrastructure to support joint
    training, and realign critical support functions to maximize
    economy of effort, while providing substantially more and
    better trained warfighters.
        Some, perhaps politically motivated, have called for a
    suspension or a delay in the BRAC process. It would be a huge
    mistake, a huge mistake, to undermine this crucial opportunity
    to improve the quality of our forces. Congress correctly
    provided authorization in the Defense Department for BRAC in
    2005 after the events of September 11, 2001, specifically
    because we realized that we could not bear the burden of excess
    costs to sustain a cold war posture and infrastructure in the
    face of a significant and menacing threat.
        Despite increases in the budget, the need for savings and
    transformation remain. No one should play politics with a
    process that has the potential to save $5 billion by 2011 and
    $8 billion every year thereafter. This was done once during the
    1996 presidential election and that unfortunate episode has
    delayed to date any further rationalization of our
    infrastructure and subsequent cost savings.
        In a year where we have debated cutting the defense budget
    by $7 billion during a time of war, how can we delay or deny
    the Department the chance to save that much within the next 6
    years? BRAC is a critical catalyst to our efforts to provide
    the American people with the strongest military forces, jointly
    based and trained, operating with the most lethal effectiveness
    our limited resources can sustain.
        I want to be clear to our witnesses and those in attendance
    of the gravity of this issue and the results at stake that
    should transcend politics.
        Senator Akaka, I turn the floor over to you for any opening
    statements that you may have.

                  STATEMENT OF SENATOR DANIEL K. AKAKA

        Senator Akaka. Thank you very much, Mr. Chairman. Again, I
    feel proud working with you on this subcommittee. I want to
    join you in welcoming our panel this afternoon to discuss the
    Department's military construction, family housing, base
    closure, and environmental restoration and compliance programs.
        We have made some considerable progress on taking care of
    our installations in recent years. For example, we are on track
    to modernize our soldiers' barracks, including the elimination
    of gang latrines. In 2005, we will complete the initiative
    begun by former Secretary of Defense Cohen to reduce average
    out-of-pocket family housing costs to zero. We have increased
    attention on the importance of putting money to sustaining our
    facilities. The pace of housing privatization has increased and
    we have given the Department new tools to work with non-Federal
    entities to create a buffer zone or buffer zones around defense
    installations.
        At the same time, challenges remain. This administration's
    first budget in 2002 brought the recapitalization rate of DOD
    facilities down to 101 years, but we have not made much
    progress in further reducing this rate. In fact, the 2005
    budget has a recapitalization rate of 107 years.
        This is in large part because our installations have not
    shared in the tremendous funding increases the Department has
    received over the past few years. The administration's initial
    budget for 2002 requested $5.9 billion for military
    construction and $328 billion for the Department of Defense
    overall. The fiscal year 2005 budget requests $401.7 billion
    for DOD, an increase of $73.7 billion or 22.5 percent over year
    2002. But none of this increased funding has gone to military
    construction. In fact, the amount requested for military
    construction has actually decreased, from $5.9 billion to $5.3
    billion.
        I am also concerned about rising base operation costs, the
    vast majority of which are now contracted out in ways that
    limit our flexibility. While I believe the new DOD standard of
    funding 95 percent of our facilities sustainment requirements
    makes sense, it will not be as effective as it should be
    without a similar standard to ensure that we budget adequate
    resources to fund our must-pay base operations bills.
        Understandably, the attention of the senior DOD leadership
    and Congress has been focused elsewhere, on our operations in
    Iraq and in Afghanistan. But there are considerable challenges
    in the jurisdiction of the Readiness Subcommittee that demand
    the attention of Congress and the Department, such as resetting
    the force, making sure we get the best use of our test and
    training ranges, and how we position our forces around the
    world to meet the security challenges of the future.
        The upcoming 2005 base closure round has gotten a great
    deal of attention already and in the coming year will probably
    dominate the discussion of basing and installations. Certainly
    BRAC is important. This will be the first opportunity in 10
    years to realign our forces and infrastructure.
        But the positioning of our forces outside the United
    States, which is not subject to the BRAC process, is of equal
    importance. There has been a great deal of speculation in the
    press on the global posture review, but the committee has
    received very little hard information from the Department. We
    need to get some answers very soon. In addition to their
    foreign policy significance, these decisions on overseas
    presence and basing strategy must precede and inform next
    year's BRAC round.
        I hope the Department will seize the opportunity provided
    by next year's BRAC process to reduce excess infrastructure and
    enhance the joint warfighting abilities of our forces by taking
    new steps in joint basing and joint use of our bases and
    ranges. As the Department studies its own requirements leading
    up to next year's BRAC recommendations, it is imperative that
    the Department consider the reality that national security is
    now broader than just the Department of Defense and that the
    missions and needs of other agencies, such as the Departments
    of Homeland Security and Veterans Affairs, must be taken into
    account.
        Finally, Mr. Chairman, I want to say a word about something
    that is not yet before us. DOD officials recently informed us
    that they plan to resubmit their legislative proposals to
    exempt certain DOD activities from the Clean Air Act (CAA),
    Comprehensive Environmental Response, Compensation, and
    Liability Act (CERCLA), and Resource Conservation and Recovery
    Act of 1976 (RCRA) within the next week or two. These proposals
    have been criticized in the past by State and local government
    agencies and have been rejected by the last two Congresses.
    They are not as important to military training and readiness as
    the legislative proposals we have already enacted, but they
    would have a much more direct impact on human health and the
    environment.
        I am concerned that to date we have not seen these
    proposals from DOD, particularly since the short time remaining
    for public review makes it difficult to have the kind of
    reasoned discussion necessary to develop a legislative solution
    that could be passed by the Senate.
        Thank you very much, Mr. Chairman.
        Senator Ensign. Thank you, Senator Akaka.
        Senator Inhofe. Can I just make a brief comment?
        Senator Ensign. Senator Inhofe.
        Senator Inhofe. Just a brief comment, Mr. Chairman. I
    listened to Senator Akaka. He makes a lot of sense on some of
    the problems and the timing. I have questioned this timing even
    before the acceleration of the war that is going on right now.
    We are at war. We have the global posturing review, and the
    tight Federal budget.
        When you look at the savings--and I have been through every
    one of them. I was elected in 1986, so I have been here through
    the whole concept. I was here and actually developed the
    process with Congressman Armey. I think some of these rounds
    have been good and have eliminated I think some 92
    installations that should have been eliminated.
        Right now it is a different situation than we have been in,
    and I am concerned. Let me just throw out a couple of things
    and maybe you can address these in your opening remarks. One is
    the estimates of savings and the timing of those savings is
    never accurate, but what is certain is the cost up front is
    high. It is estimated in this case to be $15 billion. If there
    is ever a time when we are trying to make up for some of the
    problems we had in the 1990s with our military in terms of
    modernization and end strength and all the problems that
    everyone in here is aware of, this is that time when we need
    every precious dollar that we can get, not just to fight the
    war, but to start rebuilding, the rebuilding process. There is
    not a person in front of me who does not understand that and
    appreciate that.
        I have become very interested in General Jones' efforts in
    the restructuring and how we are looking at Western Europe, as
    Senator Akaka points out, some of the challenges, some of the
    environmental encroachments on our bases. I say to my good
    Marine and Navy friends, I fought the battle of Vieques for 3
    years and lost and it was not much fun, but at least now we
    have realized, people realize, we have a serious problem.
        That problem is at home. We know it is happening with
    environmental encroachment on our ranges here. We know it is
    happening in Western Europe ever since the European Union (EU).
    I have personally gone to Romania and Bulgaria and Ukraine and
    I see other ways of doing this that would necessitate bringing
    a lot of these families back stateside. Yet we are talking
    about going through an infrastructure change without really
    knowing what is going to be coming back.
        So I question the timing of all of this, and I am hoping
    that in this forum we will be able to discuss some of these
    things.
        Mr. Chairman, I thank you.
        Senator Ensign. Thank you.
        All of your statements, full statements, will be made part
    of the record and if you could, just because of the large size
    of the panel, so we can save plenty of time for questions, if
    possible keep your opening statements to around 5 minutes, and
    I would appreciate that.
        We will start with you, Mr. DuBois.

    STATEMENT OF RAYMOND F. DuBOIS, JR., DEPUTY UNDER SECRETARY OF
               DEFENSE FOR INSTALLATIONS AND ENVIRONMENT

        Mr. DuBois. Thank you, Mr. Chairman, Senator Akaka, Senator
    Inhofe. This is my third time before this subcommittee, and I
    am proud to appear this time with the gentlemen on my left and
    right, as we refer to them, the installation warriors of the
    Pentagon. It is a fine team and one that I think over the past
    several years has proven its mettle in these particular
    circumstances.
        Now, at the beginning I want to express on behalf of
    Secretary Rumsfeld his and our appreciation for particularly
    what this subcommittee has done in my 3 years in office in
    terms of improving our infrastructure assets as well as our
    program to support environmental stewardship.
        As you asked, Mr. Chairman, I have approximately 5 minutes
    in opening remarks. If you will give me a minute or two more, I
    can probably answer at least briefly some of the issues that
    all three of you have raised with respect to BRAC.
        Now, with regard to infrastructure, we believe that we have
    a well-defined strategy to address the condition--and let us
    face facts. The condition of our infrastructure, to include
    military family housing was in a deteriorated position when we
    came into office several years ago. Now, why was the health of
    our facilities suffering? It was due, quite frankly, to
    competing priorities, similar competing priorities every year.
    Certainly this year is no different.
        But there was another issue, a management issue, it seems
    to me. We did not have a very good idea as to how to accurately
    determine what the funding ought to be for sustainment and
    recapitalization or, as we call it, sustainment, restoration,
    and modernization, and how to accurately measure the results of
    funding that went into those areas.
        Now, our investment strategy begins with full facilities
    sustainment. I know that you, like us here at this witness
    table, have always been concerned that, no matter what level of
    sustainment we ask for, the President asks for in his budget
    request, in this case 95 percent across the board for all four
    Services, there has always been a certain amount of migration
    away and out of that budget. That is of concern to us, as it is
    to you.
        Nonetheless, this year the Department is requesting $6.5
    billion for sustainment, which is to yield that 95 percent
    goal. Now, by 2008 we hope that it is the 100 percent goal. But
    full sustainment does not prevent deterioration or the
    obsolescence of our facilities over the life of those
    buildings. Managing sustainment costs is no doubt less
    expensive than repairing or replacing unusable facilities, that
    oft-referred to so-called strategy: Do not worry--we will
    always replace it with new construction. I do not think that is
    a valid way to approach our facilities and our infrastructure.
        We need to recapitalize our facilities to coincide, yes,
    with the needs of the Services, with the immediate mission-
    critical needs of the Services, and the quality of our
    infrastructure, as we all know, directly affects recruitment
    and retention and training and readiness. We are requesting
    $4.4 billion, the Department as a whole, for recapitalization,
    and this is our second pillar of our investment strategy.
        The third pillar, one that President Bush and Secretary
    Rumsfeld identified within weeks of this administration taking
    office, is military family housing. To that end, we have
    established a four-pronged approach: One--and I think that
    Senator Akaka made specific reference to this--increase the
    basic allowance for housing; two, eliminate out of pocket
    expense for off-base housing; three, increase housing
    privatization projects; and four, maintain the appropriate
    level of military construction funding for housing.
        Now, we believe and I think you will find no one who will
    criticize how we have used privatization to advance this goal,
    that is to say obtain maximum benefit from the amount of
    housing--excuse me--obtain maximum benefit from our housing
    investment, the housing investment that you authorized and
    appropriated for us.
        Now, our policy requires that the privatization projects,
    each and every one of them, yield a minimum, a minimum of three
    times the amount of housing which would be traditionally funded
    by military construction appropriations. We believe our housing
    privatization efforts have now achieved unqualified success.
    Installation commanders, service members, all say and welcome
    privatization efforts to revitalize their family housing.
        We are continuing to accelerate those efforts and we
    project by the end of fiscal year 2005 to have awarded over
    136,000 privatized units.
        Now, let me add one thing here that I think is important
    and where we need your help. The housing privatization
    successes, that program's success over the last 3 years, has
    used almost 70 percent, $600 million, of the $850 million
    budget authority originally provided by Congress for housing
    privatization. Because of the success, we project by the end of
    this calendar year the rest of that money, the remaining 30
    percent, will be used up.
        We have submitted to Congress a legislative proposal to
    increase our authority by an additional $1 billion. This will
    allow us to complete contracting to eliminate all inadequate
    family housing or nearly all by the end of fiscal year 2007,
    and I ask for your support in that regard. I have testified in
    front of the authorizers and the appropriators in the House as
    well as the appropriators in the Senate, and from those
    hearings I gather that you all are of one mind in helping us.
        Range sustainment we have talked a little bit about. You
    have talked a little bit about that this morning, or this
    afternoon, excuse me. The realistic live-fire training is
    absolutely crucial, as anyone who has served in uniform would
    attest. But it requires substantial natural resources. It
    requires air, land, and water where military forces can train
    as they would fight. Obviously, replicating the challenges of
    combat, the stress, the temperatures, the terrain, the
    discomfort, those physical and psychological conditions of
    actual combat, is imperative to readiness.
        We have used the term ``encroachment.'' Encroachment has,
    quite frankly, many meanings. It is environmental, it is urban
    and suburban sprawl, it is air space restrictions, it is
    frequency spectrum competition. It is a number of things that
    we have to deal with, that we have struggled to deal with, and
    with your help we have amended, for the first time in history,
    for specific military readiness reasons, three environmental
    statutes.
        Now, if access becomes restricted due to encroachment,
    obviously training opportunities become increasingly limited.
    The Department, as you indicated, very much appreciates the
    action of Congress over the last 2 years in adopting some key
    provisions. These provisions, as we know, are key enablers to
    range sustainability. Indeed, we have in the National Defense
    Authorization Act for Fiscal Year 2003 a provision, section
    2811, that allows the Services to take a proactive role in
    developing partnerships with local land trusts, with local
    chapters of the Nature Conservancy, with local conservation
    organizations, and working with the States and local political
    jurisdictions, to promote sound land use.
        We have asked this year, in keeping with that authority
    that you gave us last year, for a modest amount of money in
    this regard, $20 million. It is a lot of money in some
    respects, but in this regard, we believe it is a modest amount
    to target those new authorities, to assist local communities
    and States, and to develop partnerships with us to execute
    compatible land use partnerships around our installations.
        Environmental management. We are quite proud of how we have
    gone about our environmental stewardship. The Department
    currently manages 30 million acres of land. Now, when I was
    first given that statistic, I said we must be the largest.
    Well, clearly we are one of the smallest Federal managers of
    land per se, but we are in point of fact the largest manager of
    facilities.
        Now, the Integrated Natural Resource Management Plans
    (INRMPs) as required by the Sykes Act, we have in place at 95
    percent of our installations, and in fiscal year 2005 our
    environmental budget calls for over $3.8 billion in support of
    our environmental programs.
        Finally, Mr. Chairman, if you would let me make a few
    remarks on Base Realignment and Closure (BRAC). BRAC is a means
    by which the Department can rationalize its infrastructure, as
    you have stated so cogently, to its force structure. It
    enhances joint capabilities, and it will convert waste to
    warfighting.
        The question that Senator Inhofe has raised, and an
    important one, is why do we need to do it now? Why is now the
    important time to do it? Would a delay be more helpful? Now, we
    believe, the Secretary believes, in the report that he
    submitted to Congress recently, that any delay, any amount of
    time, would be detrimental to the transformation of the Armed
    Forces to meet the pressing challenges of the 21st century. It
    would extend in our view, in the Secretary's view, in the
    Chairman of the Joint Chiefs of Staff view, because he also
    signed a document in that report, it would extend the
    unnecessary expenditure of scarce resources on maintaining
    excess infrastructure.
        Any delay of BRAC, we believe, would postpone the estimated
    annual recurring savings, notwithstanding Senator Inhofe's
    correct statement, one must invest in order to achieve savings
    up front. But we estimate, and GAO and the Congressional Budget
    Office has stated in writing, that our savings have been
    sustained and are real. But we believe that if there were a 20-
    percent reduction in our plant replacement value, that would
    equate to a $16 billion, i.e., 2 years times $8 billion, in
    lost savings were we to delay the BRAC by 2 years.
        I think it is also important to recognize that BRAC is not,
    and never was meant to be, strictly a cost savings exercise. In
    point of fact, in this case, and this is where it connects to
    the international issues that you have spoken to quite
    importantly, it will upset, in the Secretary's view and the
    Chairman of the Joint Chiefs of Staff view, the ongoing review
    of the overseas infrastructure, because BRAC is necessary to
    correctly select the bases in the United States which will
    receive that overseas force structure which returns.
        We must do the overseas piece first, and in the next 60
    days--and I have testified to this before three other
    committees in the last several weeks. By the end of May, the
    Secretary intends to close on those decisions, as I have stated
    them, the major building blocks of what force structure will
    return to the United States, in order to keep his promise to
    you that the domestic BRAC process be informed by the overseas
    reduction in footprint and by the overseas return of force
    structure.
        Now, I said that the Chairman of the Joint Chiefs in his
    message accompanying that BRAC report supports this need for
    additional closures and realignments at this time. In fact, if
    I may quote: ``The Joint Chiefs of Staff unanimously agree that
    additional base realignments and closures are necessary if the
    Department of Defense is to transform the Armed Forces to meet
    the threats to our national security and execute our National
    Strategy.''
        One last statement. You may remember at that period post-
    September 11, that dreadful period in October, November, and
    December 2001, eight former Secretaries of Defense for the
    first time in history--the only two former Secretaries of
    Defense that did not sign it were the current one, who is also
    a former one, Donald Rumsfeld, and a former one who also
    happens to be the Vice President of the United States. They
    signed a letter that said, in no small measure because of the
    events of September 11, it was critical to proceed with the
    BRAC that you finally authorized for 2005.
        Thank you very much, Mr. Chairman. I appreciate this
    opportunity once again to appear before you.
        [The prepared statement of Mr. DuBois follows:]

                    Prepared Statement by Raymond F. DuBois

        Mr. Chairman and distinguished members of this subcommittee, I
    appreciate the opportunity to discuss the President's budget request
    for fiscal year 2005 and the plan of the Department of Defense for
    improving its infrastructure and facilities. The Department is
    continuing with its efforts to transform the force structure to meet
    new security challenges and the way we do business. In Installations
    and Environment, this translates into a renewed emphasis on taking care
    of our people, providing facilities to support the warfighter by
    eliminating facilities we no longer need and improving those that we
    do, and modernizing our business practices--all while protecting the
    environment and those assets for which we have stewardship
    responsibility.
        At the outset, I want to express the Department's appreciation for
    the strong support of this subcommittee for our initiatives. With
    regard to infrastructure, the Department has a defined strategy to
    address the condition of our installations and facilities. These issues
    are an integral component of readiness. Installations are the
    ``platforms'' from which our forces successfully deploy to execute
    their diverse missions. Over many years, our facilities declined due to
    competing priorities and poor understanding of funding requirements,
    but we are significantly improving our military infrastructure through
    focused attention to best practices drawn from standard business
    models. Continuing to improve our facilities and military readiness is
    a priority of the Secretary of Defense.
        The Department currently manages nearly 600,000 buildings and
    structures with a plant replacement value of $630 billion, and over
    46,000 square miles of real estate. We have developed models and
    metrics to predict funding needs and have established goals and
    performance measurements that place the management of Defense
    infrastructure on a more data driven business basis. We accelerated our
    goal to eliminate nearly all inadequate housing from fiscal year 2010
    to 2007. By the end of fiscal year 2005, we will reduce the number of
    inadequate housing units by 66 percent (61,000) from our fiscal year
    2001 level of 180,000 inadequates. The Department's facilities
    sustainment budget funds annual maintenance, predictable repairs and
    normal component replacements. We have increased funding for facilities
    sustainment consistently since fiscal year 2002, sustaining facilities
    at an average of 89 percent, and this year's budget request raises that
    rate to 95 percent for each of the military services, TRICARE
    Management Activity and the Department of Defense Education Activity.
        Restoration and modernization--i.e. recapitalization--funds
    unpredictable repairs, improvements and total facility replacements. We
    have continued to improve our management of the recapitalization of the
    inventory. The budget request improves the recapitalization rate to 107
    years and we anticipate achieving our 67-year recapitalization goal in
    fiscal year 2008.

                       INFRASTRUCTURE INVESTMENT STRATEGY

        The Department's recent successes were made possible through
    effective management and prudent budgeting. Our investment strategy
    links the asset management plan to actual funding.
        The traditional view of the Military Construction and Family
    Housing appropriation funding requests for fiscal years 2004 and 2005
    shows a slight increase in this year's request. The Military
    Construction and Family Housing top-line is but one indicator of the
    health of our program. However, it does not represent a comprehensive
    approach to our management practices for the infrastructure as a whole.

         COMPARISON OF MILITARY CONSTRUCTION AND FAMILY HOUSING REQUESTS
          [President's Budget in Millions of Dollars--Budget Authority]
    ------------------------------------------------------------------------
                                                        Fiscal Year Request
                                                     -----------------------
                                                         2004        2005
    ------------------------------------------------------------------------
    Military Construction...........................       4,574       4,877
    NATO Security Investment Program................         169         166
    Base Realignment and Closure....................         370         246
    Chemical Demilitarization.......................       0 \1\          82
    Family Housing Construction/Improvements........       1,251       1,625
    Family Housing Operations and Maintenance.......       2,780       2,547
    Homeowners Assistance...........................           0           0
    Family Housing Improvement Fund.................         0.3         0.3
                                                     -----------------------
      Total.........................................       9,144       9,460
    ------------------------------------------------------------------------
    Note: Fiscal year 2004 request column represents the fiscal year 2004
      Amended Budget Submission
    \1\ Chem-Demil included in Military Construction totals for fiscal year
      2004. For fiscal year 2005 Chem-Demil has a separate Treasury code.

    Facilities Support Investment and Operating Expenses
        Managing our facilities assets is an integral part of asset
    management. Facilities are the ``platforms'' from which our forces
    deploy and execute their missions. The quality of our infrastructure
    directly affects training and readiness. In addition, from a purely
    financial perspective, it is more cost effective in the long term to
    fully fund the general upkeep of facilities than to allow them to
    deteriorate and replace them when they are unusable.

                    SUSTAINMENT AND RECAPITALIZATION REQUEST
                   [President's Budget in Millions of Dollars]
    ------------------------------------------------------------------------
                                                        Fiscal Year Request
                                                     -----------------------
                                                         2004        2005
    ------------------------------------------------------------------------
    Sustainment (O&M-like \1\)......................       6,382       6,531
    Restoration and Modernization (O&M-like)........       1,012       1,243
    Restoration and Modernization (MilCon)..........       2,350       3,161
                                                     -----------------------
      Total SRM.....................................       9,744      10,935
    ------------------------------------------------------------------------
    \1\ Includes O&M as well as related military personnel, host nation, and
      working capital funds.

        Facilities sustainment, using operations and maintenance-like \2\
    appropriations, fund the maintenance and repair activities necessary to
    keep an inventory in good working order. It includes regularly
    scheduled maintenance and major repairs or replacement of facility
    components that are expected to occur periodically throughout the life
    cycle of facilities. Sustainment prevents deterioration and preserves
    performance over the life of a facility.
    ---------------------------------------------------------------------------
        \2\ Includes O&M as well as related military personnel, host
    nation, and working capital funds.
    ---------------------------------------------------------------------------
        To forecast funding requirements for sustainment, we developed the
    Facilities Sustainment Model (FSM). FSM uses standard benchmarks drawn
    from the private and public sectors for sustainment costs by facility
    type and has been used to develop the Service budgets since fiscal year
    2002 and for several Defense Agencies beginning in fiscal year 2004.

        Full funding of sustainment is the foundation of our long-term
    facilities strategy, and we have made significant progress in achieving
    this goal. The fiscal year 2004 budget request funded sustainment at an
    average of 94 percent of the FSM benchmarks across the Services,
    TRICARE Management Activity, and the Department of Defense Education
    Activity. The fiscal year 2005 budget request of $6.5 billion improved
    this by standardizing sustainment funding at 95 percent for each of the
    components, and we plan to achieve full sustainment in the near term.
        Restoration and modernization, together called recapitalization,
    provides resources for improving facilities and is funded with either
    operations and maintenance or military construction appropriations.
    Restoration includes repair and replacement work to restore facilities
    damaged by inadequate sustainment, excessive age, natural disaster,
    fire, accident, or other causes. Modernization includes alteration of
    facilities solely to implement new or higher standards, to accommodate
    new functions, or to replace building components that typically last
    more than 50 years.
        Recapitalization is the second step in our strategy. Similar
    private sector industries replace their facilities every 50 years, on
    average. With the types of facilities in the Defense Department,
    engineering experts estimate that our facilities should have a
    replacement cycle of about 67 years on average.

        As with sustainment, we have improved the corporate
    recapitalization rate for the third straight year. The budget request
    includes funding of $4.4 billion for fiscal year 2005. The request
    improves the recapitalization rate from 136 years last year to 107.
    When we began our focused attention on this matter, the Department's
    recapitalization rate stood at 192 years. Our out-year budget plan
    would realize the target rate of 67 years in fiscal year 2008.
        Even with full sustainment and a 67-year recapitalization rate, it
    will take time to restore the readiness of our facilities from C-3 and
    C-4 status to C-2. Sustainment stops deterioration and a 67-year
    recapitalization rate stops obsolescence, but more is needed to restore
    readiness in the near term. Thus, the third step in our plan is to
    accelerate the recapitalization rate to restore existing facilities to
    at least C-2 readiness, on average, by the end of fiscal year 2010.

    Improving Quality of Life
        One of our principal priorities is to support military personnel
    and their families and improve their quality of life. Our Service
    members deserve the best possible living and working conditions. At the
    outset of this administration, the President and Secretary Rumsfeld
    identified military housing and privatization of that housing as a
    central priority for the Department. Sustaining the quality of life of
    our people is crucial to recruitment, retention, readiness and morale.
    To that end, the Department is committed to providing quality housing
    using our ongoing approach--increasing the basic allowance for housing
    and eliminating the out-of-pocket expense for off-base housing (where
    over 60 percent of our service members live); increasing the number of,
    and accelerating the pace of, housing privatization projects; and
    maintaining military construction funding for family housing where
    necessary.
        The fiscal year 2005 budget keeps the Department on track to
    eliminate nearly all its inadequate military family housing units by
    fiscal year 2007, with complete elimination of some inadequate housing
    overseas in fiscal year 2009. The budget continues the Department's
    extensive use of privatization to advance this goal and to obtain
    maximum benefit from its housing budget.
        As I noted earlier, in January 2001, the Department had about
    180,000 inadequate family housing units (out of a total of 300,000
    housing units worldwide). At the start of fiscal year 2004, through
    traditional construction and improvement projects, housing
    privatization and demolition, we have reduced that number to roughly
    120,000. The President's fiscal year 2005 budget includes funding to
    allow us to reduce that number further--by the end of fiscal year 2005,
    we will have reduced the number of inadequate housing units to roughly
    61,000 inadequate.
        The fiscal year 2005 budget request will eliminate the out-of-
    pocket housing costs for the average military member through changes in
    the basic allowance for housing, a key component of the Department's
    approach to quality housing. The fiscal year 2005 budget request
    includes necessary funding to ensure that the typical Service member
    living in the private sector, where approximately two-thirds of our
    members live, will have zero out-of-pocket housing expenses.
    Eliminating out-of-pocket expenses is good for military personnel, but
    also serves to strengthen the financial profile of the housing
    privatization program by providing members the ability to pay
    appropriate market rents.
        Privatizing military housing is a priority for the President and
    the Secretary and is an integral part of the administration's
    management plan. The Department has skillfully used privatization to
    advance this goal and obtain maximum benefit from its housing
    investment. Our housing privatization program is crucial to providing a
    decent quality of life for our service members.
        We believe our housing privatization efforts have now achieved
    identified success, with installation commanders and service members
    welcoming privatization efforts to revitalize their family housing. As
    of March 22, 2004, the Department has closed out awards on 29 projects,
    which include 58,503 military family housing units (a 50-percent
    increase over our privatized units as of January 2003). We project by
    the end of fiscal year 2005 DOD will privatize more than 136,000 family
    housing units
        We project 20 more privatization awards in fiscal year 2004, and
    over 25 in 2005--bringing our cumulative total end of year fiscal year
    2005 to about 136,000 units privatized. We project by the end of fiscal
    year 2007 that we will privatize over 160,000 units or more than 70
    percent of our domestic family housing.
        During fiscal year 2005, we expect several other bases to have
    their renovations and construction completed or close to completion,
    including those at Fort Carson, Colorado. Our policy requires that
    privatization projects yield at least three times the amount of housing
    as traditional military construction for the same amount of
    appropriated dollars. Recent projects have demonstrated that leveraging
    is normally much higher. The 29 projects awarded thus far reflect an
    average leverage ratio of over 10 to 1. Tapping this demonstrated
    leveraging potential through our 29 awarded projects to date has
    permitted the Department, in partnership with the private sector, to
    provide housing for about $550 million of military construction funding
    that would otherwise have required over $6.7 billion for those awarded
    projects if the traditional military construction approach was
    utilized.
        The Department has achieved privatization successes by simplifying
    the process, accelerating project execution, and institutionalizing
    best practices in the Services deals with the private sector. Many of
    our projects require use of appropriated funds when subsidies are
    provided to the projects, especially as investments, loans and limited
    loan guarantees. The amount of such appropriated funds was limited in
    section 2883 of title 10, United States Code, to $850 million for
    military accompanied (family) housing and $150 million for military
    unaccompanied housing. Due to the rapid acceleration of the program
    over the last 3 years, we are now in position where almost 70 percent
    (about $600 million) of the $850 million cap has been used. We project
    the remaining 30 percent of the cap will be used up by the beginning of
    fiscal year 2005; thus impeding the full implementation of the
    President's Management Agenda initiative to eliminate all inadequate
    military family housing by 2007. The administration has requested that
    our budget authority for privatized family housing be increased by $1
    billion so that we can continue to improve housing options for our
    military families. We ask your support for this proposal.
        Military construction is another tool for resolving inadequate
    military housing. In fiscal year 2005, we are requesting $4.1 billion
    in new budget authority for family housing construction and operations
    and maintenance. This funding will enable us to continue operating and
    maintaining the Department's family housing as well as meeting the goal
    to eliminate inadequate housing by 2007--3 years earlier than
    previously planned.
        We recognize that a key element in maintaining the support of
    Congress and of the private sector is the ability to define adequately
    the housing requirement. The Department's longstanding policy is to
    rely primarily on the private sector for its housing needs. Only when
    the private market demonstrates that it cannot provide sufficient
    levels or quality of housing should we consider the construction,
    operation, and maintenance of Government-owned housing.
        An improved housing requirements determination process, following
    the Deputy Secretary's January 2003 memorandum, combined with increased
    privatization, is allowing us to focus resources on maintaining the
    housing for which we have a verified need rather than wasting those
    resources duplicating private sector capabilities. The improved housing
    requirement process is being used by the Department to better determine
    the number of family housing units needed on installations to
    accommodate military families. It provides a solid basis for investing
    in housing for which there is a verified need--whether through direct
    investment with appropriated funds or through a privatization project.
        By aligning the housing requirements determination process more
    closely with the analysis utilized to determine basic allowance for
    housing rates, the Department is better positioned to make sound
    investment decisions necessary to meet the Secretary's goal to
    eliminate nearly all inadequate housing by 2007. Further, as more
    military families opt to reside in the private sector as housing out-
    of-pocket expenses decrease for the average member, the Services on-
    base housing requirement should generally also decline. This migration
    should permit the Services to better apply scarce resources to those
    housing units they truly need to retain.

    Range Sustainment
        Another key initiative is our effort to ensure access to needed
    test and training ranges and installations to support both current and
    future requirements. This involves mitigating the effects of
    encroachment around these facilities, and posturing our test and
    training infrastructure for sustainable operations.
        Training provides our soldiers, sailors, airmen, and marines the
    combat skills they need to win and return safely to their families.
    Experience has taught us that realistic training saves lives. Training,
    however, requires substantial resources; air, land, and water where
    military forces can train as they would fight--replicating the
    challenges, stress, discomfort, physical and psychological conditions
    of actual combat.
        Encroachment at installations, training ranges and test sites,
    however, interferes with the ability of our military to train and
    execute their missions. Encroachment comes from many sources--
    environmental, urban and suburban sprawl, airspace restrictions, and
    the frequency spectrum. Endangered species and their critical habitats
    in or near gunnery or bombing ranges also can reduce test and training
    access. As access is restricted due to encroachment, training
    opportunities for our men and women in uniform become increasingly
    limited in terms of time, scope, or realism with cumulative impact on
    military readiness.
        The Department deeply appreciates the action of Congress in
    adopting key provisions in both the National Defense Authorization Acts
    for Fiscal Years 2003 and 2004 that were part of the administration's
    Readiness and Range Preservation Initiative (RRPI). These provisions
    are key enablers of range sustainability. For example, one of the most
    useful provisions for countering physical encroachment due to
    incompatible development is section 2811 of the 2003 Act. This
    provision allows the Services to take a proactive role in developing
    programs to protect installations and ranges from urban sprawl by
    working with States and non-governmental organizations to promote sound
    land use.
        To assist the Services in implementing this authority and forming
    compatible land use partnerships at the State and local level, the
    President's fiscal year 2005 budget request includes a new initiative
    of $20 million targeted to our new authority--to assist in developing
    new policies, partnerships, and tools to assist communities and other
    interested stakeholders in executing compatible land use partnerships
    around our test and training ranges and installations. The new request
    is intended to build upon ongoing efforts--innovative win/win
    partnerships with our neighbors to enhance conservation and compatible
    land use on a local and regional basis
        Last year, the National Defense Authorization Act for Fiscal Year
    2004 included important clarification of the Marine Mammal Protection
    Act's (MMPA) definition of harassment. This action allows the Navy to
    continue to test and train with active sonar, by clarifying regulatory
    criteria that were previously based on imprecise statutory language in
    the act's definition of harassment. Congress also added a national
    security exemption to the MMPA for military activity in time of
    national emergency, an exemption provided in other major environmental
    legislation that was not present in the original and reauthorized
    versions of the act. The National Defense Authorization Act for Fiscal
    Year 2004 also authorized the use of Integrated Natural Resource
    Management Plans (INRMPs) in lieu of critical habitat designation, if
    approved by the Secretary of the Interior, thereby allowing ranges and
    installations to effectively manage their natural resources while
    supporting military readiness.
        Another significant environmental accomplishment is in the area of
    natural resources, where we are working to ensure continued access to
    our critical test and training ranges, supporting our readiness
    mission. The Department currently manages more than 30 million acres of
    lands which are important to military training and readiness. We have
    completed INRMPs, as required by the Sikes Act, at 95 percent of our
    installations. INRMPs provide a management framework for our resources
    for no net loss of test and training opportunities. Legislation in the
    National Defense Authorization Act for Fiscal Year 2004 authorized the
    use of INRMPs to substitute for critical habitat designation under the
    Endangered Species Act, if those plans meet certain preparation and
    implementation requirements and the Secretary of the Interior
    determines that the DOD INRMP provides a benefit to the relevant
    species. DOD is preparing an INRMP strategic plan to ensure that its
    installations coordinate with all interested stakeholders, complete in
    a timely manner the next round of updates to our existing INRMPs due in
    2006, and fund all required projects.
        Clearly, to protect our military we must also protect our all
    important test and training ranges. Substantial urban growth and other
    ``encroachment'' around previously isolated ranges have strained our
    ability to conduct necessary testing and training essential to
    maintaining readiness. In response to this challenge, we are working to
    expand efforts to sustain our training mission and protect the valuable
    natural resources entrusted to our care. Both are required as we
    endeavor to ensure that our men and women in uniform get the best
    training available. Our troops deserve the best.

    Improving Environmental Management
        The Department continues to be a leader in every aspect of
    environmental management. We are proud of our environmental program at
    our military installations and are committed to pursuing a
    comprehensive environmental program.

                  ENVIRONMENTAL PROGRAM--SUMMARY OF REQUEST \3\
          [President's Budget in Millions of Dollars--Budget Authority]
    ------------------------------------------------------------------------
                                                        Fiscal Year Request
                                                     -----------------------
                                                         2004        2005
    ------------------------------------------------------------------------
    Environmental Restoration.......................       1,273       1,305
    BRAC Environmental \4\..........................         412         322
    Compliance......................................       1,603       1,665
    Pollution Prevention............................         173         168
    Conservation....................................         153         169
    Technology......................................         190         186
    International...................................           3           4
                                                     -----------------------
      Total.........................................       3,807       3,819
    ------------------------------------------------------------------------
    \3\ Includes operations and maintenance, procurement, RDT&E, and
      military construction funding.
    \4\ Funding levels reflect total BRAC environmental requirement planned
      for execution. Funding levels are higher than the PB request (see page
      4 chart) as a portion will be financed with BRAC land sale revenues.

        In fiscal year 2005, the budget request includes $3.8 billion for
    environmental programs. This includes $1.3 billion for cleanup, $0.3
    billion for BRAC environmental, $1.6 billion for compliance; about $0.1
    billion for pollution prevention, and about $0.1 billion for
    conservation.
        By the end of fiscal year 2003, we reduced the number of new
    Federal and State Notices of Violations (NoVs) by 80 percent from the
    1992 baseline. The Department's success is due to an aggressive self
    audit program, which includes root cause analysis and corrective action
    plans. While the number of new NoVs decreased, the number of regulatory
    inspections increased by 12 percent in fiscal year 2003. Even as
    regulators are increasing their oversight, they are finding more
    installations in full compliance. In fiscal year 1994, every 100
    inspections resulted in 37 new enforcement violations. In fiscal year
    2003, every 100 inspections resulted in only 8 new enforcement
    violations.
        In calendar year 2002, we provided drinking water for over 2
    million people worldwide and less than 5 percent of the population
    received notices that the water exceeded a drinking water standard at
    some point during the year. To further protect people, assets, and
    mission, DOD is conducting vulnerability assessments and developing
    emergency response plans for all systems serving 25 consumers or more;
    far beyond the requirement in the Safe Drinking Water Act to assess
    systems serving a population greater than 3,300 persons.
        We reduced the amount of hazardous waste we dispose of by over 68
    percent since 1992, reducing the cost to manage these wastes. The
    Department diverted over 41 percent of all the solid waste generated
    from landfills to recycling; thereby avoiding over $138 million in
    landfill costs. These pollution prevention techniques continue to save
    the Department needed funds as well as reduce pollution. We increased
    the number of alternative fueled vehicles that we acquire to 77 percent
    of all non-tactical vehicles acquired, exceeding the requirement in the
    Energy Policy Act of 75 percent.
        The Department's commitment to its restoration program remains
    strong as we reduce risk and restore property for productive use by
    future generations. We are exploring ways to improve and accelerate
    cleanup with our regulatory and community partners. Achieving site
    closure and ensuring long-term remedies are challenges we continue to
    face. Conducting environmental restoration activities at each site in
    the program requires accurate planning, funding, and execution of plan.
        The Department must plan its activities years in advance to ensure
    that adequate funding is available and used efficiently. As an example,
    instead of waiting for Federal and State regulation to determine
    cleanup standards before beginning planning for perchlorate
    restoration, in September 2003 the Department required the military
    components to assess the extent of perchlorate occurrence at active and
    closed installations, and Formerly Used Defense Sites (FUDS). We will
    use the data collected to determine priorities and funding requirements
    for our cleanup responsibilities. As soon as perchlorate standards are
    determined, the Department will be ready to request the appropriate
    funding and begin execution. In addition, the Department has invested
    $27 million to research potential health effects, environmental
    impacts, and treatment processes for perchlorate. The remediation
    technologies we are testing in several States continue to increase the
    effectiveness of treatment. We are putting ourselves in the best
    possible position to respond to any new requirement established by
    regulatory agencies.
        The Defense Environmental Restoration Program goals assist the
    components in planning their programs and achieving funding for
    activities. We achieved our goal to reduce 50 percent of high risk
    sites at active installations by the end of fiscal year 2002 and are on
    track to achieve 100 percent by the end of fiscal year 2007. At the end
    of fiscal year 2003, 83 percent of BRAC sites requiring hazardous waste
    remediation have a cleanup remedy constructed and in place, and 78
    percent have had all necessary cleanup actions completed in accordance
    with Comprehensive Environmental Response, Compensation, and Liability
    Act standards.
        We also are working to mitigate unexploded ordnance (UXO) on our
    military ranges. Our operational ranges are designed to train and make
    combat-ready our Nation's warfighters and prepare them for combat. UXO
    on ranges is a result of our military preparedness training activities.
    However, we are actively developing ways to minimize the amount of UXO
    on our operational test and training ranges. The Department is
    developing policies on the periodic clearance of UXO for personnel
    safety and to ensure chemical constituents do not contaminate
    groundwater.
        To address UXO problems at locations other than operational ranges,
    FUDS, some BRAC installations, and closed ranges on active
    installations--we have the Military Munitions Response Program (MMRP).
    We are currently developing goals and metrics for the program to track
    our progress to completion and finishing the prioritization protocol
    that will allow us to sequence sites by risk. We have an inventory of
    our munitions response sites, which we shared with the States and EPA,
    and have made available to the public. This inventory is being updated
    as we reconcile our list with the States. Even though the UXO cleanup
    program is in the early stages of development, considerable progress
    has been made in cleaning up MMRP sites at our BRAC installations and
    FUDS. As of the end of fiscal year 2003, DOD has fulfilled its cleanup
    obligations at over 120 of the approximately 195 identified MMRP sites
    at BRAC installations, and has cleanup actions underway at 27 sites.
    These sites were identified prior to fiscal year 2001 as having UXO
    contamination and the Department has been making steady progress to
    eliminate their hazards--almost 65 percent of the BRAC MMRP inventory
    has been addressed. A similar situation can be found at FUDS, where 45
    percent of the MMRP sites identified have had all cleanup actions
    completed. Over 790 of the 1,753 FUDS with currently identified UXO
    contamination have been addressed, and another 36 are undergoing
    cleanup actions.
        In addition, we are developing new technologies and procedures
    through the Environmental Security Technology Certification Program and
    the Strategic Environmental Research and Development Program. Over 60
    percent of the investments in these programs focus on projects to
    sustain ranges and range operations. These, along with the Army and
    Navy's Environmental Quality Technology Programs, have helped us make
    tremendous strides for realizing our goal to reduce current and future
    environmental liability.
        Across the Department, we are actively implementing environmental
    management systems based on the ``plan-do-check-act'' framework of the
    international standard for environmental management systems (ISO
    14000). Our objective is to transform environmental management in the
    Department of Defense from an activity external to the mission to a
    systematic process that is fully integrated with mission planning and
    execution. This transformation is essential for the continued success
    of our operation at home and abroad. Our new management systems target
    reduction in our day-to-day compliance costs and long-term
    environmental liabilities by increasing environmental awareness and
    mobilizing all Defense organizations and employees to reduce
    environmental impacts through improved control of day-to-day mission
    activities. The military departments and Defense Logistics Agency
    reported plans to implement environmental management systems at roughly
    625 installations. Over 50 percent of these installations have
    environmental management system policies in place--the first step
    toward full scale implementation. To date, 33 installations have fully
    implemented environmental management systems.

    Utilities Privatization and Energy Management
        The Department seeks to reduce its energy consumption and the
    associated costs, while improving utility system reliability and
    safety. To accomplish this, the Department of Defense is developing a
    comprehensive energy strategy that will continue to optimize utility
    management by conserving energy and water usage, improve energy
    flexibility by taking advantage of restructured energy commodity
    markets when opportunities present themselves and modernize our
    infrastructure by privatizing our deteriorated and outdated utilities
    infrastructure where economically feasible.
        With approximately 2.2 billion square feet of facilities, the
    Department is the single largest energy user in the Nation. Conserving
    energy in today's high-priced market will save the Department money--
    money that can be better invested in readiness, facilities sustainment,
    and quality of life. Our efforts to conserve energy are paying off; in
    fiscal year 2003 military installations reduced consumption by 1
    percent resulting in a 2.7-percent decrease in the cost of energy
    commodities from fiscal year 2002. With a 26.1-percent reduction in
    fiscal year 2003 from a 1985 baseline, the Department has, thus far,
    maintained a positive track to achieve the 2005 and 2010 facility
    energy reduction goals stipulated by Executive Order 13123.
        The comprehensive energy strategy will support the use of meters to
    manage energy usage at locations where the monitoring justifies the
    cost of installing, maintaining and reading the meter. Metering in
    itself does not save energy, however use of meters can be beneficial to
    determine accurate billing, perform diagnostic maintenance, and enhance
    energy management by establishing baselines, developing demand
    profiles, ensuring accurate measurement for reporting, and providing
    feedback to users.
        The Department has a balanced program for energy conservation--
    installing energy savings measures using appropriated funding and
    private-sector investment--combined with using the principles of
    sustainable design to reduce the resources used in our new
    construction. Energy conservation projects make business sense,
    historically obtaining about $4 in life-cycle savings for every dollar
    invested. The fiscal year 2005 budget contains $60 million for the
    Energy Conservation Investment Program (ECIP) to implement energy
    saving measures in our existing facilities. This is a 20-percent
    increase from the fiscal year 2004 congressionally appropriated amount
    of $50 million, partly because of the performance of the program to
    date and because of the focused management effort for continued
    success. The Department will also continue to pursue renewable energy
    technologies such as fuel cells, geo-thermal, wind, solar, and purchase
    electricity from these renewable sources when it is life-cycle cost-
    effective. In fiscal year 2003 military installations used 3.2 trillion
    British Thermal Units of renewable energy, and project an increase in
    fiscal year 2004. The pursuit of renewable energy technologies is
    critical to the Department's and Nation's efforts in achieving energy
    flexibility.
        The Department has reaffirmed its preference to modernize military
    utility systems through privatization. Following on revised guidance
    signed by the Deputy Secretary of October 2002, the DOD Utilities
    Privatization Program has made solid progress. The Services have
    greatly simplified and standardized the solicitation process for
    obtaining industry proposals. The request for proposal templates have
    been clarified to improve industry's ability to obtain private sector
    financing and manage risks. Of 2,602 utility systems serving the DOD,
    435 systems have been privatized, and 739 were already owned by other
    entities. Over 900 systems are currently under solicitation as each
    Service and the Defense Logistic Agency continue aggressive efforts to
    reach privatization decisions on all systems by September 2005.

                          BASE REALIGNMENT AND CLOSURE

        In accordance with the authorizing legislation, the Secretary
    certified on March 23, 2004, that the need exists for the closure or
    realignment of additional military installations and that the
    additional round of closures and realignments authorized for 2005 will
    result in annual net savings for each of the military departments,
    beginning not later than fiscal year 2011. This certification is
    contained in the report that was provided to Congress last week.
        The Secretary's certification of the need for BRAC is a direct
    result of the changed world in which we live. The conclusion that an
    additional round of BRAC is needed is shared not just by the
    Department's civilian leadership but also by the Chairman and Joint
    Chiefs. Changes in the threats we face, how we prepare for those
    threats, and changes in technology require that we reconfigure our
    force structure to most effectively and efficiently support our forces.
    Our force structure and the way we employ it is already transforming
    and this will continue. BRAC has proven to be the most effective and
    comprehensive tool to position our base structure to accommodate and
    facilitate this transformation. Therefore, an additional base
    realignment and closure round is essential to the Department's efforts
    to transform the Armed Forces to meet the threats to our national
    security and to execute our national strategy.
        The Secretary's certification that there is a need for BRAC also
    reflects the fact that the Department retains excess infrastructure
    capacity, even after the previous four BRAC rounds. Excess capacity
    diverts scarce resources from recapitalization. The report we have
    provided includes a ``discussion of the categories of excess
    infrastructure and infrastructure capacity'' as required by the
    legislation. Elimination of excess capacity is an important goal of
    BRAC because it is important to the Department's stewardship of the
    taxpayer's dollar and to its application of taxpayer resources to
    achieve their maximum effect. I must note, however, that the Department
    is focused on the elimination only of truly excess capacity--that which
    is not important to preserving military value. The Secretary has not
    established any quantitative capacity reduction targets for BRAC and
    the Department will not eliminate assets, even if only used marginally,
    wherever these assets are important to the preservation of the
    capabilities the Department must retain and enhance. This was a key
    consideration in the previous rounds and is even more important now.
        BRAC 2005 will be a capabilities-based analysis. The Department
    recognizes that the threats our Nation now faces are difficult or even
    impossible to forecast through conventional analysis. That realization
    compels us to review our facilities in BRAC within the context of the
    capabilities they offer instead of viewing our facilities against
    definitive requirements. Because it is critically important for the
    Department to retain the infrastructure necessary to accommodate its
    ability to ``surge,'' the Department is gauging its installations
    against the range of threats faced by our Nation so that it can
    differentiate among and capitalize on those that offer needed
    capabilities, and reconfigure, realign or close those that do not. The
    previous BRAC rounds demonstrated that DOD has, in fact, focused on the
    elimination of assets that are ``reconstitutable,'' that is, available
    through construction or purchase in the private sector, while retaining
    difficult to reconstitute assets like land maneuver areas and airspace
    for training.
        The Secretary has directed that BRAC must further transformation by
    rationalizing infrastructure to force structure; enhance joint
    capabilities by improving joint utilization; and convert waste to war
    fighting by eliminating excess capacity. I know that you share the
    Department's goal that BRAC 2005 must result in a base structure
    configured to most effectively and efficiently support the capabilities
    necessary to meet the threats of today and tomorrow. I also know that
    this subcommittee appreciates the fact that every dollar wasted on
    unnecessary infrastructure is a dollar diverted from improving Defense
    capabilities. That is why Congress authorized BRAC 2005--it is the only
    process that uses a rigorous, objective process rooted in military
    value to rationalize the Department's infrastructure.

                                   CONCLUSION

        The Department is transforming its installations and business
    practices through an asset management strategy, and we are beginning to
    see the results of that transformation. We are achieving the
    President's goal to provide quality housing for our service members and
    their families, and we have made positive progress toward our goal to
    prevent deterioration and obsolescence and to restore the lost
    readiness of our facilities. We also are transforming our environmental
    management to become outcome oriented, focusing on results. We are
    responding vigorously to existing encroachment concerns and are putting
    a long-term installation and range sustainment strategy into effect.
        The BRAC effort leading to the delivery of the Secretary's
    recommendations to the independent Base Closure Commission in May 2005
    is a key means to transform our infrastructure to be more flexible to
    quickly and efficiently respond the challenges of the future. Together
    with the Global Defense Posture Review, BRAC 2005 will make a profound
    contribution to transforming the Department by rationalizing our
    infrastructure with Defense strategy.
        In short--we have achieved significant accomplishments over the
    last 3 years, and we are well on our way to achieving our goals across
    the Installations and Environment Community.
        In closing, Mr. Chairman, I sincerely thank you for this
    opportunity to highlight our successes and outline our plans for the
    future. I appreciate your continued support of our installations and
    environment portfolio, and I look forward to working with you as we
    transform our plans into actions.

        Senator Ensign. Thank you for your statement.
        General Lust.

     STATEMENT OF MG LARRY J. LUST, USA, ASSISTANT CHIEF OF STAFF
            FOR INSTALLATION MANAGEMENT, UNITED STATES ARMY

        General Lust. Mr. Chairman and distinguished members of the
    subcommittee, I am pleased to appear before you today to
    represent the Army and discuss our fiscal year 2005 military
    construction and environmental budgets. We have submitted a
    robust military construction budget for $3.7 billion that funds
    our highest priorities for the active Army, the Army National
    Guard, and the Army Reserve facilities, along with our Army
    family housing. This request supports the Army's vision of
    people, current readiness, and transformation to the future
    force.
        We are fighting a global war on terrorism and
    simultaneously transforming to become a more relevant and ready
    Army. We currently have approximately 250,000 troopers
    mobilizing, demobilizing, deploying, and redeploying. More
    troopers are moving through our installations today than at any
    time since World War II.
        The Army recently identified key focus areas to channel our
    efforts to increase the relevance and readiness of our Army.
    One of the focus areas, Installations as Our Flagships, defines
    the Army's requirement to project power, sustain facilities,
    train forces, and support families. Our installations support
    an expeditionary force where soldiers live, train, mobilize,
    deploy, and enable our forces to reach back for sustained
    support. Soldiers and their families who live on and off
    installations deserve the same quality of life that is afforded
    to the society they are sworn to defend.
        The Installation Management Agency (IMA) provides the Army
    with a single agency and a corporate structure to help us meet
    this vision. Base support dollars are sent directly from the
    IMA to the garrison in order to meet the Army's most critical
    base support needs. With the IMA concept, commanders and units
    are better able to concentrate on their warfighting missions
    and tasks.
        The fiscal year 2005 military construction budget will
    provide the resources and facilities necessary to continue
    support of the Army's mission and will provide new barracks for
    4200 soldiers, adequate housing for 14,200 Army families,
    increased military construction funding for the Army National
    Guard and Army Reserve over last year's request, new readiness
    centers for over 3,000 Army National Guard soldiers, new
    Reserve centers for over 2800 Army Reserve soldiers, a $287
    million investment in our training ranges, a battalion-sized
    basic combat training complex, and facilities support and
    improvements for four Stryker brigades.
        Our budget request also supports the Army's environmental
    program, which directly affects the readiness and well being of
    our soldiers and their families. Overall, the fiscal year 2005
    budget provides for a lean but effective investment in the
    corrective and preventive actions that eliminate past problems
    and will help prevent future ones.
        The Army is committed to being a good steward of the
    environment and our programs fulfil the public trust in
    management of Army lands and protect the natural and cultural
    resources. The Army's program provides the protection of
    training lands, environmental compliance, restoration of
    contaminated areas, and important technology and pollution
    prevention initiatives. Our long-term environmental strategy
    will be accomplished through sustained funding, divestiture of
    excess capacity, and improvement in management and technology.
        Mr. Chairman, our fiscal year 2005 budget is a balanced
    program that supports the Army's mission. It funds programs
    that support our efforts to win the global war on terrorism,
    provides for quality facilities and programs for our soldiers
    and their families, and maintains current readiness and enables
    the transformation of the Army to the future force. With your
    continued support, we will achieve these objectives.
        Mr. Chairman, thanks again for the opportunity to appear
    before you and for you and your committee's steadfast support
    to the men and women of the Army who are on point for this
    Nation. Thank you.
        [The prepared statement of General Lust follows:]

               Prepared Statement by Maj. Gen. Larry J. Lust, USA

                                  INTRODUCTION

        Mr. Chairman and members of the subcommittee, it is a pleasure to
    appear before you to discuss the Army's Military Construction and Army
    Environmental Program budget request for fiscal year 2005. This request
    includes initiatives of critical importance to the Army and this
    committee, and we appreciate the opportunity to report on them to you.
    We would like to begin by expressing our appreciation for the
    tremendous support that Congress has provided to our soldiers and their
    families who are serving our country around the world. We are a Nation
    and an Army at war, and our soldiers would not be able to perform their
    missions so well without your support. My statement is in two parts.
    Part I addresses the Army Military Construction Program. Part II
    addresses the Army Environmental Program.

                       PART I: ARMY MILITARY CONSTRUCTION
                                    OVERVIEW

        The Army has begun one of the most significant periods of
    transformation in its 228-year history. We are ``An Army at War--
    Relevant and Ready.'' This maxim will define how we meet the Nation's
    military requirements today and into the future. As we are fighting the
    global war on terrorism, we are simultaneously transforming to be a
    more relevant and ready Army. We are on the road to a transformation
    that will allow us to continue to dominate conventional battlefields
    and provide the ability to deter and defeat adversaries who rely on
    surprise, deception, and asymmetric warfare to achieve their
    objectives. To accomplish our objective, our operational force will
    temporarily increase by 30,000 soldiers. We currently have almost
    250,000 soldiers mobilizing and demobilizing, deploying and
    redeploying--more troops are coming and going on our installations than
    in any era since World War II. Military Construction is an important
    tool to our network of installations to meet our challenging
    requirements.
        As part of this transformation, the Army is fielding and equipping
    six Stryker Brigade Combat Teams (SBCT) to meet combatant commanders'
    requirements and to continue the Army's commitment to the global war on
    terrorism. These SBCTs allow the Army to continue modernizing and
    transforming the current force. The rapid development and fielding of
    six SBCTs is leading the transformation of the Army--physically and
    culturally.
        To meet the challenges of today's missions, the Army must sustain a
    force of high quality, well-trained people; acquire and maintain the
    right mix of weapons and equipment; and maintain effective
    infrastructure and deployment platforms to generate the capabilities
    necessary to sustain a lethal force. We must ensure that a trained and
    qualified force will be in place to support the Future Force of a
    transformed Army. To meet that goal and ensure continued readiness, we
    must take care of soldiers and families. Our installations are a key
    component in this effort.

    Installations as Flagships
        The Army recently identified 17 Army focus areas to channel our
    efforts to win the global war on terrorism and to increase the
    relevance and readiness of the Army. One of the focus areas--
    Installations as Flagships--enhances the ability of an Army
    installation to project power and support families. Our installations
    support an expeditionary force where soldiers train, mobilize, and
    deploy to fight and are sustained as they reach back for support.
    Soldiers and their families who live on and off the installation
    deserve the same quality of life as is afforded the society they are
    pledged to defend. Installations are a key component in the tenets of
    the Army vision. Our worldwide installations structure is inextricably
    linked to Army transformation and the successful fielding of the Future
    Force.

    Installation Strategies
        There is much work to be done if all installations are to be
    flagships with the ability to both project power and support families
    to an equitable standard. We are a world-class combat ready force being
    supported by substandard facilities that impair our ability to meet the
    mission. To improve our facilities posture, we have specific
    initiatives to focus our resources on the most important areas--
    Barracks, Family Housing, Focused Facilities, Ranges, and
    Transformation.
        Barracks
        The Army is in the 11th year of its campaign to modernize barracks
    to provide 136,000 single enlisted permanent party soldiers with
    quality living environments. This year's budget request includes 19
    barracks projects providing new or improved housing for 4,200 soldiers.
    The new complexes provide two-soldier suites, increased personal
    privacy, larger rooms, walk-in closets, new furnishings, adequate
    parking, landscaping, and unit administrative offices separated from
    the barracks. With the approval of $700.4 million for barracks in this
    request, a significant portion of our requirement will be funded. We
    are making considerable progress at U.S. installations and the Army
    funded two barracks projects, based upon the combatant commander's
    request, for Grafenwoehr, Germany.
        Family Housing
        This year's budget continues our significant investment in our
    soldiers and their families by supporting our goal to have funding in
    place by 2007 to eliminate inadequate housing. We have included funding
    in this year's budget request to privatize 11,906 houses. In addition
    we will replace 1,313 houses, build 100 new houses to support Stryker
    Brigade Combat Team deployment, and upgrade another 875 houses using
    traditional military construction. For families living off-post, the
    budget request for military personnel increases the basic allowance for
    housing to eliminate out-of-pocket expenses. Once overseas basing
    decisions are made, we will adjust our plans for new housing
    construction overseas.
        Focused Facilities
        Building on the successes of our housing and barracks programs, we
    are moving to improve the overall condition of Army infrastructure with
    the Focused Facility Strategy. The Installation Readiness Report is
    used to determine facilities quality ratings of C-1 to C-4 based on
    their ability to support mission requirements.

        We are a C-1 Army living and working in C-3 facilities. Our goal is
    to reach an overall Army average of C-2 quality by 2010 by
    concentrating on seven types of C-3 and C-4 facilities. These focus
    facilities are general instruction buildings, Army National Guard
    Readiness Centers, Army Reserve Centers, tactical vehicle maintenance
    shops, training barracks, physical fitness centers, and chapels. We are
    requesting $207 million in fiscal year 2005 to support this initiative.
        Army Range and Training Land Strategy
        Providing ranges and training lands that enable the Army to train
    and develop its full capabilities is key to ensuring that America's
    forces are relevant and ready now. The Army's Deputy Chief of Staff G-3
    developed the Army Range and Training Land Strategy to support the
    Department of Defense's Training Transformation, Army Transformation,
    and the Army's Sustainable Range Program. It identifies priorities for
    installations requiring resources to modernize ranges, mitigate
    encroachment, and acquire training land. The strategy serves as the
    mechanism to prioritize investments for these installations and seeks
    to optimize the use of all range and land assets. The result is a long-
    range plan that provides the best range infrastructure and training
    lands based on mission and training requirements.
        Current to Future Force
        The Army is undergoing the biggest internal restructuring in the
    last 50 years. As part of this transformation effort, we are fielding
    and equipping six Stryker Brigade Combat Teams throughout the Army.
    This transformation will drive our efforts to ensure that our
    ``training battlefields'' continue to meet the demands of force
    structure, weapons systems, and doctrinal requirements. Providing
    ranges and training lands that enable the Army to train and develop its
    full capabilities is crucial to ensure that America's forces are
    relevant and ready now. Our fiscal year 2005 military construction
    budget requests $305 million for projects for operations and training
    facilities, training ranges, maintenance facilities, logistics
    facilities, utilities, and road upgrades in support of the Stryker
    Brigade Combat Teams.
        The former Army Strategic Mobility Program ended in fiscal year
    2003 with the capability of moving five and one-third divisions in 75
    days. We must improve current processes and platforms so intact units
    arrive in theater in an immediately employable configuration.
        The new Army Power Projection Program (AP3) is a combat multiplier
    for Army transformation and a catalyst for joint and Service
    transformation efforts related to force projection. AP3 is a set of
    initiatives and strategic mobility enabling systems, including
    infrastructure projects, that ensures we are able to meet current and
    future force deployment requirements. AP3 funding began in fiscal year
    2004. AP3 ensures the capability to deploy Army forces in accordance
    with regional combatant commanders' operational plans.

                             MILITARY CONSTRUCTION

        The Army's fiscal year 2005 request has increased over fiscal year
    2004 and includes $3.7 billion for military construction appropriations
    and associated new authorizations.

    ----------------------------------------------------------------------------------------------------------------
                                                                               Authorization of
             Military Construction Appropriation             Authorization       Appropriation       Appropriation
                                                                Request             Request             Request
    ----------------------------------------------------------------------------------------------------------------
    Military Construction Army (MCA)....................      $1,535,400,000      $1,771,285,000      $1,771,285,000
    Military Construction Army National Guard (MCNG)....                 N/A         295,657,000         295,657,000
    Military Construction Army Reserve (MCAR)...........                 N/A          87,070,000          87,070,000
    Army Family Housing (AFH)...........................         636,099,000       1,565,006,000       1,565,006,000
                                                         -----------------------------------------------------------
      Total.............................................      $2,171,499,000      $3,719,018,000      $3,719,018,000
    ----------------------------------------------------------------------------------------------------------------

                       MILITARY CONSTRUCTION, ARMY (MCA)

        The active Army's fiscal year 2005 military construction request
    for $1,771,285,000 (for appropriation and authorization of
    appropriations) and $1,535,400,000 (for authorization) is for people,
    current readiness, and transformation to the Future Force. These funds
    are critically needed to provide new barracks, invest in training
    ranges and land, recapitalize existing facilities, and support three
    Active Army Stryker Brigade Combat Teams in Alaska, Hawaii, and
    Louisiana. The request also includes funds for planning and design for
    future projects, along with Unspecified Minor Military Construction.
        The Department of Defense continues to assess its global stationing
    strategy. We have included only minimal, but critical, overseas
    projects in the fiscal year 2005 military construction budget request.
    These projects are required to provide the infrastructure necessary to
    ensure continued soldier readiness and family well-being that is
    essential throughout any period of transition.

    People
        We are requesting $798 million to improve the well-being of our
    soldiers, civilians, and families. Approximately 50 percent of our MCA
    budget request will improve well being in significant ways--providing
    19 unit barracks complexes for 4,200 soldiers ($700 million), a basic
    trainee barracks complex ($50 million), a physical fitness center ($18
    million), a chapel ($10 million), two child development centers and a
    youth center ($20 million).

    Current Readiness
        Our budget request includes $504 million to keep our soldiers
    trained and ready to respond to the Nation's needs. Current readiness
    projects include operational and training instructional facilities ($92
    million), training ranges ($122 million), logistics facilities ($31
    million), utilities and land acquisition ($27 million), maintenance/
    production and tactical equipment facilities ($82 million),
    communication/administration facilities ($104 million), a research and
    development facility ($33 million), and community support facilities
    ($13 million).

    Current to Future Force
        Our budget request also includes $298 million for projects to
    ensure the Army is trained, deployable, and ready to rapidly respond to
    national security requirements and support transformation for the
    Stryker Brigade Combat Teams. Projects include operations and training
    facilities ($63 million), training ranges ($79 million), a maintenance
    facility ($49 million), logistics facilities ($19 million), and
    utilities and roads ($88 million).

    Other Worldwide Support Programs
        The fiscal year 2005 MCA request includes $171 million for planning
    and design, along with Unspecified Minor Military Construction.
    Planning and design funds ($151 million) are used to accomplish final
    design of future projects and oversight of host nation construction. As
    Executive Agent for the Department of Defense, the Army uses planning
    and design funds for oversight of construction projects funded by host
    nations for use by all Services. Finally, the fiscal year 2005 MCA
    budget contains $20 million for Unspecified Minor Military Construction
    to address unforeseen critical needs or emergent mission requirements
    that cannot wait for the normal programming cycle.

               MILITARY CONSTRUCTION, ARMY NATIONAL GUARD (MCNG)

        The Army National Guard's fiscal year 2005 military construction
    request for $295,657,000 (for appropriation and authorization of
    appropriations) is focused on current readiness and transformation to
    the future force.

    Current Readiness
        In fiscal year 2005, the Army National Guard has requested $116.1
    million for nine projects. These funds will provide the facilities our
    soldiers need as they train, mobilize, and deploy. They include one
    Readiness Center, one Armed Forces Reserve Center, three Army Aviation
    Support Facilities, two Ranges, and two Training projects. Current to
    Future Force. This year, the Army National Guard is requesting $144.2
    million for 23 projects needed to transform from Current to Future
    Force. There are 16 projects for the Army Division Redesign Study,
    three for Aviation Transformation, two for the Range Modernization
    Program, and two for the Stryker Brigade Combat Team initiative.

    Other Worldwide Support Programs
        The fiscal year 2005 MCNG budget request contains $30.8 million for
    planning and design of future projects, along with $4.5 million for
    Unspecified Minor Military Construction to address unforeseen critical
    needs or emergent mission requirements that cannot wait for the normal
    programming cycle.

                   MILITARY CONSTRUCTION, ARMY RESERVE (MCAR)

        The Army Reserve's fiscal year 2005 military construction request
    for $87,070,000 (for appropriation and authorization of appropriations)
    is for current readiness and other worldwide unspecified programs.

    Current Readiness
        The Army Reserve will invest $72.9 million in current readiness
    projects. We will invest $58.6 million to construct four new Reserve
    centers, and one military equipment park; invest $7.9 million to
    modernize and expand one Reserve center, invest $3.9 million to
    construct two ranges; and invest $2.5 million to acquire land for a
    future Armed Forces Reserve center.

    Other Worldwide Unspecified Programs
        The fiscal year 2005 MCAR budget includes $11.2 million for
    planning and design. The funds will be used for planning and design of
    future projects. The fiscal year 2005 MCAR budget also contains $2.9
    million for Unspecified Minor Military Construction to address
    unforeseen critical needs or emergent mission requirements that cannot
    wait for the normal programming cycle.

                    ARMY FAMILY HOUSING CONSTRUCTION (AFHC)

        The Army's fiscal year 2005 family housing request is $636,099,000
    (for appropriation, authorization of appropriation, and authorization).
    It continues the successful and well-received Whole Neighborhood
    Revitalization initiative approved by Congress in fiscal year 1992 and
    supported consistently since that time, and our Residential Communities
    Initiative program.
        The fiscal year 2005 new construction program provides additional
    housing in Alaska in support of a Stryker Brigade Combat Team and whole
    neighborhood replacement projects at nine locations in support of 1,413
    families for $394.9 million.
        The Construction Improvements Program is an integral part of our
    housing revitalization and privatization programs. In fiscal year 2005,
    we are requesting $75.4 million for improvements to 875 existing units
    at 3 locations in the United States and 2 locations in Europe, as well
    as $136.6 million for scoring and direct investment in support of
    privatization of 11,906 units at 6 Residential Communities Initiative
    (RCI) locations.
        In fiscal year 2005, we are also requesting $29.2 million for
    planning and design in support of future family housing construction
    projects critically needed for our soldiers.

    Privatization
        RCI, the Army's Family Housing Privatization Program, is providing
    quality, sustainable housing and communities that our soldiers and
    their families can proudly call home. RCI is a critical component of
    the Army's effort to eliminate inadequate family housing in the United
    States. The fiscal year 2005 budget request provides support to
    continue implementation of this highly successful program.
        We are leveraging appropriated funds and Government assets by
    entering into long-term partnerships with nationally recognized private
    sector real estate development and management firms to obtain financing
    and management expertise to construct, repair, maintain, and operate
    family housing communities.
        The RCI program currently includes 34 installations with almost
    71,000 housing units--over 80 percent of the family housing inventory
    in the United States. By the end of fiscal year 2004, the Army will
    have privatized 19 installations with an end state of 42,000 homes.

                     ARMY FAMILY HOUSING OPERATIONS (AFHO)

        The Army's fiscal year 2005 family housing operations request is
    $928,900,000 (for appropriation and authorization of appropriations),
    which is approximately 59 percent of the total family housing budget.
    This budget provides for annual operations, municipal-type services,
    furnishings, maintenance and repair, utilities, leased family housing,
    demolition of surplus or uneconomical housing, and funds supporting
    management of the Military Housing Privatization Initiative.

    Operations ($150 million)
        The operations account includes four subaccounts: management,
    services, furnishings, and a small miscellaneous account. All
    operations subaccounts are considered ``must pay accounts'' based on
    actual bills that must be paid to manage and operate family housing.

    Utilities ($132 million)
        The utilities account includes the costs of heat, air conditioning,
    electricity, water, and sewage for family housing units. While the
    overall size of the utilities account is decreasing with the reduction
    in supported inventory, per-unit costs have increased due to general
    inflation and the increased costs of fuel.

    Maintenance and Repair ($402 million)
        The maintenance and repair account supports annual recurring
    maintenance and major maintenance and repair projects to maintain and
    revitalize family housing real property assets. While the overall
    account is smaller than fiscal year 2004, the reduced inventory allows
    for greater per-unit funding than has been possible in the recent past.
    This allows us to better sustain our housing inventory.

    Leasing ($218 million)
        The leasing program provides another way of adequately housing our
    military families. The fiscal year 2005 request includes funding for
    over 13,600 housing units, including existing Section 2835 (``build-to-
    lease''--formerly known as 801 leases) project requirements, temporary
    domestic leases in the United States, and approximately 7,700 units
    overseas.

    RCI Management ($27 million)
        The RCI management program funding includes procurement
    requirements, environmental studies, real estate requirements,
    management, operations, implementation, and oversight of the overall
    RCI program.

                      BASE REALIGNMENT AND CLOSURE (BRAC)

        In 1988, Congress established the Defense Base Closure and
    Realignment Commission to ensure a timely, independent and fair process
    for closing and realigning military installations. Since then, the
    Department of Defense has successfully executed four rounds of base
    closures to rid the Department of excess infrastructure and align the
    military's base infrastructure to a reduced threat and force structure.
    Through this effort, the Army estimates approximately $9 billion in
    savings through 2004.
        The Army is requesting $100.3 million in fiscal year 2005 for prior
    BRAC rounds ($8.3 million to fund caretaking operations of remaining
    properties and $92.0 million for environmental restoration). In fiscal
    year 2005, the Army will complete environmental restoration efforts at
    three installations, leaving 11 installations requiring environmental
    restoration. We also plan to dispose of an additional 8,000 acres in
    fiscal year 2005.
        Fiscal year 2003 was a superb year! Using all the tools Congress
    provided, including the Conservation Conveyance Authority and Early
    Transfer Authority, the Army transferred 100,957 acres of BRAC
    property. This is almost 40 percent of the total Army BRAC excess
    acreage, and almost as many acres as all prior years combined. To date,
    the Army has disposed of 223,911 acres (85 percent of the total acreage
    disposal requirement of 262,705 acres). We have 38,794 acres remaining
    to dispose of at 28 installations. The Army continues to save more than
    $900 million annually from previous BRAC rounds.

                           OPERATION AND MAINTENANCE

        The fiscal year 2005 Operation and Maintenance budget includes
    funding for sustainment, restoration, and modernization (SRM--$2.54
    billion) and Base Operations Support (BOS--$6.57 billion). The SRM and
    BOS accounts are inextricably linked with our Military Construction
    programs to successfully support Installations as Flagships.

    Sustainment, Restoration, and Modernization (SRM)
        The fiscal year 2005 budget for SRM is $2.5 billion, of which $2.42
    billion funds sustainment at 95 percent of the requirement. SRM
    provides funding for the active and Reserve components to continue
    making positive progress towards our goal to prevent deterioration and
    obsolescence and restore the lost readiness of facilities.
        Sustainment is the primary account in installation base support
    funding responsible for maintaining the infrastructure to achieve a
    successful readiness posture for the Army's fighting force. It is the
    first step in our long-term facilities strategy. Installation
    facilities are the deployment platforms of America's Army and must be
    properly maintained to be ready to support current Army missions and
    any future deployments.
        The second step in our long-term facilities strategy is the
    recapitalization by restoring and modernizing our existing facility
    assets. In fiscal year 2005, the active Army request for Restoration
    and Modernization is $93.2 million. Restoration includes repair and
    restoration of facilities damaged by inadequate sustainment, excessive
    age, natural disaster, fire, accident, or other causes. Modernization
    includes alteration or modernization of facilities solely to implement
    new or higher standards, including regulatory changes, to accommodate
    new functions, or to replace building components that typically last
    more than 50 years, such as foundations and structural members.
    Base Operations Support
        The fiscal year 2005 budget for Base Operations Support is $6.57
    billion (Active Army, Army National Guard, Army Reserve). This is 70
    percent of the requirement. This funds programs to operate the bases,
    installations, camps, posts, and stations of the Army worldwide. The
    program includes municipal services, family programs, environmental
    programs, force protection, audio/visual, base communication services
    and installation support contracts. Army community service and Reserve
    component family programs include a network of integrated support
    service that directly impact soldier readiness, retention, and spouse
    adaptability to military life during peacetime and through all phases
    of mobilization, deployment, and demobilization.

                      HOMEOWNERS ASSISTANCE FUND, DEFENSE

        The Army is the Department of Defense Executive Agent for the
    Homeowners Assistance Program. This program provides assistance to
    homeowners by reducing their losses incident to the disposal of their
    homes when military installations at or near where they are serving or
    employed are ordered to be closed or the scope of operations reduced.
    For fiscal year 2005, there is no request for appropriations and
    authorization of appropriations. Requirements for the program will be
    funded from prior year carryover and revenue from sales of homes.
    Assistance will be continued for personnel at ten installations that
    are impacted with either a base closure or a realignment of personnel,
    resulting in adverse economic effects on local communities.

                      PART II: ARMY ENVIRONMENTAL PROGRAM
                       THE ARMY ENVIRONMENTAL COMMITMENT

        The Army's Environmental Program budget request for fiscal year
    2005 totals $1,459,735,000 (appropriations and authorization of
    appropriations) for its Compliance, Restoration, Conservation,
    Pollution Prevention, and Environmental Quality Technology Programs.
    This figure includes $92,050,000 reflecting the environmental portion
    of the total BRAC budget request. In addition, this figure reflects the
    Office of the Secretary of Defense budget request of $216,516,000 for
    the DOD Formerly Used Defense Site (FUDS) program for which the Army is
    the DOD Executive Agent.
        The Army Environmental Program supports readiness and contributes
    to the well-being of our soldiers and their families. It fulfills the
    public trust to manage Army lands by protecting natural and cultural
    resources, in accordance with Federal, State, and local laws. The Army
    is fully committed to complying with all Federal and State laws,
    conserving natural and cultural resources and cleaning up active, BRAC
    and FUDS. We will continue to expand implementation of Environmental
    Management Systems (EMS) on our installations, an effort that began
    Army-wide in fiscal year 2003, as well as efforts to further integrate
    pollution prevention practices into all that we do--to include our
    weapons systems acquisition procedures. Additionally, our technology
    program continues to address environment, safety, and occupational
    health needs comprehensively and cost effectively. By dedicating
    resources to these activities, we are increasingly successful in
    identifying efficiencies that support the Army's core missions and
    business practices; developing creative solutions to support our
    environmental stewardship efforts; protecting the health and safety of
    our soldiers, civilians, and communities; and helping to fulfill the
    Army's commitment to support and execute the National Military
    Strategy.
        We are further determined to accomplish our environmental program
    tasks effectively and efficiently. Restoration, compliance and
    conservation require the majority of our budget dollars; however,
    programs in pollution prevention and innovative environmental quality
    technology provide venues for targeted investments to reduce future
    compliance and restoration requirements and recapture dollars for the
    Army's core missions. Overall, our fiscal year 2005 budget request
    provides for a lean, but effective, program implementation and
    investment in both corrective and preventive actions that eliminate
    past problems and prevent future ones.

                              RANGES AND MUNITIONS

        The Army must provide our soldiers with tough, realistic, battle-
    focused training in preparation for a wide variety of mission essential
    warfighting scenarios ranging from desert to cold region operations in
    both rural and urban settings. Ensuring our soldiers have access, now
    and in the future, to the most realistic training possible is a
    challenge for both our operational and environmental communities. The
    continued development of surrounding lands for residential,
    agricultural, and industrial uses, coupled with increasing
    environmental requirements--a process we call encroachment--has
    significantly added to the challenge of providing realistic soldier
    training and fielding new weapon systems.
        To meet these challenges, we have developed a sustainable range
    management program that better integrates environmental considerations
    into all of our range activities--to include live fire training and
    testing operations. Our Army Range Sustainment Integration Council
    provides the leadership framework to ensure a coordinated operational,
    environmental and installation management focus on range sustainment.
        The following initiatives illustrate the Army's commitment to range
    sustainment:

             We have completed an inventory of our 9,800
            operational ranges within the United States.
             We are quantifying encroachment impacts by determining
            and defining external factors that are impacting the Army's
            ability to train, test, and sustain force readiness.
             We are evaluating potential environmental impacts of
            live fire training/testing by looking at the air emissions from
            functioning munitions, corrosion of munitions and
            characterizing conditions of our operational ranges.

        At closed ranges and former defense sites, the Army is taking
    actions through the Military Munitions Response Program to address the
    risk posed by unexploded ordnance (UXO), discarded military munitions,
    and munitions constituents. Per Congressional direction, the Army
    initiated an inventory of former ranges in 2001 and will report our
    findings to Congress in 2004. The Army also is making prudent
    investments in environmental quality technology to improve its ability
    to detect, identify (discriminate), and respond to UXO, ultimately
    reducing costs significantly.

                                   COMPLIANCE

        The Army requests $582,035,000 for the compliance program in fiscal
    year 2005. This investment makes it possible for the Army to comply
    with applicable Federal, State, and local environmental laws,
    regulations, and Executive Orders, as well as international agreements
    and Final Governing Standards overseas.
        The Army's compliance goals are to attain and sustain cost-
    effective compliance with all applicable laws and regulations. The
    Army's long-term compliance objectives are to:

            1. Integrate environmental compliance into all aspects of
            operations that support the Army's mission and promote the
            well-being of soldiers, family members, civilian employees, and
            citizens of neighboring communities; and
            2. Sustain or reduce compliance costs by continuing to
            emphasize pollution prevention solutions as the preferred means
            for achieving compliance.

        The Army focuses on achieving environmental compliance through
    strong command emphasis and the use of effective environmental
    management systems; pollution prevention; diverse training; more
    effective tools and innovative technologies; improved metrics and
    processes; close tracking of new environmental laws and regulations to
    ensure timely input and compliance; and, the development of strong
    partnerships. The cumulative result of these efforts is best
    exemplified by the Army achieving one of the lowest ``enforcement
    action to inspection'' ratios ever. For comparative purposes, this
    ratio was reduced to 0.15 in fiscal year 2003, as compared to 0.44 in
    fiscal year 1997.
        Since most environmental laws and regulations are designed to
    protect human health and the environment, compliance with them is vital
    to maintain the well being of the Army community, our neighbors and the
    regions around our installations. We have steadily improved our
    environmental compliance posture over time. The Army received fewer new
    enforcement actions (ENFs) in fiscal year 2003 and continues to strive
    to resolve ENFs more quickly. Consequently, the amount of fines paid
    during fiscal years 2002 and 2003 were also significantly reduced as
    compared to previous years.
        In support of Executive Order 13148, The Greening of the
    Government, the Army began implementing International Standard
    Organization (ISO) 14001-based Environmental Management System (EMS)
    Army-wide in fiscal year 2003. We have developed a Web-based Army EMS
    Implementers' Guide plus a companion guide to facilitate
    implementation. As a key part of our EMS implementation efforts, we
    have changed our external audit system from a compliance focus to a
    performance-based Environmental Performance Assessment System (EPAS),
    which we expect to pay even greater dividends.
        Lastly, installation sustainability, as a concept, has been
    developed into a well-defined process through a pilot program initiated
    by the United States Forces Command in 2001. This program was
    recognized as a White House ``Closing The Circle'' Winner, and
    currently six installations have undergone sustainability workshops.
    The purpose of these workshops was to develop long-term sustainable
    goals that would be included in the Installation Strategic Plans, with
    full stakeholder involvement, including the local community. Mission
    focused, yet environmentally conforming considerations are essential
    components of these plans which help drive tangible results. The Army
    plans to expand this underlying principle of sustainability for
    improved planning and programming throughout the Army installations.
        The Army sustainability effort is simply an approach that better
    ensures the long-term viability of the military mission by minimizing
    resource needs, reducing environmental impacts, and managing resources
    so as to provide realistic military training and testing environments.
    The sustainability concept will be further integrated across functional
    lines and organizations within the Army. As an example, the Army has
    many diverse programs that currently support sustainability, such as:
    Sustainable Design and Development; Residential Community Initiative;
    affirmative procurement; alternate fueled vehicle purchases/leases;
    purchasing of renewable energy; construction debris recycling, and
    qualified recycling programs. Also, the Army training community has
    undertaken a Sustainable Ranges and Training Lands program that
    specifically supports the warfighting mission through timely
    consideration of environmental impacts and mitigation actions. One of
    the primary thrusts of the Installation Management Agency is to
    emphasize the importance of planning and to develop an Installation
    Strategic Plan that will better integrate all of these various programs
    into a comprehensive plan that guides sustainable actions. Integrating
    construction, infrastructure, training, maintenance, and operations
    with considerations for safety, energy, the environment and resources
    will all help realize greater efficiencies and result in more effective
    operations.

                              POLLUTION PREVENTION

        Pollution prevention (P2) supports the Army by enabling our
    compliance with current and future laws and regulations, promoting good
    environmental stewardship of the lands entrusted to the Army, and
    developing new technologies and partnerships with industry. The Army
    requests $38,480,000 for pollution prevention. Achieving and
    maintaining compliance through development and implementation of
    pollution prevention strategies is a good business practice and a cost-
    effective way for the Army to meet its environmental goals. The Army
    continues to realize significant savings from our past pollution
    prevention investments.
        Efforts are underway to fundamentally improve operations through
    development and implementation of better hazardous materials
    management. This program is designed to enhance accountability while
    reducing the amount of hazardous materials that the Army generates and
    subsequently minimizing the amount of hazardous waste requiring costly
    disposal. In 1994, The Army disposed of a total of 60 million pounds of
    hazardous waste. That number decreased to 36 million pounds by the end
    of 2002, a 40 percent reduction. Through improvements to the hazardous
    material management program, we expect to continue this downward trend.
        Our solid waste minimization efforts reduce costs while promoting
    recycling. The goals for the solid waste management program are to
    minimize the generation of solid wastes, develop cost-effective waste
    management practices, protect public health and the environment, and
    recycle to conserve natural resources. The Army currently reuses or
    recycles over 37 percent of all solid waste generated. Our recycling
    efforts significantly extend the lives of existing landfills and saved
    approximately $39 million in disposal costs during fiscal year 2003.
        The Army's Regional Environmental Offices have developed DOD/State
    Pollution Prevention and Environmental Partnerships in 28 States, up
    from 25 in 2001, while most of the remaining states have some type of
    partnership in existence. These partnerships promote effective dialogue
    on environmental issues among installations and state regulatory
    agencies to resolve problems early. In addition, the partnerships give
    regional environmental coordinators, DOD and our installations the
    opportunity to actively participate in the development of emerging laws
    and regulations to minimize disconnects and unintended compliance
    requirements.
        The Army has adopted the Sustainable Project Rating Tool (SPiRiT)
    to evaluate our military construction projects in terms of their
    sustainability, or how well they incorporate ``green'' building
    techniques, such as recyclable building materials, energy efficiency,
    natural daylight, and compatibility with the natural surroundings. This
    initiative is a common sense design and building practice intended to
    reduce life cycle costs while helping the Army support Federal
    environmental and energy goals. One of the best illustrations is the
    Army's Residential Community Initiative where the 50-year partnership
    agreements to provide military housing requires a Gold SPiRiT standard.
    While SPiRiT deals with how to make new buildings sustainable, another
    initiative concentrates on what to do with existing buildings that have
    reached the end of their useful lives. In the past, standard practice
    has been to demolish old buildings and send the debris to a landfill.
    Several current pilot projects focus on dismantling buildings and
    selling the resultant components (e.g., hardwoods, windows, doors,
    plumbing, wiring, etc.) for recycling or reuse. Efforts at Forts Knox
    and Campbell successfully demonstrated that an installation could
    auction off entire buildings to generate cost savings while minimizing
    the impacts of demolition/deconstruction debris on the environment.
    Buildings and components were removed and reused by the winning bidder.
        Studies have shown that approximately 80 percent of the
    environmental costs at military installations result from the operation
    and maintenance of fielded weapons systems. Therefore, an important
    aspect of the Army Pollution Prevention Program is the early
    incorporation of environmental requirements, planning, and analysis
    into the acquisition process. Our ultimate goal is to reduce the long-
    term environmental costs and liabilities of systems now in development
    and proposed in the future. Specifically, environmental requirements
    continue to be an integral part of the Initial Capability Documents and
    Capability Development Documents for each acquisition program, and
    environmental quality specifications are included in development
    contracts. For example, the development contract for the Future Combat
    System (FCS), the cornerstone of the Army transformation program,
    contains specific environmental requirements that will minimize the
    environmental impact of the FCS when fielded. Environmental technical
    support is also provided to the acquisition managers and staff in the
    areas of environmental life cycle costs, technology and planning which
    reduces program risks for acquisition managers in the all-important
    areas of schedule, budget and performance.
        Another successful pollution prevention initiative has been the
    Army's efforts in reducing the dependence on foreign oil such that 78
    percent of the acquired/leased vehicles in fiscal year 2004 used
    alternate fuels. Pollution prevention is clearly the preferred method
    of doing business in a sustainable and cost effective manner.
    Prevention pollution has numerous other benefits such as reducing our
    consumption and dependence on finite natural resources, minimizing
    human exposure to toxic compounds, and presenting a positive public
    image.

                                  CONSERVATION

        The Army's Environmental Conservation program is crucial to
    sustaining the land and facilities used for our Nation's military
    mission. Encroachment on military lands is increasing the Army's
    conservation requirements to protect wildlife and habitats that further
    impacts the ability of the Army to fully use its current land base for
    training.
        The fiscal year 2005 budget request of $76,933,000 will enable the
    Army to continue its good stewardship of its land and facilities.
    Preparing, updating, and implementing viable management plans will
    enable the Army to continue to manage natural and cultural resources
    and threatened and endangered species in compliance with applicable
    laws. In addition to sustaining lands for military missions, the Army
    provides multipurpose use of its natural and cultural resources and
    grants public access to the extent that safety, security and the
    mission allow.
        In fiscal year 2004, the Army began to implement a campaign plan
    for how it manages its historic properties and meets, among other
    cultural resources statutes and regulations, the requirements of the
    National Historic Preservation Act (NHPA) and its implementing
    regulation, 36 Code of Federal Regulations 800--Protection of Historic
    Properties. This campaign plan is now the foundation of the Army's
    Historic Preservation Program and ensures efficient and effective use
    of resources in executing compliance responsibilities that directly
    support and sustain the Army's mission. The Army's historic properties
    compliance requirement will substantially increase over the next 10
    years due to the aging of its significant cold war era infrastructure.
    By 2013, almost half of the Army's 172,000 buildings and structures in
    the U.S. will be 50 years old or older, triggering compliance under the
    NHPA. The Army also is responsible for 64,000 known archeological sites
    requiring NHPA compliance. The Army is addressing these issues by
    continuing to implement and institutionalize major programmatic
    initiatives like the Army Alternate Procedures for NHPA regulatory
    compliance and Army-wide programmatic compliance actions (agreements
    exist for Capehart and Wherry Era Housing; and the Army is currently
    developing more for other categories of historic properties).
        Urban development continues to isolate natural habitats on Army
    installations. As a result, management efforts and costs are increasing
    as the burden for conserving endangered species grows. The Army's
    increased operational tempo and expanded land acreage requirements for
    weapons development and training is placing an increased demand on the
    land. Integrated Natural Resources Management Plans (INRMPs), required
    by the Sikes Improvement Act of 1997, provide excellent tools to
    address future problems and reduce costs of repairing disturbed natural
    resources while carefully managing threatened and endangered species
    and their critical habitat. The Army has completed 174 of the 178
    required INRMPs, and we are making progress on completing the remaining
    four. In fiscal year 2003, the Army spent over $30 million to manage
    and protect the 170+ threatened and endangered species on 99 Army
    installations.
        To address the issue of urban encroachment and to protect
    endangered species habitat, the Army entered into a conservation
    agreement with The Nature Conservancy as a pilot project at Fort Bragg,
    North Carolina. The Army and The Nature Conservancy pooled funds for
    The Nature Conservancy to purchase land near the installation to
    prevent urban encroachment, enable training, and protect endangered
    species habitat. This agreement formed the basis of the Private Lands
    Initiative, now termed ``Army Compatible Use Buffers,'' and helped
    provided impetus for the recently passed encroachment legislation.
        In the National Defense Authorization Act for Fiscal Year 2003,
    section 2811, Congress provided clear authority for the military
    departments to enter into cooperative arrangements to stem the
    encroachment on our installation boundaries. The Army has issued
    guidance to formally establish the Army Compatible Use Buffer (ACUB)
    program and to provide a rigorous evaluation process by which
    installations proposals can be vetted to ensure our limited resources
    are spent wisely. The Department of Army provides oversight and
    approval of projects to ensure that Armywide interests are taken into
    account. Since issuance of the ACUB memorandum, a number of
    installations have begun to develop proposals, and several are making
    their way forward for Army approval. This authority provided an
    important mechanism to buffer Army installations from incompatible land
    use in surrounding lands. Along with DOD, the Army will continue
    pursuing these agreements as a means to protect our mission. An Army
    National Guard installation in Florida, Camp Blanding, is our most
    recent success where the Army will be able to leverage $20 million of
    State funds for a 3-mile buffer around the installation. DOD and the
    Army greatly appreciate the congressional foresight in adopting this
    measure, which will result in significant benefits to the military
    mission and the natural environment.

                                  RESTORATION

        The Army's commitment to its restoration program remains strong as
    we reduce risks and restore property for future generations. With our
    regulatory, private sector and community partners, we are aggressively
    exploring ways to improve and accelerate cleanup. Achieving site
    closure and ensuring long-term remedies are challenges we are prepared
    to face. Improved business practices, partnerships, and innovative
    technologies have enabled us to provide sound stewardship of the
    environment and taxpayer dollars.
        The fiscal year 2005 budget request for Army restoration is
    $400,948,000, and this funding level will meet our legal agreements and
    the Defense Financial Management Regulation goal of fiscal year 2014.
    Also reflected in the total Army Environmental Program budget request
    is $92,050,000 that represents the environmental portion of the total
    BRAC budget request. In addition, as the Office of the Secretary of
    Defense's (OSD) Executive Agent for the Formerly Used Defense Sites
    (FUDS) program, the Army requested, and the OSD supported, a request
    for $216,516,000.
        The Army's environmental restoration program addresses Active,
    BRAC, and FUDS properties that became contaminated due to past
    practices. The Army also conducts compliance-related cleanup at active
    installations worldwide. Last year the Army published a comprehensive
    Army Environmental Cleanup Strategy with overarching objectives
    applicable to the entire cleanup program. Protection of human health,
    public safety, and the environment are primary objectives for the
    Army's cleanup programs. Another Army objective is to support the
    development and use of cost-effective cleanup approaches and
    technologies that improve program efficiency. Of particular
    significance, in fiscal year 2003, the Army's BRAC program exceeded its
    goal to transfer 100,000 acres.
        By the end of fiscal year 2003, the Army completed response actions
    at 88 percent of active sites, 90 percent of its BRAC sites, and 56
    percent of its FUDS.
        The Army's Military Munitions Response Program is beginning to take
    shape at its active installations. In December 2003, the Army completed
    its inventory of ``other than operational'' ranges according to its
    plan. As a result, we now have Comprehensive Environmental Response,
    Compensation, and Liability Act Preliminary Assessment equivalent
    information upon which to base resourcing decisions. Site Inspections
    began in fiscal year 2003 and will continue over the next several
    years. The Army's BRAC Military Munitions Response Program continues to
    address munitions response at transferring sites. FUDS has been
    addressing munitions and explosives of concern (MEC) since the
    beginning of the program. Through 2002, about $40 million was spent
    annually to address MEC in the FUDS program. We increased spending for
    MEC to about $70 million in fiscal years 2003 and 2004.
        The President's Management Agenda calls for 50 percent of services
    contracts to be performance based by the end of fiscal year 2005, and
    the Army is meeting this requirement through its Performance Based
    Contracting (PBC) initiative. This contracting method is significantly
    different from the standard cost-plus type environmental restoration
    contract. The Army is giving contractors a statement of objectives and
    soliciting fixed price bids on the basis of desired outcome (a remedy
    in place and operating successfully, or site closeout) rather than task
    orders for specific activities the Army wants conducted. The fixed
    price element protects the Army from costly overruns and escalating
    ``costs to complete'' estimates. The fixed price also transfers
    financial risk to the contractor, while the Army retains ultimate
    environmental liability. In Guaranteed Fixed Price Remediation
    contracts, a subset of PBCs, the contractor may obtain private
    insurance to protect against cost overruns associated with unforeseen
    cleanup requirements.
        In early February 2004 when the budget request was submitted, the
    Army had 16 PBC contracts in place at its active and BRAC
    installations. Two of these contracts have been completed, giving the
    Army site closure at those installations. In fiscal year 2003, the Army
    awarded seven PBCs. In fiscal year 2004, the Army plans to implement 30
    percent ($119 million) of its Restoration Program budget for active
    installations using performance-based contracts.
        The FUDS program will also take advantage of performance-based
    contracts this fiscal year. The Army expects to award Fixed Price
    Response with Insurance (FPRI) contracts for munitions response actions
    throughout the United States. The Former Lowry Bombing and Gunnery
    Range at Aurora, Colorado, a FUDS, will be used as the pilot task order
    for a FPRI contract. The task order at Lowry will not exceed $5 million
    and will be in addition to the $8 million that is already planned for
    2004. The Army will award up to three nationwide indefinite-delivery/
    indefinite-quality type contracts not to exceed $250 million in
    contract capacity. Another successful initiative in the FUDS program
    was making available a new tool that provides information on
    approximately 1,500 FUDS properties throughout the United States and
    its Territories to regulatory agencies and community groups by use of a
    web-based Geographic Information System (GIS). This system provides
    stakeholders with information on the location, cleanup activities,
    estimated cost-to-complete, and a point of contact for FUDS properties.
        Continuing with an initiative that began in 2001, the FUDS program
    continues to expand the development of Statewide Management Action
    Plans (MAP). A Statewide MAP (1) provides an agreement between the
    State and the Army on the list of FUDS properties within that State,
    (2) documents the activities necessary to complete cleanup on a FUDS
    property, and (3) eventually leads to a long-range plan for cleanup at
    each FUDS property. By the end of 2004, the Army will have developed 28
    Statewide MAPs, which have been very favorable received by EPA and the
    States.

                        ENVIRONMENTAL QUALITY TECHNOLOGY

        The Army's Environmental Quality Technology (EQT) fiscal year 2005
    budget request is $52,773,000. This will fund continuation of research,
    development, test and evaluation that addresses the Army's highest
    priority EQT requirements. Additionally, it supports increased
    investment in range sustainability, reduces ownership costs, and
    provides a high rate-of-return on investment of limited EQT resources.
        The Army is currently transferring to the field the first products
    developed as a result of the Army Environmental Requirements and
    Technology Assessments (AERTA) requirements process initiated in 1999.
    These products address challenges faced by the Army in complying with
    lead based paint and hazardous air pollutants regulations. Illustrative
    of our fiscal year 2005 programs is the continuation of initiatives
    like range sustainment and the identification and discrimination of
    UXO. The Army EQT training range-related programs use a holistic
    approach to resolve environmental issues that impact military
    readiness. The program addresses a comprehensive suite of historic and
    emerging range-related environment and safety issues that include UXO,
    impacts of explosives, contaminated soils on groundwater, dust control
    and land rehabilitation. In addition, sustainability of ranges is an
    over-arching concept, which incorporates appropriate sustainable design
    elements into planning, design, construction, operation and maintenance
    functions to enhance and balance total life cycle costs affecting
    environmental, safety and occupational health issues impacting
    soldiers, installations and adjacent communities.
        Unexploded ordnance and munitions' constituents present a
    significant challenge for installations to manage their test and
    training ranges as well as cleaning up BRAC, FUDS, and non-operational
    ranges. Current technologies used to identify, discriminate, and
    address UXO and munitions constituents, are for the most part, neither
    cost-effective nor time efficient. Development of new UXO
    identification technologies capable of high detection rates and low
    false alarm rates is needed for health and safety reasons as well as
    drastically reducing the cost of site characterization and cleanup. In
    fiscal year 2003, the Army opened a standardized test site at Aberdeen
    Proving Ground, Maryland to evaluate methods of detection and
    identification of buried ordnance in collaboration with the DOD's
    Environmental Security Technology Certification Program. Development
    and fielding of these technologies is among the highest priority for
    the EQT Program and the DOD. The Army has recognized the importance of
    this work and is committed to better detection and discrimination.
        The EQT Program is an increasingly robust vehicle for
    identification of Army environmental technology requirements. Through
    its comprehensive management process, the program provides senior
    leadership the confidence to champion its programs. Through this
    program, the Army continues to sustain environmentally compatible
    installations and weapons systems through development and exploitation
    of technology, without compromising mission readiness or training. The
    Office of the Secretary of Defense has placed the Army EQT process in
    the forefront as an appropriate model to be used to identify,
    prioritize, and resolve high-priority environmental quality technology
    requirements.

                                  ACQUISITION

        The Assistant Secretary of Army (Installations and Environment)
    works closely with the Assistant Secretariat of the Army (Acquisition,
    Logistics, and Technology) in support of Army Acquisition Program
    Managers and, by doing so, has significantly improved the Army's
    ability to apply broad engineering principles to environmental issues
    and to solve problems early in the development of systems. We are
    meeting the intent of Congress in requiring acquisition programs to
    identify the environmental quality-related costs of systems as part of
    a system's total ownership cost. Not only are we assessing systems for
    potential environmental, safety, and occupational health impacts, the
    Army is working to improve our systems by exploiting environmentally
    beneficial technologies and products as early as possible in systems
    design and development.
        We have been able to improve guidance for environment, safety and
    occupational health analyses that is more responsive in meeting our
    obligations under the National Environmental Policy Act, the Clean Air
    Act, and other challenges of national interest. We have worked to
    improve environmental analyses supporting decisions by system programs,
    streamlined analytical processes, and improved public notification
    using broadly available electronic media. These improvements have
    mirrored suggestions by the President's Council on Environmental
    Quality. We are working with the U.S. Environmental Protection Agency
    (USEPA) to identify evolutionary technology requirements as a National
    Emission Standard for Hazardous Air Pollutants (or NESHAP) for defense
    landbased materiel. We have begun a significant environmental quality
    technology effort to bring on-line coating technologies that will go
    beyond the NESHAP criteria. Our efforts have also given us the
    opportunity to address environmental challenges of national interest
    with our most talented engineers. For example, we are working with our
    researchers to formulate, test, demonstrate, and employ energetic
    mixtures that do not require the use of perchlorates. At the same time,
    we are preparing an overarching plan to evaluate potential
    environmental issues concerning the use of both perchlorates and
    Hexahydro-Trinitro-Trinzine (explosive/propellant) mixtures to target
    high-value areas for potentially similar efforts.
        Our programs are focusing on resolving future environmental quality
    liabilities to our installations, our training and testing ranges, our
    soldiers, and our communities. Our industrial-based installations are
    also developing Environmental Management Systems to improve the day-to-
    day operations. Our program executive officers and program managers are
    taking on the mantel of environmental management and supporting
    installation sustainability. As we move forward in fiscal year 2005 and
    beyond, we will export environmental lessons learned to the acquisition
    community to assist in the fielding of more environmentally acceptable
    systems.

                                    SUMMARY

        Mr. Chairman, our fiscal year 2005 budget is a balanced program
    that supports our soldiers and their families, the global war on
    terrorism, transformation to the Future Force, and current readiness.
    We are proud to present this budget for your consideration because of
    what this $3.7 billion fiscal year 2005 request will provide for the
    Army:

             New barracks for 4,200 soldiers
             Adequate housing for 14,200 families
             Increase in Army National Guard and Army Reserve
            funding over fiscal year 2004
             New Readiness Centers for over 3,000 Army National
            Guard soldiers
             New Reserve Centers for over 2,800 Army Reserve
            soldiers
             80-year recapitalization rate for the Army
             $287 million investment in training ranges
             A new Basic Combat Training Complex
             Facilities support for four new Stryker Brigades

        Our long-term strategies for Installations as Flagships will be
    accomplished through sustained and balanced funding, and with your
    support, we will continue to improve soldier and family quality of
    life, while remaining focused on the Army's transformation to the
    Future Force.
        This budget request further provides for protection of training
    lands, environmental compliance with Federal and State regulations,
    restoration of contaminated sites, and important technology and
    pollution prevention initiatives in support of Army infrastructure,
    material systems, and operations and training. This request is part of
    the total Army budget request that is strategically balanced to support
    both the readiness of the force, our soldiers, our natural resources,
    and our citizens. Our long-term strategy can only be accomplished
    through sustained, balanced funding, divestiture of excess capacity,
    and improvements in management and technology.
        Thank you again for the opportunity to appear before you today and
    for your continued support for our Army. I look forward to answering
    your questions.

        Senator Ensign. Thank you, General Lust.
        Admiral Weaver, please.

     STATEMENT OF RADM CHRISTOPHER E. WEAVER, USN, COMMANDER, U.S.
                       NAVY INSTALLATIONS COMMAND

        Admiral Weaver. Good afternoon, Mr. Chairman and
    distinguished members of the subcommittee. It is a pleasure to
    be here to discuss the Navy's fiscal year 2005 shore
    infrastructure budget request. I am Rear Admiral Chris Weaver,
    Commander, Navy Installations Command, and I am responsible for
    developing the Navy's shore infrastructure programs and
    determining shore capabilities necessary to maintain our Navy
    in a high state of readiness.
        Our facility investment strategy focuses on making prudent
    investment decisions that balance shore infrastructure
    improvements, that enhance readiness and quality of service,
    while maintaining assets to effectively sustain support of our
    Navy's operating forces. The Navy's fiscal year 2005 request is
    the product of this investment strategy. It is a strong
    statement of support for Navy installations around the world.
        My written statement notes that our installations and
    environmental budget request for fiscal year 2005 is $6.9
    billion. I believe that our portion of the Navy's budget is
    declining somewhat and that this bears witness to the successes
    we have had in the last few years managing costs and pursuing
    innovative solutions to long-term facilities challenges.
        Coupled with mission accomplishment, our people are our
    most important priority. Truly, both mission accomplishment and
    people are inextricably linked. Providing better housing for
    our sailors and families is of utmost importance to the Navy.
    This budget culminates a 4-year effort to eliminate the average
    out of pocket expenses for family housing. The increase in
    basic allowance for housing means our sailors can find good,
    affordable homes in the community without additional out of
    pocket expenses.
        We are achieving excellent results with family housing
    privatization, as has been noted. The Navy's public-private
    ventures (PPVs) are eliminating inadequate family housing and
    delivering better quality new homes meeting or exceeding DOD
    goals. We have developed a business strategy that limits our
    financial liability by managing risk. Our approach promotes
    private participation while incorporating essential safeguards
    and protections.
        This business strategy and acquisition approach have been
    accepted and applauded by others, both in Government and the
    private sector. PPV enables us to provide higher quality
    affordable housing to sailors and their families faster and at
    a lower initial and life cycle cost. It also benefits local
    communities by refreshing aged housing stock and stimulating
    local businesses.
        We have now awarded nine PPV projects, for a total of 9,700
    homes, and during fiscal years 2004 and 2005 we plan to award
    another six projects incorporating another 20,000 homes.
    However, the success of providing homes, adequate homes, to our
    sailors and their families is clearly at risk, as has been
    indicated by Secretary DuBois, due to the statutory cap on the
    amount of budget authority that we can use in the military
    family housing privatization effort. We project that we will
    reach the current cap by the fall of this year. This will
    impact our ability to award approximately 5,500 of the 20,000
    homes we are planning to award in fiscal years 2004 and 2005.
        Military family housing privatization is a success and it
    is a tremendous tool that provides high-quality self-sustaining
    housing for our Navy families. It is important that we stay
    this course. We will continue to work with you to ensure that
    our sailors and their families live in high-quality housing.
        We are also committed to improving the quality of housing
    for our single sailors. As you are well aware, we have roughly
    18,000 sailors living on board ships while in homeport. These
    sailors, like all sailors in the Navy, endure a very austere
    lifestyle aboard ship while it is under way or on deployment.
    While these ships are in home port, it is imperative that we
    offer our sailors a better place to call home, one that is
    similar to their shipmates' ashore both married and single.
        This is a major quality of life issue that we take
    seriously. We are programming and executing projects to address
    this challenge. We are also looking at innovative ways to make
    traditional high-quality housing available for all of our
    single sailors, such as PPVs. We have been authorized three
    bachelor quarters (BQ) PPVs and we are pursuing them, pursuing
    one particularly in San Diego that looks very promising. We
    hope to bring this project to you for consideration soon.
        Our goal is to provide all shipboard sailors the
    opportunity to live in quarters ashore when their ships are in
    homeport by fiscal year 2008. This initiative will improve the
    quality of life for these sailors and ensure a comparable
    standard of living between sailors assigned aboard ship and
    those assigned to shipboard duty.
        Regarding environmental stewardship, sir, I would like to
    take this opportunity to thank the members of this committee
    for supporting the Department of Defense's Readiness and Range
    Preservation Initiative. Changes made to the Endangered Species
    Act, the Marine Mammal Protection Act in the National Defense
    Authorization Act for Fiscal Year 2004, as well as the changes
    made in the previous year to the Migratory Bird Treaty Act,
    provide the proper balance between military readiness and
    environmental responsibility.
        We are implementing these changes in a manner befitting the
    special trust and confidence Congress has placed in us and we
    will continue to be outstanding stewards of the environment.
        Lastly, I would like to take a few moments to comment about
    Commander, Navy Installations Command, otherwise known as CNI.
    As you are aware from testimony given last year, this past
    October the Navy commissioned CNI in order to align all shore-
    based support facilities and processes under one entity. Our
    objective is to enhance the Navy's combat power with the same
    or fewer expended resources ashore. As we centralize shore
    support processes, we will become more focused and our product
    delivery will become more efficient and effective. If forward
    operating forces can consistently rely on our support, their
    attention will remain focused on the operational task at hand,
    improving their overall effectiveness.
        The key aspect of CNI in our new business model is to
    measure outputs of every function in the Navy support structure
    and work to create the most efficient processes to meet those
    needs for output. We need to move past a culture of deficiency,
    in which we measure successes only on the financial inputs
    provided, and drive towards a culture of sufficiency, in which
    we focus on measuring our successes by the outputs necessary to
    maintain a high level of readiness. The end result will be a
    Navy that has measurable metrics to help determine how best to
    use the limited resources we have in the most effective ways.
        In closing, I sincerely thank you for the continued support
    of this committee and your staff to the Navy, and we look
    forward to working with you now and in the future. Thank you,
    sir.
        [The prepared statement of Admiral Weaver follows:]

            Prepared Statement by Rear Adm. Christopher Weaver, USN

        Mr. Chairman and members of the committee, I am Rear Admiral
    Christopher Weaver, Commander, Navy Installations Command. It is a
    pleasure to appear before you today to provide an overview of the
    Navy's shore infrastructure and environmental programs.

                        FISCAL YEAR 2005 BUDGET OVERVIEW

        Projecting power and influence from the sea is the enduring and
    unique contribution of the Navy and Marine Corps team to national
    security. The Navy's fiscal year 2005 budget request balances risks
    across operational, institutional, force management and future
    challenges identified by the Secretary of Defense.
        The Navy's installation and environmental programs total $6.9
    billion in fiscal year 2005. That our portion of the Navy's budget is
    declining bears witness to the successes we have had in the last few
    years managing costs and pursuing innovative solutions to long-term
    problems. We continue to meet all Department of Defense (DOD) and Navy
    installations and environmental goals. This budget provides funds to
    operate, recapitalize, and transform our fleet assets and our shore
    installations.
        Base operations support funds provide fundamental services such as
    utilities, fire and security, air operations, port operations, and
    custodial care that enable the daily operations of our bases. Our
    fiscal year 2005 request to support these services is $3.2 billion.
        Our military construction request is a very robust $850 million. It
    keeps us on track to eliminate inadequate bachelor housing, and
    provides critical operational, training, and mission enhancement
    projects.
        The family housing request of $574 million provides funds to
    operate, maintain and revitalize our worldwide inventory of 36,000
    units. Our family housing request declines compared to fiscal year 2004
    because of increases in the military pay accounts for Basic Allowance
    for Housing (BAH), which makes finding affordable housing in the
    community more likely, and the success of our housing privatization
    efforts. Through privatization and future construction funds, the Navy
    achieves the DOD goal to eliminate inadequate homes by fiscal year
    2007.
        Sustainment, restoration, and modernization (SRM) funding is used
    to sustain existing facilities in an acceptable level of readiness and
    restore and modernize inadequate or inefficient facilities. Operations
    and maintenance funds dedicated to SRM activities in fiscal year 2005
    is $1.33 billion. Facilities sustainment requirements are based on a
    DOD model. The budget achieves 95 percent of the model requirement for
    Navy bases, an increase of 2 percent above the fiscal year 2004
    request. While the fiscal year 2005 recapitalization rate declines
    slightly compared to fiscal year 2004, we will meet the DOD 67-year
    recapitalization rate goal by fiscal year 2008.
        Our fiscal year 2005 request for environmental programs totals $840
    million. This request is sufficient to meet all known environmental
    compliance and cleanup requirements, invest in pollution prevention,
    and fund cultural and natural resources conservation efforts, including
    implementation of Integrated Natural Resources Management Plans.
        I will now discuss these areas in more detail.

                                    HOUSING

        We have made a special effort in this budget to maintain progress
    in improving the quality of housing for our sailors.
    Family Housing
        Our family housing strategy consists of a prioritized triad:

             Reliance on the private sector. In accordance with
            longstanding DOD and Navy policy, we rely first on the local
            community to provide housing for our sailors, and their
            families. Approximately three out of four Navy families receive
            BAH and own or rent homes in the community. Our bases have
            housing referral offices to help newly arriving families find
            suitable homes in the community.
             Public/Private Ventures (PPV). With support from
            Congress, we have used statutory PPV authorities enacted in
            1996 to partner with the private sector to use private sector
            capital. These authorities, which I like to think of in terms
            of public/private partnerships, allow us to leverage our own
            resources to provide better housing considerably faster to our
            families.

             Military Construction. Military construction will
            continue to be used where PPV authorities don't apply (such as
            overseas), or where a business case analysis shows that a PPV
            project is not financially sound.

    The Importance of BAH
        Higher BAH allowances help more sailors and their families to find
    good, affordable housing in the community without additional out-of-
    pocket expenses. This reduces the need for military housing, allowing
    us to divest excess, inadequate homes from our inventory. Higher BAH
    also improves the income stream for PPV projects, making them more
    economically attractive to potential developers. The fiscal year 2005
    request completes a 5-year DOD goal to increase BAH and eliminate
    average out-of-pocket expenses for housing.

    Eliminating Inadequate Homes
        The Navy remains on track to eliminate inadequate family housing
    units by fiscal year 2007. We continue to pursue privatization at
    locations where it makes sense. We will eliminate almost 70 percent of
    our inadequate inventory through the use of public/private ventures. As
    of March 1, 2004, we have awarded 9 projects totaling approximately
    9,700 units. We recently awarded a joint Army/Navy military housing
    project at Monterey, California, that includes 593 homes at the Naval
    Postgraduate School. During fiscal year 2004 and fiscal year 2005, we
    plan to award 6 projects totaling approximately 20,000 homes. This will
    allow us to improve our housing stock and provide more homes to sailors
    and their families much faster than if we relied solely on traditional
    military construction. The Navy is now taking a regional approach to
    accelerate progress and improve the financial viability of its PPV
    projects.

        There will still be a residual inventory of Government-owned
    housing after fiscal year 2007 with a continuing need for family
    housing construction, operations, and maintenance funds. However these
    requirements will decline as family housing is privatized. We continue
    to review these requirements, particularly in the management
    subaccount, as we transition from ownership to privatization.
        The single biggest challenge in our efforts to eliminate inadequate
    family housing by fiscal year 2007 is the statutory ``cap'' on the
    amount of budget authority that can be used in military family housing
    privatization. DOD projects that the Services will reach the current
    cap of $850 million in fiscal year 2004, and that it will impede our
    ability to carry out our fiscal year 2005 privatization effort.
    Military family housing privatization is a successful tool to provide
    quality, self-sustaining housing for Navy families. It is important
    that we stay the course. We will continue to work with Congress to
    ensure that our sailors live in quality housing.

    Bachelor Housing
        Our budget request of $130 million for bachelor quarters
    construction continues our emphasis on improving living conditions for
    unaccompanied sailors. There are three challenges:

            1. Provide Homes Ashore for our Shipboard Sailors. There are
            approximately 17,500 sailors worldwide who are required to live
            aboard ship while in homeport. Based upon actions taken by the
            Navy and funds provided by Congress through fiscal year 2004,
            we have now given 4,900 sailors a place ashore to call home.
            This is our most pressing housing issue. The Navy will achieve
            its ``homeport ashore'' initiative by fiscal year 2008 by
            housing two members per room. Our fiscal year 2005 budget
            includes one ``homeport ashore'' project at Naval Shipyard,
            Bremerton, Washington. By housing two members per room, this
            project will provide spaces for almost 800 shipboard sailors.
            2. Ensure our Barracks Meet Today's Standards for Privacy. We
            are continuing our efforts to construct new and modernize
            existing barracks to provide more privacy for our single
            sailors. The Navy applies the ``1+1'' standard for permanent
            party barracks. Under this standard, each single junior sailor
            has his or her own sleeping area and shares a bathroom and
            common area with another member. The Navy will achieve these
            barracks construction standards by fiscal year 2013.
            3. Eliminate gang heads. The Navy remains on track to eliminate
            inadequate barracks with gang heads for permanent party
            personnel \1\ by fiscal year 2007.
    ---------------------------------------------------------------------------
        \1\ Gang heads remain acceptable for recruits and trainees.

        While we believe privatization will be as successful in
    accelerating improvements in living conditions for our single sailors
    as it has been for families, it does present a different set of
    challenges. For years, we have built barracks to military rather than
    local community standards. For example, there were limits on room size,
    and no common area for occupants to prepare meals or to socialize. I
    want to thank Congress for legislation last year to allow building
    privatized barracks to private sector standards.
        We must now consider other unique aspects in privatizing bachelor
    housing: the impact of extended deployments on unit occupancy and
    storage requirements; their location outside the fence line of the
    base, or inside the fence line but on severable Government land; and
    sharing a unit by two or more members. We are confident that the
    Government can join with a private partner to fashion a solution to
    these concerns that preserve the viability of a project while
    protecting Government interests. We are developing pilot unaccompanied
    housing privatization projects for San Diego, CA and Hampton Roads, VA.

                             MILITARY CONSTRUCTION

    Military Construction Projects
        Our fiscal year 2005 military construction program (Active and
    Reserves) requests appropriations of $850 million. It includes $190
    million for seven waterfront and airfield projects; $138 million for
    five quality of life projects (including barracks); $69 million for six
    force protection projects; $176 million for three projects supporting
    new capabilities; $153 million for eight mission enhancement projects;
    and $38 million for two environmental compliance projects. There is $74
    million for planning and design, and $12 million for unspecified minor
    construction.
        In aggregate, about two-thirds of the military construction request
    is for restoration and modernization projects. The remaining portion of
    the program is for new footprint projects that provide for new
    capabilities, e.g., force protection, bachelor quarters, and facilities
    for new platforms.
        There are five projects totaling $94 million at non-U.S. locations
    overseas--Rota, Spain; Andros Island, Bahamas; Diego Garcia; and two
    projects in Sigonella, Italy.
        Nine projects totaling $426 million in fiscal year 2005
    appropriations have construction schedules (including fiscal year 2004
    continuing projects) exceeding 1 year and cost more than $50 million,
    thus meeting the criteria for incremental funding. Four of these
    projects received full authorization in fiscal year 2004 and are being
    continued or completed in fiscal year 2005. We are requesting $245
    million appropriations and $497 million in new authorization to start
    five incrementally funded projects in fiscal year 2005.

    Outlying Landing Field, Washington County, North Carolina
        The new F/A-18E/F Super Hornet is replacing F-14 and older F/A-18C
    aircraft. The Navy prepared an Environmental Impact Statement that
    examined a range of alternatives for homebasing these new aircraft on
    the east coast. A Record of Decision was signed in September 2003 to
    base eight tactical squadrons and a fleet replacement squadron at Naval
    Air Station (NAS) Oceana, VA, and two tactical squadrons at Marine
    Corps Air Station (MCAS) Cherry Point, NC.
        This homebasing decision requires a new outlying landing field
    (OLF) to support fleet carrier landing practice (FCLP) training. The
    current site near Virginia Beach, VA is not as effective for night-time
    training due to ambient light sources, and lacks the capacity to handle
    a training surge such as experienced for the war on terrorism and
    Operation Iraqi Freedom. The Washington County site is about halfway
    between NAS Oceana and MCAS Cherry Point. We believe it is the best
    alternative from an operational perspective.
        In fiscal year 2004, Congress provided authority to acquire
    approximately 3,000 acres for the core area of the OLF and to begin
    constructing the runway. We are now seeking authority to acquire a
    30,000-acre buffer zone for noise, build a control tower, and erect
    fire and rescue facilities. We are asking for this authority over 2
    years, with the first increment of $61.8 million in fiscal year 2005.
        There is some local opposition to the OLF site we selected; two
    lawsuits challenge the sufficiency of the Department's Environmental
    Impact Statement. The Navy wants to be a good neighbor, and will
    consider the concerns of local property owners. For example, the Navy
    has committed that all land not required for actual OLF operations will
    be available for continued agricultural use. The Navy believes it has
    met all legal and regulatory requirements, and is proceeding with
    property acquisitions and construction planning.
    VXX
        Marine Helicopter Squadron One (HMX-1), located at the Marine Corps
    Air Facility, Quantico, VA, now performs helicopter transportation for
    the President, Vice President, and heads of state. Numerous
    modifications and improvements have limited the mission effectiveness
    of the current VH-3D and VH-60N helicopters. The planned acquisition of
    a replacement helicopter, called VXX, will improve transportation,
    communication, and security capabilities and integrate emerging
    technologies. The total acquisition cost is $5.9 billion. Originally
    planned for an initial operating capability in 2013, the acquisition
    schedule has now been accelerated to December 2008.
        The fiscal year 2005 budget includes $777 million in Research and
    Development for VXX system design and demonstration, and $106 million
    (Navy and Marine Corps) in appropriations ($166 million authorizations)
    for military construction to support VXX. Facilities are required to
    support the test and evaluation of three VXX scheduled for delivery in
    October 2006, to provide hangar space for the eventual full complement
    of 23 aircraft, and to provide in-service support for the life cycle of
    the aircraft.
        The accelerated VXX acquisition schedule required us to make some
    judgments in the fiscal year 2005 military construction program to
    ensure that facilities would be available in time to house the aircraft
    and the combined Government/contractor support team. There is
    insufficient excess hangar capacity to house VXX at Naval Air Station
    Patuxent River, MD, where the Navy conducts most of its test and
    evaluation of new aircraft. Similarly, the 1935 era hangers at Quantico
    are inadequate to meet current HMX-1 needs.
        However, before committing large sums to construct new facilities,
    we are studying whether there is excess capacity elsewhere in the
    National Capital Region that could be adapted to accommodate both the
    test and evaluation phase and the operational mission for VXX at lower
    cost than building new facilities at Patuxent and Quantico. In
    addition, the VXX program manager has a business case analysis underway
    to determine whether a Government-owned, contractor-operated facility
    at Patuxent is the most cost effective solution for in-service support.
    As another variable, the systems development and demonstration (SDD)
    and initial production solicitation released in December 2003 gives the
    vendor the option to use its own facilities. We plan to complete these
    studies, consider the vendors' proposal, and decide this spring on the
    most cost effective location for the facilities. This timeframe
    supports the current acquisition timeline. In the absence of specific
    locations, we labeled two VXX projects in our fiscal year 2005 program
    under the title ``Various Locations.''

                                   FACILITIES

    Facilities Sustainment, Restoration, and Modernization (SRM)
        Sustainment--The Department of Defense uses models to calculate
    life cycle facility maintenance and repair costs. These models use
    industry wide standard costs for various types of buildings.
    Sustainment funds in the operations and maintenance accounts maintain
    shore facilities and infrastructure in good working order and avoid
    premature degradation. The Navy achieves 95 percent sustainment of the
    model requirements in fiscal year 2005. Sustainment dollars decreased
    compared to fiscal year 2004 due to the removal of old facilities in
    our inventory as a result of our demolition program, and revised
    pricing assumptions.
        Recapitalization--Restoration and Modernization provides for the
    major recapitalization of our facilities using military construction
    and operations and maintenance funds. While the Navy achieves the
    Department of Defense goal of a 67-year recapitalization rate by fiscal
    year 2008, the fiscal year 2005 recap rate rises to 148 years from 140
    years in fiscal year 2004. The Navy will manage its near term
    facilities investment to limit degradation of operational and quality
    of life facilities.

    Closure of Naval Station Roosevelt Roads, Puerto Rico
        The Navy will close Naval Station Roosevelt Road by March 31, 2004,
    as directed by section 8132 of the fiscal year 2004 Defense
    Appropriations Act. We have begun the required environmental reviews
    and the initial phases of the property disposal process. The Navy is
    taking great care in relocating military personnel and families, and
    assisting civilian employees with relocation and outplacement. The DOD
    school will remain open until the end of the school year.
        As directed in the law, the closure and disposal is being carried
    out in accordance with the authorities and procedures contained in the
    Defense Base Closure and Realignment Act of 1990, as amended. The Navy
    is establishing Naval Activity Puerto Rico as a successor organization
    to maintain the property and preserve its value through disposal, which
    we expect to occur in late 2005. The Commonwealth has formed a Local
    Redevelopment Authority (LRA) that has begun land use planning for the
    property. The Navy and DOD Office of Economic Adjustment are
    coordinating with the LRA. We will ensure the needs of the military and
    civilian employees are met as we carry out this closure and property
    disposal.

    Nebraska Avenue Complex
        At the request of the Department of Homeland Security (DHS), the
    Navy has agreed to relocate 10 Navy commands with 1,147 personnel from
    its Nebraska Avenue Complex (NAC) in Northwest Washington, DC. The
    556,000 square feet of office space will provide a headquarters
    facility for DHS personnel. DHS will pay for the Navy's first move, and
    if necessary, the first year's lease costs. As of the end of January
    2004, seven Navy commands with 469 personnel had relocated. The
    administration has requested authorizing legislation that would allow
    the remainder to move by January 2005. To meet this timeline, the
    requested legislation must be enacted by April 30, 2004. Several of the
    Navy commands will relocate to Government-owned facilities, while
    others will move to leased spaces until we identify permanent
    Government-owned facilities.
        The requested legislation allows the Navy to transfer custody of
    the NAC property to the General Services Administration (GSA), who will
    manage the facilities for DHS. We will require a legislative waiver
    from section 2909 of the Defense Base Closure and Realignment Act,
    which specifies that bases may not be closed except through the BRAC
    process. The Navy will receive consideration for the fair market value
    of NAC in the fiscal year 2006 budget process.

                                  EFFICIENCIES

    Commander, Navy Installations Command
        The Navy established Commander, Navy Installations Command (CNI) on
    October 1, 2003, to consolidate and streamline management of its shore
    infrastructure. Instead of eight Navy commands responsible for
    planning, programming, budgeting and executing resources for shore
    installations, there is a single command--CNI. The Navy now has an
    enterprise wide view of installation management and resources.
        CNI will guide all regions and installations towards Navy strategic
    objectives. The centralized approach will identify and disseminate best
    business practices across all regions/installations. The ability to
    identify standard costs and measure outputs is improving the capability
    based budgeting process. Managing from a program centric knowledge base
    allows for a top-level assessment of capabilities and risks.
        This central focus on facilities can leverage capabilities between
    the military services to avoid duplicate investments while still
    creating surge capacity through joint use opportunities. CNI has
    developed strategic partnerships with Naval Supply Systems Command
    (NAVSUP) and Naval Facilities Engineering Command (NAVFAC) to apply
    their logistics and contracting expertise.
        The Navy is already realizing savings, estimated at $1.6 billion
    across the FYDP, and improving services from CNI initiatives.

             Consolidating installation functions at the regional
            level versus installation level (e.g., housing management,
            administrative functions, contracting, supply, comptroller,
            business management, maintenance, warehousing).
             Combining command staffs (e.g., Naval Amphibious Base
            (NAB) Coronado and NAS North Island; Construction Battalion
            Center (CBC) Port Hueneme and NAS Point Mugu)
             Consolidating installation contracts (e.g., tug and
            pilot contracts; custodial and grounds maintenance; negotiating
            area wide utility rates).
             Shifting installation level supply and contracting
            functions to NAVSUP and NAVFAC (e.g., eliminate duplication at
            the installation and regional levels).
             Studying in 2004 the merger of other overlapping
            installation functions from Bureau of Naval Personnel (e.g.,
            morale, welfare and recreation programs, fleet and family
            support programs, child care), NAVSUP (personnel support
            programs such as food services), and NAVFAC (facilities
            management).

    Naval Safety Program
        Senior level management attention to safety concerns, coupled with
    selected financial investments, can yield profound benefits to the well
    being of our sailors, civilians, contractors, and the bottom line
    mission costs. Ensuring the safety of our people has been a top Navy
    priority. Secretary Rumsfeld's recently challenged the Military
    Services to reduce the rate of mishaps by 50 percent by fiscal year
    2006.
        That has amplified efforts to reduce mishaps and reaffirm the value
    we place on safety. We have elevated the position of Commander of the
    Naval Safety Center from a 1-star to a 2-star Flag Officer. On March
    17, 2004, Secretary England convened the first senior-level Navy and
    Marine Corps Safety Council to review Department of the Navy mishap
    reduction plans. Navy Flag and Marine Corps General Officers chair or
    co-chair four of the nine Defense Safety Oversight Council Task Forces.
    We are reducing lost workdays due to injuries in our civilian
    workforce.
        Human error continues to play a role in over 80 percent of our
    mishaps. We are studying ways to modify high risk driving behaviors.
    Our fiscal year 2005 budget will expand our Military Flight Operations
    Quality Assurance initiative, a highly successful program used in
    commercial aviation that downloads flight performance data (black box
    data) after every flight and allows the aircrew and aircraft
    maintenance team to replay a high fidelity animation of the flight and
    aircraft performance parameters. We are working to improve data
    collection and analysis in order to effectively integrate safety into
    the acquisition process.

    Joint Cooperation on Installation Management
        In February, the installation commanders from Navy's Aviation
    Engineering Service, Lakehurst, the Army's Fort Dix, and McGuire Air
    Force Base signed a partnership agreement encouraging joint solutions
    for common problems between the three contiguous bases and their tenant
    commands. The three installation commanders are already reducing
    operating costs by consolidating firearms training, radar information
    for air operations, and contracts for pest control, linen service, and
    hazardous waste disposal. We want to encourage such cooperation
    wherever we have opportunities to partner with the other military
    departments.

    BRAC 2005
        Now more than ever, we need to convert excess capacity in our U.S.
    shore infrastructure into warfighting capability. BRAC 2005 may well be
    our last significant opportunity to reduce excess infrastructure, and
    apply savings to improve readiness. More importantly, it will allow us
    to transform our infrastructure to best support the force structure of
    the 21st century.
        Congress gave considerable thought on how to structure a BRAC 2005
    process that sets fair and objective evaluation standards and
    incorporates the lessons learned from four previous BRAC rounds. We
    will be meticulous in meeting these statutory standards. We will treat
    all bases equally. We will base all recommendations on the 20-year
    force structure plan, infrastructure inventory, and published selection
    criteria. In no event will we make any decisions concerning the
    reduction of infrastructure until all data has been collected,
    certified and carefully analyzed.
        We will look for joint use opportunities in our analysis and
    recommendations. We must apply the type of joint warfighting successes
    witnessed in Afghanistan and Iraq to a more efficient and effective
    Department of Defense shore infrastructure.

    Demolition/Footprint Reduction
        The Navy has achieved the fiscal year 2002 DOD goal of demolishing
    9 million square feet of excess and vacant facilities. In fiscal year
    2005, the Navy has budgeted $49 million to demolish 1.6 million square
    feet.
        The demolition effort has evolved from just eliminating ``eye-
    sores'' to encouraging installations to consolidate, move out of costly
    leased or antiquated facilities, and eliminate the most inefficient
    facilities. We want to avoid spending SRM and base operating support
    funds on facilities we no longer need.

    Utility Privatization
        Privatizing DOD electricity, water, wastewater, and natural gas
    utility systems to corporations who own and manage such systems will
    allow DOD to concentrate on core defense functions and yield long term
    cost savings. The Secretary of Defense has directed that each Service
    evaluate the potential for privatizing their utility systems, while 10
    USC Sec. 2688 provides the legislative authority to convey utility
    systems where economical. The Navy is on track to meet the DOD goal of
    reaching a source selection authority (SSA) decision for all of its
    utility systems by 30 September 2005.

    Strategic Sourcing
        Our strategic sourcing program examines cost effective options to
    deliver service and support services to our shore installations. There
    are three components: OMB Circular A-76 Competitive Sourcing program,
    Strategic Manpower Planning, and Divestiture.
        A-76 competitions compare performance costs for civilian employees
    versus contract performance for facility management, logistics support,
    real property maintenance, and other similar functions that are widely
    available in the commercial sector.
        Strategic manpower planning ensures uniform service members perform
    assignments that are inherently military while converting functions
    that are commercial in nature to civilian or contractor performance.
    The Navy is currently studying military positions in fiscal year 2004
    and fiscal year 2005 for potential conversion.
        We are examining opportunities to divest functions that are not
    core competencies of the Navy and are readily available in the
    commercial sector. As an initial effort, we are studying whether to
    divest our optical fabrication to private industry. The Navy has 380
    military and civilian personnel and spends $36 million per year to
    produce 1.3 million pairs of eyeglasses annually. The study is
    scheduled for completion in fiscal year 2004.

                    PRIOR BRAC CLEANUP AND PROPERTY DISPOSAL

        The BRAC rounds of 1988, 1991, 1993, and 1995 have been a major
    tool in reducing our domestic base structure and generating savings.
    All that remains is to complete the environmental cleanup and property
    disposal. We have had significant successes on both fronts.

    Property Sales
        We have used property sales as a means to expedite cleanup and the
    disposal process as well as recover the value of Government-owned
    property purchased by taxpayers. We are applying funds received from
    land sales to accelerate cleanup at the remaining prior BRAC locations,
    both Navy and Marine Corps.
        More property sales are planned that will be used to finance the
    remaining prior BRAC cleanup efforts. We will use the proceeds from
    sales to finance our fiscal year 2005 program of $115 million.

    Property Disposal
        The Department of the Navy (Navy and Marine Corps) had about
    161,000 acres planned for disposal from all four prior BRAC rounds,
    with the former Naval Air Facility Adak, AK accounting for 76,800
    acres. Congress provided the necessary statutory authority last year to
    allow the Navy to relinquish over 71,000 acres of the Adak land
    withdrawal to the Department of Interior, and Interior to exchange
    portions of that land with other lands held by The Aleut Corporation.
    The Navy will fence and retain about 5,600 acres due to the presence of
    munitions. I am happy to report that we completed the transfer of
    71,200 acres of Adak on March 17, 2004 to the Department of the
    Interior.
        The transfer of Adak, along with recent successful property
    conveyances at Louisville, KY; Key West, FL; Indianapolis, IN; and
    Richmond, CA, puts us in position to have less than seven percent (or
    about 11,000 acres) of the property from all four prior BRAC rounds
    still to dispose by the end of this fiscal year.

    Cleanup
        The Department of the Navy (Navy and Marine Corps) had spent $2.3
    billion on environmental cleanup at prior BRAC locations through fiscal
    year 2003. We expect the remaining cost to complete cleanup at about
    $495 million for fiscal year 2006 and beyond, most of which is
    concentrated at fewer than 20 remaining locations. Any additional land
    sale revenue beyond that currently budgeted will be used to further
    accelerate cleanup at these remaining prior BRAC locations, which are
    primarily former industrial facilities that tend to have the most
    persistent environmental cleanup challenges.

                             ENVIRONMENTAL CLEANUP

    Cleanup Program at Active Bases
        We continue to make substantial progress toward completing our
    environmental restoration program and are on target to complete the
    cleanup on active bases by the DOD goal of 2014. For the third year in
    a row, the number of cleanups completed at active bases exceeded the
    planned target. Almost 70 percent of all sites have remedies in place
    or responses complete. We have kept a stable funded program and predict
    steady progress to cleanup the remaining sites.

             Our Alternative Remedial Technology Team reviews
            innovative technologies and promotes their use in the field.
             Our partnering with regulators minimizes disputes and
            has served as a model for other agencies. Our Environmental
            Management Executive Council brings together two EPA Regions
            and six states on the west coast to jointly resolve issues.
             Our acquisition strategy matches the type of work to
            be performed with the most cost-effective contractual vehicle
            while enhancing opportunities for small businesses.

    Munitions Response Program
        We are working with the Office of the Secretary of Defense to
    develop Munitions Response Program (MRP) objectives for discarded
    military munitions and unexploded ordnance (UXO) at locations other
    than operational ranges. We completed an extensive inventory of our
    installations to identify potential MRP sites. We continue to move
    forward on initiating and completing Preliminary Assessments (PAs) and
    expect to achieve the DOD PA completion goal by fiscal year 2007. Site
    Inspections (SIs) will begin in fiscal year 2006. Any imminent human
    health or environmental concerns identified during our investigations
    will be addressed immediately.

    Vieques Cleanup
        We ceased military training on Vieques in 2003 and, as required by
    law, transferred 14,572 acres on eastern Vieques to the Department of
    Interior (DOI) in April 2003. DOI will manage the majority of it as a
    wildlife refuge, with the former Live Impact Area (about 900 acres)
    designated as a wilderness area. The Governor of Puerto Rico has
    proposed listing Vieques and Culebra on the National Priorities List
    (NPL). We expect to sign a Federal Facilities Agreement to govern the
    cleanup after the NPL listing becomes final.
        Cleanup on western Vieques (the former Naval Ammunition Supply
    Detachment (NASD)) is proceeding as we work closely with the Puerto
    Rico Environmental Quality Board. Seventeen sites have been identified,
    but none with major environmental contamination, as NASD was not an
    industrial operation. These sites make up 490 acres of the 8,114 acres
    transferred. We expect to spend about $16 million on these sites and
    complete the cleanup by 2007.
        Cleanup assessments are also underway on eastern Vieques (former
    training/bombing range). Twelve sites consisting of 80 of the 14,572
    acres transferred require assessment and potential cleanup. The sites
    include routine waste disposal areas used to support the former Camp
    Garcia, a landfill, and sewage lagoon. Other areas of concern will be
    examined. We expect to spend about $14 million on cleanup for the 12
    non-munitions sites and complete the cleanup by 2014.
        The former bombing ranges will require munitions assessment and
    cleanup. In the spring of 2003 the Navy investigated two beaches for
    potential munitions. The Navy has budgeted $8 million in fiscal year
    2005 for range assessments and initial clearance actions. Beaches and
    the live impact area will be high priorities. We estimate a cleanup
    cost of $76 million in fiscal year 2006 and beyond for munitions
    assessments and clearance actions based on the land uses designated in
    the statute. We will be working closely with the EPA and DOI. Worker
    safety and minimizing disturbance of the natural environment will be
    important considerations.

    Kaho'olawe
        Kaho'olawe is a 28,800 acre uninhabited island in Hawaii used as a
    naval gunfire and bombing range from 1942 through 1990. In accordance
    with title 10 of the Fiscal Year 1994 Defense Appropriations Act, the
    Navy transferred title of Kah'olawe to the State of Hawaii in 1994, and
    has been clearing ordnance according to the State's priorities.
        Navy relinquished control of access to Kaho'olawe to the State on
    November 11, 2003, as required by title 10, ending a 10-year cleanup
    effort. Congress appropriated a total of $460 million for the cleanup,
    including $44 million provided to the State to assist them in preparing
    a reuse plan and managing the island. As of January 16, the Navy had
    cleared a total of 22,059 acres, consisting of 1,543 acres cleared of
    surface ordnance only; 20,516 acres cleared of surface ordnance and all
    scrap metal (known as Tier I); and 2,636 Tier I acres that were further
    cleared up to a 4-foot depth (known as Tier II). During the cleanup,
    the Navy completed many non-clearance State goals, including road
    construction, historic and archaeological assessments, and shipped over
    11 million tons of scrap metal, along with tires and aircraft debris
    used as targets.
        The cleanup contractor is completing demobilization, removing
    remaining scrap items and equipment not needed by the State. The Navy
    has signed an agreement with the State, as required by title 10, to
    respond to newly discovered, previously undetected ordnance found on
    the island in the future. The Navy believes it has accomplished the
    original title 10 goal to provide reasonably safe and meaningful use of
    the island, as several thousand visits by the public have already been
    recorded. However, there is no technology that can assure the complete
    removal of all ordnance. The State and Navy will remain partners to
    manage the risk to humans from ordnance that certainly remains on the
    island.

                             ENVIRONMENTAL QUALITY

    Marine Mammals
        The Navy is proud of its record of environmental stewardship,
    particularly our marine mammal research efforts and protective measures
    for military training activities.

        We are leaders in marine mammal research and are committed to find
    methods and technologies that reduce the risk of harm to marine mammals
    without compromising our ability to train effectively. The Navy spends
    about $8 to $10 million per year in marine mammal research,
    representing about half of all known worldwide investments in this
    area. We coordinate with and share findings with other agencies such as
    the National Oceanic and Atmospheric Agency, and the National Science
    Foundation.
        The Navy has protective measures to avoid harm to marine mammals
    during training and operations at sea while preserving training
    realism:

             Planning--Using historical marine mammal location
            information to plan training activities. Protective measures
            are tailored to the type of training, location, and season.
             Detection--Posting trained lookouts 24 hours per day
            on surface ships. Submarines employ passive acoustic detection
            devices to determine range and bearing of vocalizing marine
            mammals. We may launch aerial searches for marine mammals in
            training areas before, during and after training events.
             Operations--Establishing buffer zones during training
            exercises, and suspending operations when necessary. Navy may
            limit active sonar training through standoff distances, source
            power level reductions, limit nighttime and bad weather
            operations, or opt to train in deep rather than shallow water.

        The changes made by Congress to the Marine Mammal Protection Act
    will allow us to better balance our readiness requirements with our
    legal obligations to ensure military activities are protective of
    marine mammals, and will allow us to ``train as we fight'' when our
    activities do not have biologically significant effects on marine
    mammals. We urge Congress to reaffirm those changes as they consider
    reauthorization of the Marine Mammal Protection Act.

    Shipboard Programs
        The Navy invested $465 million in the last decade to install
    pulpers, shredders, and plastic waste processors on its surface ships.
    This equipment avoids the need to discard plastics into the world's
    oceans and allows environmentally acceptable disposal of other solid
    wastes such as food, paper, cardboard, metal and glass. Submarines will
    be outfitted with similar solid waste equipment by the end of 2005,
    well in advance of the December 2008 deadline established in the act to
    prevent pollution from ships.

        The Navy has been converting air conditioning and refrigeration
    plants on its surface fleet from ozone depleting chlorofluorocarbons
    (CFCs) to environmentally friendly coolants. We plan to spend a total
    of $400 million on this effort, including $30 million in fiscal year
    2005. We expect to complete the conversion of nearly 900 CFC-12 plants
    by 2008, and over 400 CFC-114 plants by 2012. We expect to spend about
    $35 million to install suites of pollution prevention equipment (e.g.,
    high-volume, low pressure (HVLP) paint sprayers, aqueous parts washers)
    on ships, including $5 million in fiscal year 2005. This equipment,
    combined with management actions, reduces 10,000 pounds per year of
    hazardous material brought aboard our large ships.
        We continue efforts with EPA to establish uniform national
    discharge standards for all Armed Forces vessels. This has proven to be
    a very complex undertaking. Navy and EPA have opted to segregate the 25
    types of discharges into ``batches,'' with control standards for the
    first batch of 5 discharges (including hull coatings) to be published
    by September 2005.

    Alternative Fuel Vehicles
        For the second year in a row, the Navy-Marine Corps Team
    substantially exceeded the Energy Policy Act requirement that 75
    percent of covered fleet vehicle procurements be alternative fuel
    vehicles. In fiscal year 2003, the Navy acquired 86 percent of its
    light duty vehicles as alternative fuel vehicles. Our Navy Public Works
    Center in Washington, DC, converted the entire executive motor pool to
    alternative fueled vehicles.
        We are hoping to expand our procurement of hybrid vehicles in
    fiscal year 2004 and beyond and to increase the use of bio-diesel and
    ethanol. We are working with the Army's National Automotive Center to
    place hydrogen-powered fuel cell vehicles in the San Diego area. These
    actions will help develop a regional hydrogen infrastructure and
    provide us with hands-on experience with hydrogen and fuel cell
    transportation technology. While there are important environmental
    benefits, these investments provide opportunities for technology
    transfer to future weapons systems.

    Conservation
        Integrated Natural Resources Management Plans (INRMP) are the
    foundation upon which Navy activities protect and manage lands. Navy
    INRMPs already address endangered species and migratory birds. We have
    revised our INRMP guidance to ensure they provide a conservation
    benefit to endangered species. Our bases work closely with the U.S.
    Fish and Wildlife Service, State fish and game agencies to prepare the
    INRMPs. We take seriously our obligation to conserve natural resources
    entrusted to us by the American people. It is the only means to ensure
    continued access to these resources in furtherance of our military
    mission. Good conservation practices and military training operations
    can be mutually beneficial. Navy efforts increased the population of
    the federally protected California least tern from 13 nests in 1977 to
    1,200 today, and the snowy plover population from 12 nests in 1992 to
    101 today at the Silver Strand portion of Naval Amphibious Base
    Coronado. Because of this success, the Fish and Wildlife Service
    reduced training restrictions on our Special Forces.

                                  ENCROACHMENT

        We have made great strides in addressing encroachment issues over
    the past 2 years. Congress has provided much needed relief through
    enactment of legislation in the National Defense Authorization Acts for
    Fiscal Years 2003 and 2004 that allows the Navy to balance military
    readiness and environmental stewardship.

             We have worked closely with the Department of the
            Interior to implement congressional direction to develop a rule
            that clearly defines the relationship between military
            readiness activities and the Migratory Bird Treaty Act. The
            Department of the Interior plans to publish the proposed rule
            soon.
             Congress amended the Endangered Species Act to allow
            the Secretary of the Interior to exclude military installations
            from critical habitat designation when such installations are
            managed in accordance with an INRMP and the Secretary
            determines the INRMP provides a benefit to the endangered
            species.
             We will use the revised definition of harassment of
            marine mammals in analysis of new technologies for military
            readiness training programs (such as the Virtual At Sea
            Training (VAST) system for naval gunfire), littoral warfare
            training, and supplemental analysis on deployment of the
            surveillance towed array sensor system-low frequency active
            (SURTASS LFA) sonar system. The revised definition ensures that
            analysis of impacts on marine mammals is based on science, not
            speculation. The changes approved by Congress reflect current
            methodologies used by Navy and the National Marine Fisheries
            Service and reduce the likelihood of costly, time-consuming
            litigation caused by ambiguous language.

        Notwithstanding the gains we've achieved thus far, encroachment
    continues to be a very real problem--one that will become more complex
    as populations grow, pressures on ecosystems mount, and the means
    required to sustain military readiness evolve through new technologies
    and threats.
        Coming to grips on when military munitions become solid wastes
    under the Resource Conservation and Recovery Act can ensure effective
    range management for both military readiness training and waste
    management. Flexibility for implementing the general conformity
    requirements of the Clean Air Act will allow more effective deployment
    of new weapons systems and the realignment of existing assets. We
    continue to discuss these important issues with the States and groups
    such as the National Governors Association and the Environmental
    Council of the States.
        Congressional efforts to address the balancing of military
    readiness and environmental stewardship have not gone unnoticed by
    state legislatures. Following your example, three states--California,
    Arizona, and Texas--have enacted laws requiring local governments to
    consider impacts on military readiness during environmental planning
    and land use planning processes.

                                   CONCLUSION

        In conclusion, I would ask the members of this committee to judge
    the merits of the Navy's installations and environmental program
    through the considerable progress we are making in virtually all areas.
        That concludes my statement. I appreciate the support of each
    member of this subcommittee, and will try to respond to your comments
    or concerns.

        Senator Ensign. Thank you.
        General Williams.

      STATEMENT OF BRIG. GEN. WILLIE E. WILLIAMS, USMC, ASSISTANT
     DEPUTY COMMANDANT, INSTALLATIONS AND LOGISTICS [FACILITIES],
                     COMMANDANT OF THE MARINE CORPS

        General Williams. Sir, Mr. Chairman and distinguished
    members of the Readiness and Management Support Subcommittee,
    good afternoon. I am Brigadier General Willie Williams. I am
    the Assistant Deputy Commandant for Installations and Logistics
    at Headquarters, Marine Corps. It is my pleasure to appear
    before you today.
        First, on behalf of the Commandant of the Marine Corps and
    the marines that we serve, I would like to thank you for your
    ongoing support for Marine Corps military construction, family
    housing, encroachment and environmental programs. Our
    installations are the fifth element of our Marine Air-Ground
    Task Force and as such they are a critical component of our
    readiness to fight and win our Nation's battles.
        Our fiscal year 2005 active and Reserve military
    construction and family housing budget requests $505 million.
    This along with the $463 million for facilities sustainment,
    $67 million proposed for restoration and modernization, and
    $126 million in environmental funding, devotes over a billion
    dollars to maintenance, sustainment, construction, and our
    environmental initiatives at Marine Corps installations.
        The combined active and Reserve military construction
    program will provide $236 million toward urgently needed
    readiness, compliance, and quality of life construction
    projects. In 2005 our Reserves are proposing two vehicle
    maintenance facilities for our fourth amphibious assault
    vehicle battalion in Norfolk and Florida.
        Our long-term capital improvement plan for waste water
    treatment at Camp Pendleton continues with its second increment
    of funding and our proposed investment of $75 million for
    barracks projects at Camp Pendleton, New River, Yuma, and
    Quantico will meet our goal of eliminating gang head barracks
    for our permanent party marines.
        The family housing request of $269 million will keep the
    Marine Corps on track to have contracts in place to eliminate
    inadequate family housing by the end of fiscal year 2007.
    Public-private ventures are critical to keeping us on that
    track. On September 30, 2003, the largest PPV to date within
    the Department of the Navy was awarded. That provided over $500
    million in construction as well as long-term management,
    maintenance, and recapitalization of our Marine Corps family
    housing communities in Virginia and California.
        Military housing privatization projects have been extremely
    successful and well received by our marines and their families.
    Your support of the Department of Defense legislative proposal
    to eliminate the $850 million cap on DOD cash contributions for
    family housing projects will be needed in order to permit us to
    continue to execute these critical and vital projects.
        The facilities sustainment, restoration, and modernization
    program proposal maintains full funding for the sustainment of
    our facilities at 95 percent of OSD-established targets. The
    Marine Corps has also committed to spending $67 million in
    restoration and modernization of existing facilities. These
    investments, while smaller than in fiscal year 2004, continue
    to assure that our facilities will be in better condition at
    the end of fiscal year 2005 than at the beginning.
        The Marine Corps is committed to sustain and enhance
    mission readiness and access to military training throughout
    our environmental stewardship program and encroachment
    programs. These programs ensure compliance with regulations and
    policies that preserve the natural and cultural resources and
    maintain our ability to train as we fight.
        Mr. Chairman, the marines and their families make great
    sacrifices in service to this great Nation of ours. The Marine
    Corps prides itself on taking care of its own and we have a
    legacy for doing that. We like to reward their sacrifices by
    really providing them with the necessary resources that they
    need to live, to train, and to recreate on our installations.
        Mr. Chairman, the Marine Corps would like to thank the
    committee for its strong continued support of our
    infrastructure programs and the benefit this support provides
    in improved readiness and quality of life. This concludes my
    statement and thank you, sir.
        [The prepared statement of General Williams follows:]

           Prepared Statement by Brig. Gen. Willie J. Williams, USMC

        Chairman Ensign, Senator Akaka, and distinguished members of the
    Readiness and Management Support Subcommittee: I am Brigadier General
    Willie Williams, Assistant Deputy Commandant for Installations and
    Logistics (Facilities). It is a pleasure to appear before you today
    with Mr. DuBois. First, I'd like to thank you for your ongoing support
    for Marine Corps Military Construction. Installations, the fifth
    element of the Marine Air Ground Task Force, are a critical component
    of our readiness to fight and win our Nation's battles.
        Our fiscal year 2005 Active and Reserve Military Construction and
    Family Housing budget provides $505 million. This, along with $463
    million for facility sustainment and $67 million proposed for
    restoration and modernization for our Active and Reserve marines, the
    Marine Corps proposes to devote over a billion dollars to construction,
    sustainment, and maintenance at Marine Corps installations.
        Our installation support program is approximately 6 percent of the
    Marine Corps budget proposal and supports installations in the United
    States and Japan with a value of over $25 billion and acreage that is
    about 20 percent larger than the State of Delaware. This program is the
    result of a long, comprehensive, review of Marine Corps requirements
    and includes careful balancing of our total program in order to meet
    the Marine Corps' most critical requirements.
        The military construction portion of our program addresses some of
    our most critical needs for readiness, environmental compliance and
    quality of life. In 2005, our investment of $75 million in bachelor
    quarters will meet our goal to eliminate gang-head barracks for our
    permanently stationed marines and provide much needed operational,
    maintenance, and infrastructure support.
        The facilities sustainment, restoration, and modernization program
    proposal maintains funding for the sustainment of our facilities at 95
    percent of the OSD established requirement. The Marine Corps has also
    committed to spending $67 million in restoration and modernization of
    existing Active and Reserve facilities. These investments, while
    smaller than fiscal year 2004, continue to ensure that our facilities
    will be improved, though slightly, at the end of 2005.
        The family housing request of $269 million will keep the Marine
    Corps on track to have contracts in place to eliminate inadequate
    family housing by the end of fiscal year 2007. Public-private ventures
    (PPVs) are critical to keeping us on track. On September 30, 2003, the
    largest PPV to date within the Department of the Navy was awarded that
    will provide over $500 million in construction as well as long-term
    management, maintenance and recapitalization of Marine Corps family
    housing communities in Virginia and California.
        The Marine Corps is committed to sustaining and enhancing mission
    readiness and access to military training through our environment
    stewardship programs. These critical programs ensure compliance with
    regulations and policies, and preserve the natural and cultural
    resources entrusted to our care by the citizens of our Nation and
    shared by our surrounding communities.
        The absolute necessity of maintaining military readiness is beyond
    debate, and readiness also depends on our installations' ability to
    provide quality-training facilities that realistically simulate combat
    conditions. Encroachment is on the rise, and if left unchecked, will
    detrimentally impact the mission of our bases, stations, and ranges in
    the near term and threaten our future military readiness in the long
    term. At stake for the Marine Corps is our success in combat. We must
    do all in our power to ensure that marines, members of our sister
    Services, and service member families do not pay an unnecessarily high
    price for that success. Marines must train, as they will fight; and to
    do that requires unencumbered access to sea, land, and airspace.
        Now I would like to give you more detailed information on each of
    the Marine Corps' programs that support our installations.

                             MILITARY CONSTRUCTION

        Marine Corps bases and stations provide the ``platform'' upon which
    our land, sea and air units develop, mature, train and deploy
    individually and as a combined arms team. Our bases and stations are
    the ``fifth element'' of the Marine Air-Ground Task Force because of
    their close link to the operating forces; equipment maintenance; and
    the communities where marines and their families live, recreate, and
    socialize, often at some distance from their homes and extended
    families. Our installation assets and capabilities need to always be
    available to support operations and training requirements. Military
    construction is the Marine Corps' primary funding source for
    recapitalization and modernization of both operational and quality of
    life infrastructure. As always, the Marine Corps prioritizes our
    military construction facility requirements against other just as
    pressing needs. This year, we propose $208.3 million in urgently
    required construction projects and $14.4 million in planning and
    design.
        Operations, administration, maintenance, and infrastructure
    facilities enhance marine quality of life. It is a pleasure to visit
    our installations and hear young marines talk about how their new
    facilities support their work in ways our older facilities do not. New,
    adequate facilities give marines a great deal of confidence and
    encourage the rigorous discipline required for them to perform at the
    higher level. When new construction is deferred, we know that, in the
    short term at least, marines will still find a way to accomplish the
    mission.
        The President's fiscal year 2005 budget addresses a number of our
    mission support requirements. The Construction Weight Handling Shop at
    Camp Pendleton, CA, consolidates a Marine Wing Support Squadron with
    range operations and three explosive ordnance disposal teams into
    efficient facilities from dilapidated, leaking, inadequate facilities.
    This and our replacement armory at Camp Lejeune, NC; close combat
    pistol course at Camp Pendleton; and the aircraft maintenance and
    training facility at New River, NC, will give more marines high-tech,
    indoor work areas that actually have heating, cooling, running water,
    electrical power, restrooms, and enough space to accomplish their
    mission. At Camp Pendleton, CA, we are continuing a long-term capital
    improvement program for wastewater treatment. This project is funded in
    fiscal year 2004 and fiscal year 2005 and is the first step in a series
    of projects that will ultimately meet wastewater quality standards.
    These new facilities will support deploying of well cared for marines
    who are well trained. Without them, quality of work, quality of life,
    and morale for many marines will continue to be seriously degraded.

                      MILITARY CONSTRUCTION, NAVAL RESERVE

        The Marine Forces Reserve is an integral and vital portion of our
    Marine Corps total force. Marine Forces Reserve is comprised of almost
    39,600 selected Marine Corps Reserve personnel at 187 sites, dispersed
    throughout 48 States. As these numbers suggest, maintenance of Marine
    Corps Reserve facilities presents a considerable challenge. It is our
    mission to make sure they are supported with adequate facilities. The
    Military Construction, Naval Reserve program for exclusive Marine Corps
    construction must effectively target limited funding to address $173
    million in deferred construction projects. Over 50 percent of the
    Reserve centers our marines train in are more than 30 years old, and of
    these, 35 percent are more than 50 years old.
        In addition to antiquated facilities, the equipment our marines use
    today is bigger, heavier, wider, and longer. Much of it requires
    appropriately constructed or modified maintenance facilities, as well
    as adequate electrical power and other support infrastructure upgrades
    to maintain combat readiness. The electrical demand on our facilities
    has increased significantly due to the widespread use of electronic
    devices and technologically advanced equipment, such as weapons systems
    simulators. Facilities built to accommodate manual typewriters, M151
    jeeps, and M-60 tanks are now inadequate for the equipment our modern
    Marine Corps uses.
        To help us address these challenges, the President's fiscal year
    2005 budget for Military Construction, Naval Reserve contains $12.6
    million in construction and $.4 million in planning and design. This
    program addresses our most pressing requirements by providing a new
    Reserve Training Center and Vehicle Maintenance Facility in
    Jacksonville, FL; and a new Vehicle Maintenance Facility in Norfolk,
    VA. The overall condition of Marine Corps Reserve facilities continues
    to demand a sustained, combined effort of innovative facilities
    management, a pro-active exploration of and participation in joint
    facility projects, and a well-targeted use of the construction program.

              FACILITY SUSTAINMENT, RESTORATION, AND MODERNIZATION

        Facility sustainment funding is critical to keeping our buildings
    functional and supports both the Active and Reserve Forces. In the
    past, our infrastructure was not replaced at an appropriate rate,
    causing portions of it to deteriorate. As a consequence, the Marine
    Corps has had to use an increasing percentage of its facility
    sustainment funds to bind together old, inadequate buildings throughout
    the course of their service life, rather than maintaining newer, more
    economical structures. Significant numbers of facility sustainment
    projects were deferred due to a lack of funds. This directly impacted
    the living and working conditions in barracks, mess halls, and other
    facilities, in highly visible and negative ways. In addition, we
    suffered a ``quiet crisis'' with respect to less obvious repairs to
    steam plants, runways, sewer lines, and roads. In many cases these
    repairs have a more direct impact on quality of life than specific
    building projects. These requirements are no longer being ignored.
        The Office of the Secretary of Defense (OSD) developed a model to
    determine the amount of funding we need to sustain our facilities,
    which continues to be refined and strengthened. We have been able to
    maintain 95 percent of the OSD-established requirement for the
    sustainment of our facilities. The Marine Corps has also committed to
    spending $67 million of operations and maintenance funding on
    restoration and modernization of existing Active and Reserve
    facilities. These investments continue to ensure that our facilities
    will be improved, though slightly, at the end of 2005. We look forward
    to further increases in the overall mission readiness of our facilities
    in the future.

    Demolition
        Defense Reform Initiative Directive #36 directed the Marine Corps
    to dispose of 2.1 million square feet of excess or unneeded structures
    by the end of fiscal year 2000. The Marine Corps exceeded this goal and
    continues to aggressively pursue disposal and demolition of inadequate
    facilities. In fiscal year 2005, the Marine Corps has budgeted $5
    million to demolish an additional 0.3 million square feet.

                                BACHELOR HOUSING

        The Marine Corps' force consists largely of young, single, enlisted
    personnel. Providing appropriate and comfortable living spaces that
    positively impact the morale and development of these young men and
    women is extremely important to the Marine Corps.
        The Marine Corps' primary focus is to house our junior enlisted
    bachelor personnel in pay grades of E1 through E5 on-base, with a goal
    of providing a 20 room standard that allows two junior
    enlisted marines (E1-E3) to share a room with a private bath.
    Noncommissioned officers (NCOs) in the pay grades of E4 and E5 are
    provided a private room and bath in a 20 room. We believe that
    assigning two junior marines to a room provides the correct balance
    between the privacy desired by the marines and the Marine Corps' goals
    to provide companionship, camaraderie, and unit cohesion. We also
    believe that our NCOs (E4s and E5s) need to be in the barracks in order
    to provide the oversight that strengthens team building and unit
    cohesion tenets, particularly since we are a younger more junior
    intensive force. This balance provides the atmosphere necessary to
    motivate, train and develop marines, and foster unit integrity.
        The Marine Corps maintains approximately 98,000 bachelor enlisted
    housing spaces worldwide (78,000 in the United States, and 20,000 in
    Japan). By the end of fiscal year 2004, we will still require an
    additional 16,330 spaces to adequately house our enlisted bachelor
    marines. Your support of our fiscal year 2005 $74.6 million request for
    bachelor housing will address our most immediate goal to eliminate
    permanent party gang-head barracks through four major barracks
    projects: Marine Corps Base Camp Pendleton, CA; Marine Corps Air
    Station New River, NC; Marine Corps Air Station Yuma, AZ; and Marine
    Corps Base Quantico, VA. In addition to the efforts to provide
    sufficient bachelor housing, we are working diligently to meet the
    Department of Defense housing adequacy standards. Since 1998, with your
    support, we have invested an average of $79 million per year towards
    bachelor housing. As a result of these efforts, we have reduced the
    number of inadequate spaces from roughly 16,000 in 1996 to 4,101.
    Consequently, our marines can see signs of progress and know we are
    working to provide quality housing and an increased quality of life in
    the barracks.

                                 FAMILY HOUSING

        With over 170,000 family members, Marine Corps families are an
    integral component of readiness. We must always remember that marines
    and their families serve out of a sense of duty and loyalty to our
    country and as they do so, they face the difficulties of the military
    lifestyle--frequent relocations often far from extended family and
    frequent deployments that separate families for months at a time. A
    continued commitment to improving family housing helps us to convey our
    appreciation for their service and sacrifices.
        In continued support of the President's management agenda, we have
    been increasing our quality housing inventory through PPVs and military
    construction where necessary. The Marine Corps is on track to have
    contracts in place to eliminate inadequate family housing by the end of
    fiscal year 2007. In addition to PPV initiatives for family housing,
    the Department's continued initiative to increase the Basic Allowance
    for Housing (BAH) allows families to access quality affordable housing
    in the private sector. This is important since more then two-thirds of
    service members do not live on a military installation. However, many
    families continue to prefer to live in military or PPV housing for a
    number of reasons, including economics, safety, schools, and community
    support. PPV and traditional military construction efforts will
    continue to improve the homes necessary to supplement private sector
    housing.
        We have close to 25,000 owned, leased, or PPV family housing units
    worldwide. Much of the inventory we own is in poor condition and needs
    major renovation or replacement. The President's fiscal year 2005
    budget includes $129.1 million for replacement, renovation, and PPV
    seed money. Our 2001 family housing master plan identified close to
    17,700 inadequate housing units with the majority of those units
    requiring significant revitalization or replacement. Thanks to your
    support we have been able to reduce our inadequate inventory by 7,000
    homes since September 2002. The fiscal year 2005 budget will permit us
    to replace roughly 198 homes at Marine Corps Air Station Cherry Point,
    NC; and privatize 5,455 homes, which will result in the additional
    replacement, renovation or demolition of 2,669 inadequate units at
    Marine Corps Base Camp Lejeune, NC; Marine Corps Air Ground Combat
    Center, Twentynine Palms, CA; and Marine Corps Reserve Support Command,
    Kansas City, MO.

    Public Private Ventures
        We are seeing success from the PPV projects that we have awarded at
    Marine Corps Base Camp Pendleton, CA; Marine Corps Air Station
    Beaufort, SC; and Marine Corps Recruit Depot Parris Island, SC. Marines
    and their families have also benefited from joint projects with the
    Navy at Belle Chase, Louisiana and San Diego, California. The PPVs not
    only improve the homes in which our families live, they also provide
    community support facilities and recreation facilities that help create
    neighborhoods and a sense of community. I have received only positive
    feedback from marines and their families about these PPVs. Despite our
    success we have one remaining challenge that is critical to the
    continued success of our privatization program--the statutory ``cap''
    on the amount of budget authority that can be used in military family
    housing privatization. OSD projects that the Services will reach the
    current cap of $850 million in fiscal year 2004. As cash contributions
    are required for most Marine Corps privatization projects, any help you
    can provide to eliminate or raise the cap so we may continue our
    privatization initiatives will be greatly appreciated.
        On September 30, 2003, the largest PPV to date within the
    Department of the Navy was awarded. This project will provide for long-
    term management, maintenance, construction, and renovation of family
    housing communities at Marine Corps Base Quantico, VA; Marine Corps
    Recruit Depot San Diego, CA; Mountain Warfare Training Center,
    Bridgeport, CA; and Marine Corps Base Camp Pendleton, CA. A
    groundbreaking ceremony was held on the site in Quantico on October 27.
    This 50-year PPV includes:

             Privatization of 4,629 existing homes (3,313 Camp
            Pendleton, CA; 1,311 Quantico, VA; 5 San Diego, CA);
             Demolition of 1,999 homes (832 Camp Pendleton, CA;
            1,167 Quantico, VA) and replacement of 1,826 of those homes
            (833 Camp Pendleton, CA; 993 Quantico, VA);
             Renovation of 2,310 homes (2,161 Camp Pendleton, CA;
            144 Quantico, VA; 5 San Diego, CA); and
             Construction of 78 deficit reduction units at Camp
            Pendleton, CA.

        This will provide the Marine Corps with a total inventory of 4,534
    units (3,392 Camp Pendleton, CA; 1,137 Quantico, VA; 5 San Diego, CA).
    Moreover, part of the construction will include quality of life
    community support facilities such as recreation centers and playgrounds
    at Camp Pendleton, CA; Quantico, VA; and Bridgeport, CA.
        PPVs only work when private investors can make a reasonable profit.
    At some installations, low BAH rates and/or facilities condition mean
    that a business case cannot be made for a PPV, and traditional military
    construction is the only option. While privatization will not make good
    business sense at every location within the Marine Corps, it will
    ultimately help us address much of our housing requirement. We plan to
    privatize 95 percent of our family housing. We will continue to review
    opportunities for additional privatization in the near future.

                    ENVIRONMENTAL COMPLIANCE AND PROTECTION

        The lands entrusted to the Marine Corps encompass over 2 million
    acres of some of the most ecologically sensitive areas of the country.
    These lands are where we train our marines to fight and win battles
    using the full complement of weapons and tactics in realistic training
    scenarios. Our challenge is to conduct our Marine Corps mission while
    managing our lands in an environmentally sustainable manner so that we
    can preserve these resources to train future generations of marines.
        We have made great progress in managing these resources in the last
    decade. Through dedicated efforts and a commitment of manpower and
    funding, we have corrected deficiencies and put programs in place to
    manage long-term issues. Through training and awareness we are
    integrating environmental requirements into operations and training
    across all functional areas. We have reduced our liabilities and
    improved our compliance posture with an investment in qualified staff,
    improvements to our facilities, use of pollution prevention measures
    and an emphasis on providing training to our marines and civilians so
    they can do their jobs in an environmentally sound manner.
        We recognize that in order to have sustainable installations, we
    must continue our commitment to environmental stewardship. In fiscal
    year 2005, we have budgeted $126 million in operations and maintenance,
    Marine Corps funds to comply with environmental requirements. This
    funding allows us to meet air, water, and waste requirements, and
    protect and conserve natural and cultural resources. Our fiscal year
    2005 budget is an increase of $5 million over fiscal year 2004. This
    additional funding will allow us to begin to assess our ranges for
    potential environmental issues, protecting both our military mission
    and the environment.

                                  ENCROACHMENT

        We are grateful to Congress for providing a tool to facilitate the
    management of incompatible developments adjacent to or in close
    proximity to military lands. We are working with State and local
    governments and with non-governmental organizations such as the Trust
    for Public Lands, The Nature Conservancy, the Sierra Club, and the
    Endangered Species Coalition to acquire lands buffering or near our
    bases including Camp Lejeune, Marine Corps Air Station Beaufort, and
    Camp Pendleton. In return for our investment, the Marine Corps is
    receiving restrictive easements that ensure lands acquired remain
    undeveloped and serve as buffer zones against future encroachment on
    our bases.
        We are also grateful to Congress for codifying legislation that
    gives us the opportunity to partner with the U.S. Fish and Wildlife
    Service and State fish and game agencies in order to manage endangered
    species present on military lands. Management via our Integrated
    Natural Resources Management Plans, which we prepare in partnerships
    with these agencies, allows us to protect and enhance populations of
    these species on our lands while allowing marines to train. Finally, we
    support the Secretary of Defense's efforts to provide flexibility under
    the Clean Air Act and to clarify the governing authorities under which
    DOD would manage operational ranges. The Marine Corps strives to be a
    good environmental steward and the growing number of endangered species
    on our lands and their increasing populations are examples of our
    successes. We remain committed to protecting the resources entrusted to
    us by the American people.
        Mr. Chairman, marines and their families make great sacrifices in
    serving their country. The Marine Corps prides itself on the legacy of
    rewarding that sacrifice by taking care of its own. The Marine Corps
    would like to thank the committee for its strong continued support of
    Marine Corps infrastructure programs and the benefits this support
    provides in improved readiness and quality of life.
        Mr. Chairman, this concludes my statement. I will be happy to
    answer any questions you may have.

        Senator Ensign. Thank you, General.
        General Fox.

      STATEMENT OF MAJ. GEN. DEAN FOX, USAF, THE AIR FORCE CIVIL
         ENGINEER AND DEPUTY CHIEF OF STAFF, INSTALLATIONS AND
                            LOGISTICS, USAF

        General Fox. Thank you, Mr. Chairman and members of the
    subcommittee. Good afternoon. I sincerely appreciate the
    opportunity to appear before you to discuss the Air Force
    fiscal year 2005 military construction program.
        Air Force missions and Air Force members around the world
    depend upon this committee's favorable support of our
    infrastructure programs. We sincerely appreciate your
    unwavering support of our military construction efforts, so
    essential to supporting our people and our missions worldwide.
        The total force--that is active Air Force, Air National
    Guard, and Air Force Reserve--military construction and
    military family housing programs are essential to the Air Force
    mission, whether it is on the flight line where operations are
    conducted, in the work place, or in the home. Although higher
    priorities have not always allowed us to address all facility
    needs, the Air Force recognizes the importance of investing in
    our facilities.
        We train and we fight from our bases. Our installations
    commanders are responsible not only for the mission, but also
    for the people who perform that mission and those who support
    the mission as well. That makes our facilities and
    infrastructure very critical to the mission.
        The importance we place on our facilities is seen in our
    recent budget submissions. Our military construction and
    housing facility budgets increased in fiscal year 2003 and
    fiscal year 2004, and increased further in this year's program
    request of $2.6 billion. We sincerely appreciate your support
    of our programs.
        In total, between military construction, housing, and
    sustainment, restoration, and modernization, we will invest
    more than $4.8 billion in our installations in fiscal year
    2005. The military construction request balances our need to
    restore and modernize our infrastructure, bed down new
    missions, and improve the quality of life of our people.
        First on infrastructure, we are continuing an upward trend
    in our sustainment, restoration, and modernization funding. The
    fiscal year 2005 budget request includes $2.2 billion to
    sustain our infrastructure as well as restore and modernize our
    infrastructure by starting to buy down that backlog of needed
    repairs to our real property.
        On the new mission side, our military construction budget
    also consists of projects to support the Air Force new weapons
    systems, those which provide our combat commanders the
    capabilities to meet our Nation's security needs. Forty-five
    projects and more than $400 million in our budget facilitate
    the beddown of those systems by providing the necessary
    infrastructure and facilities, including infrastructure to
    support the F/A-22 at Tyndall Air Force Base, Florida, and
    Sheppard Air Force Base, Texas, expansion of the Predator
    remotely piloted aircraft program, and beddown of the C-17
    airlift aircraft at three bases.
        Quality of life. The Air Force is committed to taking care
    of our members and our families as well. Quality of life
    projects such as our dorms and our housing help support them,
    as our airmen are more frequently deployed away from home.
    Knowing their families are well taken care of keeps our airmen
    on focus for the Air Force's and our Nation's tasks.
        The Air Force is committed to meet the Department's goal of
    providing safe, affordable, and adequate housing for our
    members. We are continuing our sustained investment in military
    family housing and we are increasing our investment by over
    $180 million from last year's request. For fiscal year 2005,
    our request for $847 million will allow us to construct over
    2,200 units at 16 bases, to improve more than 1,300 units at an
    additional 6 bases, and will allow us to privatize 6,800 units
    at 6 bases.
        Just as we are committed to provide adequate housing for
    families, we have an ambitious program to house our
    unaccompanied junior enlisted personnel as well. Our dormitory
    master plan will achieve the Department's goal to provide our
    airmen with adequate permanent party dormitory rooms by 2007
    and we will achieve our objective of providing adequate
    technical training dormitories for Air Education and Training
    Command students by 2009. We are well on track to meeting these
    goals.
        On behalf of all the airman affected by this important
    quality of life initiative, I want to thank the subcommittee
    for its great support. We know we could never have made this
    without your tremendous efforts and support.
        Ensuring we have adequate facilities overseas for our
    airmen also remains a priority for the Air Force. With 20
    percent of our airmen stationed overseas, it is very important
    to make sure we continue to invest in those installations
    supported as enduring locations by the combatant commanders.
    Our budget request of $140 million for these locations consists
    of the most essential facility needs to ensure our airmen can
    perform their missions and provide the proper quality of life
    for those airmen. We ask for your support of these operational
    and quality of life projects.
        In conclusion, Mr. Chairman, I thank this committee for its
    continued strong support of the Air Force military construction
    and family housing. I will be happy also to answer any
    questions.
        [The prepared statement of General Fox follows:]

               Prepared Statement by Maj. Gen. L. Dean Fox, USAF

        Mr. Chairman and distinguished members of the subcommittee, the
    strength and flexibility of airpower and our joint warfighting success
    in the global war on terrorism is directly enabled by three
    interdependent factors; outstanding men and women in uniform, superior
    weapons platforms, and an agile support infrastructure. The Air Force
    fiscal year 2005 military construction (MILCON) budget request reflects
    our commitment to ensuring the Air Force's continued ability to execute
    the full range of air and space missions. In turn, the Air Force
    continues to maintain the commitments made last year to invest wisely
    in installations from which we project air and space power, take care
    of our people and their families with adequate housing and quality of
    life improvements, and to sustain the public trust through prudent
    environmental management.

                                  INTRODUCTION

        Air Force facilities, housing, and environmental programs are key
    components of our support infrastructure. At home, bases provide a
    stable training environment and a place to equip and reconstitute our
    force. Overseas bases provide force projection platforms to support
    combatant commanders.
        As such, the Air Force has developed an investment strategy focused
    on sustaining and recapitalizing existing infrastructure, investing in
    quality of life improvements, continuing strong environmental
    management, accommodating new missions, optimizing use of public and
    private resources, and reducing infrastructure wherever we can.
        Total force military construction, family housing, sustainment,
    restoration, and modernization programs each play vital roles
    supporting operational requirements and maintaining a reasonable
    quality of life for our men and women in uniform.
        While the Air Force has always acknowledged the importance of
    proper funding for facility sustainment and recapitalization, too often
    competing priorities have not permitted us to address all the problems
    we face with our aging infrastructure. Despite competing priorities,
    you supported our request last year. The Air Force sincerely
    appreciates your support.
        Continuing a positive trend into fiscal year 2005, the Air Force
    military construction program included in the President's budget
    request is approximately the same as last year with an increase in the
    military family housing program. The requested $2.6 billion for total
    force military construction and Military Family Housing is a $200
    million increase over last year's request. This request includes $664
    million for Active military construction, $127 million for Air National
    Guard military construction, $84 million for Air Force Reserve military
    construction, and more than $1.7 billion for military family housing.
        The Air Force has also increased operations and maintenance (O&M)
    sustainment, restoration, and modernization (SRM) funding. This year,
    the amount dedicated to SRM is more than $200 million greater than in
    the 2004 request. With the fiscal year 2005 budget request, more than
    $2.2 billion will be invested in critical infrastructure maintenance
    and repair through our O&M program. This year's request is up almost 11
    percent from last year, to continue to move to the Air Force goal of a
    facility recapitalization rate of 67 years by 2008.
        Considering the level of effort across the entire infrastructure
    spectrum (MILCON, military family housing (MFH), and O&M SRM), the
    overall Air Force fiscal year 2005 budget request is more than $4.8
    billion.

    Overseas Military Construction
        Even though the majority of our Air Force personnel are assigned in
    the United States, 20 percent of the force is permanently assigned
    overseas, including 29,000 Air Force families. Old and progressively
    deteriorating infrastructure at these bases requires increased
    investment. While a new Global Basing Strategy is under development by
    the Office of the Secretary of Defense, the Air Force fiscal year 2005
    MILCON request invests in overseas installations supported as enduring
    locations by the combatant commanders. The request for overseas
    construction in the Pacific and European theaters of operation is $140
    million for 13 projects. The program consists of infrastructure and
    quality of life projects in the United Kingdom, Germany, the Azores,
    Italy, Spain, Japan, and Korea. I also want to thank you for the
    essential overseas MILCON funding you approved in the Fiscal Year 2004
    Supplemental Appropriations Bill for construction projects in Southwest
    Asia as well as at critical en route airlift locations, needed to
    directly support ongoing operations in that region.

    Planning and Design/Unspecified Minor Construction
        This year's request includes planning and design funding of $160
    million. These funds are required to complete design of the fiscal year
    2006 construction program, and to start design of the fiscal year 2007
    projects so we can be prepared to award these projects in the year of
    appropriation. This year's request also includes $24 million for the
    unspecified minor construction program, which is the primary means of
    funding small, unforeseen projects that cannot wait for the normal
    military construction process.

               SUSTAIN, RESTORE, AND MODERNIZE OUR INFRASTRUCTURE

    Operations and Maintenance Investment
        To sustain, restore, and modernize infrastructure, there must be a
    balance between military construction and O&M. MILCON restores and
    recapitalizes facilities. O&M funding is used to perform facility
    sustainment activities necessary to prevent facilities from failing
    prematurely. Without proper sustainment, facilities and infrastructure
    wear out quickly. O&M funding is also used to directly address many
    critical restoration and less-expensive recapitalization needs. These
    funds enable commanders in the field to address the facility
    requirements that impact their near-term readiness.

                     INVEST IN QUALITY OF LIFE IMPROVEMENTS

        The Air Force recognizes a correlation between readiness and
    quality of life. Quality of life initiatives acknowledge the sacrifices
    our airmen make in support of the Nation and are pivotal to recruiting
    and retaining our country's best and brightest. When airmen deploy,
    they want to know their families are safe, and secure. Their welfare is
    a critical factor in our overall combat readiness. Family housing,
    dormitories, and other quality of life initiatives reflect the Air
    Force commitment to provide the facilities they deserve.

    Family Housing
        The Air Force Family Housing Master Plan provides the road map for
    our housing MILCON, O&M, and privatization efforts, and it is designed
    to meet the goal of ensuring safe, affordable, and adequate housing for
    our members. The fiscal year 2005 budget request reflects an increase
    of more than $180 million over the fiscal year 2004 budget for family
    housing. With the exception of four northern-tier locations, inadequate
    housing will be eliminated in the United States by 2007. The inadequate
    units at those four northern-tier locations will be eliminated by 2008.
        For fiscal year 2005, the $847 million requested for housing
    investment will provide over 2,200 units at 16 bases, improve more than
    1,300 units at 6 bases, and support privatization of over 6,800 units
    at 6 bases. An additional $864 million will be used to pay for
    maintenance, operations, utilities, and leases to support family
    housing.

    Dormitories
        Just as we are committed to provide adequate housing for families,
    we have a comprehensive program to house our unaccompanied junior
    enlisted personnel. The Air Force is well on its way in implementing a
    Dormitory Master Plan. The plan includes a three-phased dormitory
    investment strategy. The three phases are:

            (I) fund the replacement or conversion of all permanent party
            central latrine dormitories;
            (II) construct new facilities to eliminate the deficit of
            dormitory rooms; and
            (III) convert or replace existing dormitories at the end of
            their useful life using an Air Force-designed private room
            standard to improve quality of life for airmen.

        Phase I is complete and we are now concentrating on the final two
    phases of the investment strategy.
        The total Air Force requirement is 60,200 dormitory rooms. The Air
    Force Dormitory Master Plan achieves the Office of the Secretary of
    Defense's (OSD) fiscal year 2007 goal to replace all inadequate
    permanent party dormitory rooms and the Air Force goal to replace all
    inadequate technical training dormitories by fiscal year 2009. This
    fiscal year 2005 budget request moves us closer to those goals. The
    fiscal year 2005 dormitory program consists of 7 dormitory projects,
    1,104 rooms, at both stateside and overseas bases in direct support of
    unaccompanied personnel, for a total of $128 million.

    Fitness Centers
        Fitness centers are a critical component of the Air Force quality
    of life program. The growing expeditionary nature of our activities
    requires that airmen increasingly deploy to all regions of the world,
    in extreme environments and therefore must be physically prepared to
    deal with the associated challenges. In other words, airmen must be
    ``fit to fight.'' Our new fitness program directs airmen to devote more
    time and energy to being physically fit, and the use of our fitness
    centers has dramatically increased to support this reorientation in our
    culture. The fiscal year 2005 MILCON program includes three fitness
    centers: Lajes Air Base, Azores; Hill Air Force Base (AFB), Utah; and
    Elmendorf AFB, Alaska.

                       CONTINUE ENVIRONMENTAL LEADERSHIP

        The Air Force continues to ensure operational readiness and sustain
    the public trust through prudent environmental management. As part of
    the overall military transformation program, we actively seek and
    employ smarter solutions to long-standing environmental challenges. We
    are applying lessons learned in terms of how, and the extent to which,
    pollution can be prevented and contamination can be controlled. We are
    investing in more efficient contracting methods as a key element in our
    approach to future environmental restoration. Additional use of
    performance based contracting will focus on cleanup performance goals
    and thereby reduce process requirements. Finally, we are establishing
    systems to better identify the equity value of our installations'
    environmental resources to the surrounding community. For example, land
    that provides habitat for an endangered species may be valuable as open
    space in a community's redevelopment plan. That value should be
    identified and understood.
        In addition to ensuring our operations comply with all
    environmental regulations and laws, we are dedicated to enhancing our
    existing relationships with both the regulatory community and the
    neighborhoods around our installations. We continue to seek
    partnerships with local regulatory and commercial sector counterparts
    to share ideas and create an atmosphere of better understanding and
    trust. By focusing on our principles of ensuring operational readiness,
    partnering with stakeholders, and protecting human health and the
    environment, we remain leaders in environmental compliance, cleanup,
    conservation, and pollution prevention.
        The $3.3 million environmental project in the fiscal year 2005
    MILCON program will allow Shaw AFB to meet current Environmental
    Protection Agency (EPA) standards for wastewater discharge.

                            ACCOMMODATE NEW MISSIONS

        As indicated earlier, joint warfighting success in the global war
    on terrorism has been possible in part due to superior weapons
    capabilities. New weapon systems are the tools of combat capability
    that enable our combatant commanders to respond quickly to conflicts in
    support of national security objectives. The fiscal year 2005 total
    force new mission military construction program consists of 45
    projects, totaling more than $403 million. These projects support a
    number of weapons systems; two of special significance are the F/A-22
    Raptor and the C-17 Globemaster III.
        The F/A-22 Raptor is the Air Force's next generation air
    superiority and ground attack fighter. F/A-22 flight training and
    maintenance training will be conducted at Tyndall AFB, Florida, and
    Sheppard AFB, Texas, respectively. Our fiscal year 2005 military
    construction request includes two F/A-22 projects at Tyndall AFB for
    $19 million, and one F/A-22 project at Sheppard AFB totaling $21
    million.
        The C-17 Globemaster III aircraft is replacing the fleet of C-141
    Starlifters. C-17s will be based at Elmendorf AFB, Alaska; Travis AFB
    and March Air Reserve Base (ARB) in California; Dover AFB, Delaware;
    Hickam AFB, Hawaii; Jackson Air National Guard Base, Mississippi;
    McGuire AFB, New Jersey; Altus AFB, Oklahoma; Charleston AFB, South
    Carolina; and McChord AFB, Washington. Thanks to your support,
    construction requirements for Charleston and McChord were funded in
    prior-year military construction programs. The request for fiscal year
    2005 includes two projects for $15 million at Elmendorf AFB, two
    facility projects for $15 million at Travis AFB, two projects for $10
    million at March ARB, and five facility projects for $26 million at
    Hickam AFB.
        Other new mission requirements in fiscal year 2005 include the
    Global Hawk beddown at Beale AFB, California; Predator force structure
    changes at Indian Springs Air Force Auxiliary Field, Nevada; Combat
    Search and Rescue aircraft beddown at Davis-Monthan AFB, Arizona; C-
    130J simulator facility at Little Rock AFB, Arkansas; F-35 Joint Strike
    Fighter test facilities at Edwards AFB, California; and various
    projects supporting homeland defense, such as the air sovereignty alert
    missions flown by the Air National Guard at Andrews AFB, Maryland;
    Duluth International Airport, Minnesota; Atlantic City International
    Airport, New Jersey; and Truax Field, Wisconsin.

                  OPTIMIZE USE OF PUBLIC AND PRIVATE RESOURCES

        In order for the Air Force to accelerate the rate at which we
    revitalize our inadequate housing inventory, we have taken a measured
    approach to housing privatization. We started with a few select
    projects, looking for some successes and ``lessons learned'' to guide
    the follow-on initiatives. The first housing privatization project was
    awarded at Lackland AFB, Texas, in August of 1998, and all 420 of those
    housing units have been constructed and are occupied by military
    families. Since then, we have completed three more projects (Elmendorf
    AFB, Alaska; Robins AFB, Georgia; and Dyess AFB, Texas) and have three
    more under construction (Wright-Patterson AFB, Ohio; Patrick AFB,
    Florida; and Kirtland AFB, New Mexico). Once these three projects are
    complete, there will be nearly 5,500 privatized units. We are on track
    to privatize 60 percent of our U.S. based family housing by 2007. The
    fiscal year 2005 budget request includes $83 million to support the
    privatization of nearly 7,000 units at 6 bases: Tyndall AFB, Florida;
    Scott AFB, Illinois; Columbus AFB, Mississippi; Keesler AFB,
    Mississippi; Holloman AFB, New Mexico; and Fairchild AFB, Washington.

       CONTINUE DEMOLITION OF EXCESS, UNECONOMICAL-TO-MAINTAIN FACILITIES

        For the past 8 years, the Air Force has pursued an aggressive
    effort to demolish or dispose of facilities that are unneeded and no
    longer economically feasible to sustain or restore. From fiscal year
    1998 through fiscal year 2003, we demolished 15.5 million square feet
    of non-housing building space at a total cost of $200 million. This is
    equivalent to demolishing more than three average size Air Force
    installations. For fiscal year 2004 and beyond, we will continue to
    identify opportunities for demolition and facility consolidation. In
    general, the facility demolition program has been a success, enabling
    us to reduce the strain on infrastructure funding by getting rid of
    facilities we don't need and can't afford to maintain.

                                   CONCLUSION

        The near- and long-term readiness of our fighting force depends
    upon this infrastructure. We will continue to enhance our
    installations' capabilities, remain good stewards of the environment,
    and ensure Air Force infrastructure is properly distributed to maximize
    military readiness.

        Senator Ensign. Thank all of you for your testimony.
        We will begin a round of questioning now, and I appreciate
    all of your statements. Obviously, we will not have time to get
    to all of the questions that we have if we spent all of the
    time just on my questions. So I will be submitting questions
    for the record in writing to all of you, and I am sure the rest
    of the Senators will have other questions for the record as
    well.
        Mr. DuBois, I would like to start with you. I want to talk
    about the overseas basing master plan. What I would like you to
    address first of all is, we were supposedly going to have this
    plan and I understand that things sometimes can be a little
    difficult. Secretary Wolfowitz said that we would have it, I
    think it was, early 2003. We are now in 2004, and we do not
    have the master plan.
        Could I have a general idea about when we are going to have
    that? As you mentioned, the overseas master plan is critical to
    the whole BRAC process and where we are going to be bringing
    people home and that kind of issue.
        Also, if you could address some of the assets moving around
    in Europe, talk a little bit about the European phase as well
    as the Pacific Rim phase in general to give the subcommittee an
    idea of the direction of what is happening in Asia and also
    General Jones' plan in Europe.
        Mr. DuBois. Thank you, Mr. Chairman. As I indicated in my
    opening remarks, it is my understanding that the Secretary of
    Defense intends to, after consultation obviously with the
    President of the United States and the National Security
    Council, to bring to Congress his major building blocks in
    terms of the integrated global presence and basing strategy by
    the end of May.
        It is a complicated and complex exercise, as you can well
    imagine. We began doing this exercise in August 2001 when the
    Secretary and I and others discussed, how would the combatant
    commanders, specifically the four regional ones in Europe and
    for the Pacific and Central Command and then Southern Command,
    best involve themselves in the footprint in their areas of
    responsibility (AORs). That was done.
        The second step was how to blend those AORs, because, as
    Secretary Rumsfeld said to each of those combatant commanders:
    The force structure in your area of operations does not belong
    to you; that force structure belongs to the Commander in Chief,
    the President of the United States.
        Step three was, once they came back and once the Joint
    Staff and the Office of the Secretary of Defense began to
    blend, if you will, these recommendations that came from
    individual combatant commanders, we also recognized, quite
    frankly, the opportunity presented to us by the lessons learned
    of Operation Iraqi Freedom, Operation Enduring Freedom, to
    restructure a cold war footprint overseas.
        All of that is leading towards, as I indicated, an end of
    May conclusion by the Secretary as to a global footprint set of
    recommendations. You asked about Europe in particular. Perhaps
    the largest muscle move, if you will, is potentially out of
    Western Europe. One would argue that we no longer face the
    Warsaw Pact, we no longer face an inter-German border, possible
    penetration.
        Therefore, and looking at the world, looking at the global
    responsibilities of the United States, the Secretary of
    Defense, again in discussions with the Secretary of State and
    the President, have concluded that a substantial force
    structure change is not only necessary, it is advisable with
    respect to Western Europe. We have since 1945 had a
    considerable amount of force structure there. It has been drawn
    down over the years. A considerable amount of force structure
    still exists there, well in excess of 150,000 troops.
        I think it is safe to say that some major portion of that
    force structure, to include the United States Army presence,
    will be returned to the United States. There is also force
    structure that the Air Force has had for many years in Europe
    which is also being discussed for return. But at this point and
    at this time, I think you can appreciate that I am not in a
    position to say it is going to be X division or Y division.
        The important thing is to realize the decision will be made
    and the BRAC process is the process by which those bases will
    be selected, those best bases will be selected for the
    infrastructure.
        Senator Ensign. If I may interrupt, from what I
    understand--and obviously none of this has been finalized--with
    Eastern Europe now being obviously more--would be much more
    forward deployed and similar to what we have going on in Kuwait
    and Qatar as far as bases, the types of bases they are talking.
    I have heard discussions about much more temporary-looking
    training type bases.
        Have the discussions taken place, or at least preliminary
    discussions, on those countries, and the current burdensharing?
    Burdensharing in Asia is much more favorable to the United
    States than currently happens in Europe. With some of the
    redeployment of troops back home, that does not happen. But
    have discussions taken place at all with countries on any types
    of burdensharing type arrangements in a more favorable light
    for the United States, since we would be providing security for
    those countries?
        Mr. DuBois. Two answers to your question, and it is a very
    important question. With respect to cooperative security
    locations or forward operating locations, as we look at our
    global posture and where we think we need to position our force
    structure, it is true that we are looking South and East in
    terms of Europe. However, it does not mean that we are going to
    take major force structure and permanently station it in
    Eastern Europe. It does mean that we are looking and have had
    discussions, preliminary discussions, with some of these
    countries where we might together have a cooperative security
    location or a forward operating location.
        The second part of your question, or my second answer to
    your question if you will, sir, is how would one go about
    paying for it, the burdensharing question. I have suggested
    that there are several ways to do that. Certainly one of them
    is not--repeat, is not--to have military construction dollars,
    U.S. taxpayers' dollars, pay for it. It could be done, for
    instance, on the basis of a lease. It is almost like a time
    share. The United States may choose to enter into a negotiation
    with country X, which in turn has established or brought
    together a consortium of construction companies to build the
    base to our specifications. We will have a ground lease, if you
    will, small ``g'', that will be for X period of time, years,
    and then we will have a usage fee. But it may also be a North
    Atlantic Treaty Organization (NATO) installation so that other
    countries also can pay a usage fee.
        So there are ways that we are looking at this creatively to
    finance it so that the burden is not on the U.S. taxpayer, but
    that we are still maintaining maximum flexibility for
    throughput of force structure at the time of need.
        Senator Ensign. Just my last comment. I hope when we are
    looking at that that we do try to maximize the dollars that we
    have for the U.S. taxpayer. Even in a lease situation, it is
    still coming out of the U.S. tax dollars if we are paying. So
    the bottom line is that we benefit from that, there is no
    question. We recognize that. But they also benefit from it, and
    it just seems to me that in Asia we have a much better
    burdensharing agreement than we have in most of Western Europe.
        Mr. DuBois. Make no mistake, if we were to pull major force
    structure out of Europe that is an enormous decrease in the
    costs that the American taxpayer sustains to keep that force
    structure in Europe, housing and hospitals and so forth.
        Senator Ensign. Senator Akaka.
        Senator Akaka. Thank you very much, Mr. Chairman.
        Mr. DuBois, to follow up on Senator Ensign's question on
    overseas basing, what is the status of U.S. discussions with
    the host nations of our major current bases, such as Germany,
    Korea, and Japan, as well as with nations where we may be
    seeking new basing rights? Have we reached agreement with any
    other nations on changes in the long-term basing of our forces
    in their countries?
        Mr. DuBois. Senator Akaka, the study that has been
    undertaken with respect to Europe in particular over the past 2
    years has included significant discussions with the countries
    impacted, if you will, both between the President of the United
    States and the heads of those countries as well as the
    Secretary of State and the Secretary of Defense with their
    counterparts. Most recently, Under Secretary of State Marc
    Grossman and Under Secretary of Defense Doug Feith have been in
    Europe in discussions with these countries.
        I personally have discussed this with regional officials of
    Germany, but again not in, this is the answer or this is our
    decision, but rather, in the alliance framework this is what we
    are thinking about. The Minister of Defense of Germany is
    actually undergoing and has undertaken his own BRAC process,
    because he knows that we are going to pull back some heavy
    force structure.
        Senator Akaka. As part of this global basing strategy, will
    DOD be seeking to build any new overseas facilities, or to base
    our forces in countries where U.S. forces are not currently
    stationed?
        Mr. DuBois. At this time, because of Operation Enduring
    Freedom and Operation Iraqi Freedom, we have temporarily
    created footprint, if you will, to use the term of art, both in
    Afghanistan and several of the surrounding countries as well as
    in Iraq. It is temporary. I do not know--and I have talked to
    General Abizaid about this--what would ultimately end up being
    ``enduring.'' The situation is fairly fluid, as you can
    appreciate.
        While it is true that General Jones in the European Command
    and Admiral Fargo in the Pacific Command have looked at
    possible forward operating locations and possible cooperative
    security locations where we do not now have infrastructure, it
    is again not for permanent basing of U.S. force structure. It
    may be agreements that we have negotiated for planes to be
    refueled, for troops to be assembled, for equipment, for
    logistics reasons and equipment reasons. But we would not
    necessarily build new footprint, new infrastructure. It would
    be in response to a situation that was presented to us.
        But the important thing is to negotiate those agreements
    very carefully with multiple countries so that we do not find
    ourself in the position that we were in during Operation Iraqi
    Freedom (OIF), where certain countries prevented us from doing
    what was necessary.
        Senator Akaka. Mr. DuBois, what assurances can you provide
    that, regardless of the timing or the final form of the DOD
    Global Posture Review, all the overseas military construction
    projects in the 2005 budget are necessary because our forces
    are certain to remain at these particular locations?
        Mr. DuBois. Yes, sir. As you will see, as you have seen, in
    the President's budget submission for military construction
    this year it is down overseas significantly, in no small
    measure because of exactly the issue that you raise. We have
    only asked for military construction overseas in bases that we
    consider enduring, A; and B, for mission-critical requirements.
        Senator Akaka. Mr. DuBois, have any DOD funds been expended
    to date to create facilities that are intended or could be used
    to support the long-term or permanent stationing of U.S. forces
    in Iraq or Afghanistan?
        Mr. DuBois. General Abizaid and the Joint Staff and the
    Office of the Secretary of Defense are looking at a number of
    possible infrastructure investments of a temporary nature in
    Iraq, as I indicated. At this time there is no--repeat, no--
    decision by the Secretary to do more than that, which would
    require authorization by this committee, appropriation by your
    colleagues in the Appropriations Military Construction
    Subcommittee.
        It is true that General Abizaid and the component commands
    in U.S. Central Command (CENTCOM) have a number of different
    infrastructure needs, and I will say this in public testimony.
    Unfortunately, a given brigadier general in Iraq used the term
    ``enduring'' and he should not have. But we believe these to be
    temporary in nature.
        The legitimate question is, is ``temporary'' 1 year, 2
    years, 3 years? Is it less than 5? Traditionally, when we talk
    about temporary or expeditionary infrastructure necessary, it
    has always been less than 5, although there is an ongoing
    discussion between our comptroller and the appropriators as to
    which pot of money, which color of money, can be used for
    contingency construction purposes.
        Senator Akaka. Mr. DuBois, can you describe how DOD plans
    to use the 2005 BRAC round to enhance our joint training and
    warfighting capabilities?
        Mr. DuBois. The selection--I am sorry, sir; were you going
    to say something else?
        Senator Akaka. I have asked that you describe how DOD plans
    to use the 2005 BRAC round to enhance our joint training and
    warfighting capabilities.
        Mr. DuBois. In the selection criteria, which was published
    recently, it specifically calls for decisions to be made on the
    basis of joint operating capabilities, joint training, joint
    logistics. This is somewhat of a change from the four prior
    BRACs. The Secretary is quite insistent that all four Services
    work together to determine where and when Marine Corps air
    assets could be better positioned from a warfighting standpoint
    on an Air Force base, and I could use the examples obviously
    from a----
        Senator Akaka. Are you describing what you call the
    ``purple'' bases?
        Mr. DuBois. Well, all bases except for one are ``owned by''
    an individual service secretary, Army, Navy, or Air Force.
    There is only one military installation that the Secretary of
    Defense ``owns'' and that is the Pentagon, and I am proud to
    say that I am the installation commander of the Pentagon. But
    purple, that is the only purple one in that sense, sir.
        Senator Akaka. Thank you.
        Senator Ensign. Senator Inhofe.
        Senator Inhofe. Thank you, Mr. Chairman. Mr. Chairman, I
    have six questions, but I have two that I have never been able
    to get the answer for, so I start with those because I am
    afraid I will not be able to get around to the rest of them.
        It has been interesting to me to listen to the variety of
    descriptions of this, of the Global Posture Review. There are
    about 12 different terms that are used, but I think they are
    somewhat interchangeable. I became interested in this. I have
    talked extensively with Doug Feith, with General Jones. As I
    mentioned in my opening statement, I am very much concerned
    over how this relates to the BRAC decisions that are being
    made.
        What I would like to ask you is, let us just take a
    hypothetical. You are looking at something, and I agree with
    you when you say if we had 40,000 families stationed in Western
    Europe that obviously if we could bring those back statewide
    and we could have shorter deployments in areas where training
    can take place, such as Eastern Europe, where they do not have
    the environmental encroachment, they have the ranges, they want
    us there, they will billet us, you would save untold millions
    of dollars to do it that way, and I think that is where we are
    going. At least I hope that is where we are going.
        Now, as far as this round is concerned, that would have a
    dramatic change. Now, one, it would seem to me that you would
    first have to determine how many of these assets are going to
    return stateside, because we are talking about stateside
    realignments and closures, before you make the decision, the
    BRAC decision.
        Now, I understand it is going to be something that will
    have to be happening simultaneously, but so that we can fulfil
    our constitutional duties of oversight it would seem to me that
    we are going to have to see what this is going to look like
    before it comes into a BRAC situation. For example, what if you
    make this decision and predicate your BRAC decisions based on
    30,000 families coming back and it ends up being 40,000 or
    10,000? Then you have not done the closure part of it right.
        So it is which comes first, number one; and are we as the
    oversight committee going to have access to those
    recommendations before they take place?
        Mr. DuBois. You have said it better than I can, Senator. As
    I hoped I had indicated, the Secretary of Defense intends to
    make decisions as to what force structure will return from
    overseas to the United States by the end of May of this year.
    Giving the BRAC process, if you will, a full 12 months, 1 year,
    so that the Army--and I will pick on the Army because they are
    dealing with large force structure in Western Europe--can
    appropriately decide which base or bases is best for the
    repositioning of those troops and their families.
        Senator Inhofe. At the point that that decision is made
    prior to going to General Lust, we as an oversight committee
    are going to be able to see the numbers and what the numbers
    are going to look like so that we can properly exercise our
    duties; is that correct?
        Mr. DuBois. That is correct.
        Senator Inhofe. Okay, that is what I came to hear.
        Now, second, I submitted a question or a suggestion that
    the 50-50 law and other statutory limitations be included as
    criteria. They were not, but I would like to know just what
    your intentions are. Let us just--you can use hypothetical
    cases if you want to. I understand that Solomon Ortiz had more
    than just a passive interest in this when it was over in the
    House, and I do too, not really from a parochial sense as much
    as where we are statutorily.
        The law is on the books. The law says that 50 percent of
    this work is going to have to be done in public depots. Now, is
    that considered when you are making determinations as to, under
    the new criteria, the realignments or closures will take place?
    In other words, I would assume you would not make suggestions
    or have the commission make the suggestions that would violate
    a law that is currently on the books; is that fair for me to
    assume that?
        Mr. DuBois. The laws that pertain to whether it is 50-50 or
    core, any statute on the books, we have to take into
    consideration. They shall not be ignored by the BRAC process.
        Senator Inhofe. Well, but there is a big difference between
    ``they shall not be ignored'' and ``they shall be followed.''
    Would they be followed? Will the law be followed?
        Mr. DuBois. I would submit to you, sir, that the 50-50
    process in particular requires that 50 percent of all depot
    maintenance dollars appropriated by Congress be spent in
    depots. It does not mean that they have to be spent in depot X
    versus depot Y versus depot Z, as you well know. It is looked
    at in the aggregate.
        The particular depot level maintenance and repair
    facilities are going to be examined, as was the statutory
    requirement, all bases examined equally, are going to be
    examined within the BRAC process and any statutory constraint
    is going to be carefully, carefully considered. Now, let me try
    to be as precise as I can. You have asked and you have stated
    correctly, there is a difference between saying we will not
    ignore. I would suspect----
        Senator Inhofe. No, there is a difference between consider
    and follow.
        Mr. DuBois. Right, and we will follow the statute.
        Senator Inhofe. Okay.
        Mr. DuBois. Now, if at the end of this tortuous path, this
    difficult path, in May, no later than May 16, 2005,
    recommendations are made which involve--and please forgive me;
    I am trying to use my words carefully here, as you can well
    imagine--involve other statutes on the books, it will be
    obvious to all, because the Secretary will make these
    recommendations. The depots in particular are considered during
    the BRAC must take into consideration those statutes that you
    have outlined. We know that. I can only say I do not know where
    we are going to end up.
        The BRAC process this time--and I can only emphasize it
    because I think it is important. People have to recognize that
    this BRAC process--and the gentlemen on my left and right are
    part and parcel of the process--is going to be as comprehensive
    and as fair as is possible.
        Senator Inhofe. I understand, and I believe in the process.
    In my opening statement I commented that I have been here when
    the original legislation was passed, and I believe it has been
    successful up to this point, though. The question just
    specifically was, are you going to be following the law, and I
    think you have said you will be following the law. That was
    what I wanted to find out.
        Okay, or do you disagree with that?
        Mr. DuBois. No, I do not disagree with you.
        Senator Inhofe. All right. Then I think I have just 1
    minute left and I am going to real quickly ask these questions,
    and perhaps you are going to have to do it for the record
    because I am concerned about it.
        First of all, I look on page 47 of your document, the
    defense document that outlines the criteria, and I see that the
    decisions made in terms of closing the bases are based on 43
    brigades, while the Army, General Lust, is requesting 48
    brigades. So it would be 19 percent in excess capacity based on
    43 brigades, but 9 percent based on 48 brigades. Which are we
    using? Maybe, General Lust, you have that answer?
        General Lust. Sir, right now we have permission to go from
    33 to 43. In fiscal year 2006 the decision will be made between
    the Army and OSD as to whether we will be allowed to go and get
    the other five, sir. Right now we are going to 43.
        Senator Inhofe. I understand that. But you have recommended
    48.
        General Lust. Yes, sir. We are looking to have a place to
    put 48, sir.
        Senator Inhofe. Okay, that is fine. Thank you very much.
        Then the other one, this can be for the record, Mr.
    Chairman, because I am using up too much of your time. I would
    like to know for the record, will your recommendations account
    for the fact that we now need, with Future Combat System (FCS)
    coming on line and looking out in the future, more maneuvering
    room? Is that going to be a consideration that you will be
    taking? You can answer that for the record.
        [The information referred to follows:]

        The Army's Base Realignment and Closure analysis and
    recommendations to Office of the Secretary of Defense will consider
    maneuver requirements associated with Future Combat System-equipped
    formations.

        Senator Inhofe. Then the last question I would like to ask
    for the record is: we are looking at trend lines now in terms
    of environmental encroachment. You accurately outlined other
    types, urban encroachment and others too, but environmental
    encroachment, the line is going up. So I will be asking, will
    you be considering this, this increase of environmental
    encroachment that we are all suffering under right now, both
    here and overseas, as you make these decisions?
        Mr. DuBois. I certainly will give you more complete answers
    for the record----
        Senator Inhofe. Very good.
        Mr. DuBois. But the answers to both of your questions in
    one word is yes.
        [The information referred to follows:]

        In accordance with the Base Realignment and Closure statute, the
    Department will base all its closure and realignment recommendations on
    approved selection criteria that reflect military value as the primary
    consideration. The issue of encroachment is captured by criterion two,
    which requires the Department to consider the availability and
    condition of land, facilities, and associated airspace. The test of
    selection criterion two follows:

            The availability and condition of land, facilities, and
            associated airspace (including training areas suitable for
            maneuver by ground, naval, or air forces throughout a diversity
            of climate and terrain areas and staging areas for the use of
            the Armed Forces in homeland defense missions) at both existing
            and potential receiving locations.

        Senator Inhofe. Okay. Thank you, Mr. Chairman.
        Senator Ensign. No problem.
        Senator Allard. Mr. Chairman, I have about two and a half
    single-spaced pages of questions here. Obviously I am not going
    to make it through all my questions, and I assume we are going
    to have an opportunity for us to submit questions for them to
    respond within a week or 10 days? What will be your guideline?
    A week?
        Do you think you could respond back within a week?
        Mr. DuBois. I will not let them do anything else.
        Senator Allard. Well, this is important, and I would like
    to bring to the committee's attention an issue that has evolved
    over the last year at the now-closed Lowry Air Force Base in
    Denver, Colorado. Specifically, I would like to touch on what
    has happened after an initial discovery of asbestos buried in
    the soil at Lowry. This discovery was found on a parcel of land
    that was deemed suitable for residential use by the Air Force
    and where houses had already been constructed.
        Mr. Chairman, hundreds of Coloradans now live in these
    houses. Unfortunately for the families living on the site, the
    Air Force has been unwilling to work out an agreement to the
    benefit of all parties. It is clear that the cause of asbestos
    containment was an old Air Force hospital which was destroyed
    and, rather than being disposed of, the debris was buried
    across the site. Despite acknowledging this demolition after
    the fact, the Air Force has now refused to cooperate with the
    State of Colorado and the home builders who had to pay for the
    cleanup of asbestos.
        I have a series of questions that I would like to ask
    General Fox. But before I get into them, I would like to
    acknowledge that I met with Mr. DuBois yesterday regarding this
    issue and I am pleased to report that Mr. DuBois is poised to
    help resolve the problem at Lowry. We had left the discussion
    at that time that we would follow up with some of the
    questions, and we apparently are still going to get some
    resistance from Under Secretary Nelson Gibbs. I felt very good
    after our discussion yesterday, but today I do not feel so
    good.
        So I feel compelled to begin to ask some questions and just
    begin to put some things in the record. I hope that you are not
    offended or that General Fox is not offended in any way. But it
    is just, I do not see the chairman having any more hearings
    like this, so this is my one opportunity to begin to build this
    into the record. So I have to take this opportunity at this
    particular point in time.
        In 1993 the Air Force, the Environmental Protection Agency
    (EPA), and the State of Colorado conducted an environmental
    baseline study for Lowry Air Force Base. While the survey
    indicated a former hospital at the site, the survey did not
    disclose the fact that the Air Force has buried debris,
    including asbestos, across the Northwest neighborhood of the
    Air Force base.
        Mr. Chairman, I ask that the excerpts from the baseline
    survey be entered in the record, and I have it.
        Senator Ensign. Without objection.
        [The information referred to follows:]

        Senator Allard. My question to you, General Fox: Why was no
    information about the buried asbestos disclosed by the Air
    Force in 1993?
        General Fox. Senator Allard, I would have to take that for
    the record. I think that our investigations at that point did
    not reveal to our knowledge that we had a problem. I think the
    studies that have been done since and our investigations since
    have not revealed the problem to the extent that has been
    brought up.
        I do want to add that the claims that are presented to the
    Air Force--we are very concerned about, we want to be
    responsive to. We are conducting legal reviews with our judge
    advocate, with the DOD general counsel, and with the Department
    of Justice, to look at the responsibility for those claims. If
    the liability is with us, then we will do everything within our
    power to adjudicate the claims quickly.
        [The information referred to follows:]

        The Air Force did not bury asbestos in the Lowry Northwest
    Neighborhood (NWN). During past building demolition, some debris
    remained in place, but to the best of our knowledge, the Air Force did
    not intentionally dispose of asbestos construction waste.
    Unfortunately, the Air Force was unaware of the subsurface items
    containing asbestos at the time of the 1993 survey.
        Had we known of remaining construction debris, we would have
    disclosed this information. From the information that was available, it
    wasn't known that anything like that had happened.
        The Air Force, EPA, and State regulators, working together as the
    BRAC Cleanup Team (BCT), have conducted numerous environmental studies
    and reviews to identify any environmental contamination or conditions
    affecting Lowry. These efforts included the 1993 Environmental Baseline
    Survey (EBS), known as the EBS Phase I, which was supplemented in 1994.
    The BCT was also involved in studies and document reviews conducted
    under a facility assessment in 1996, an EBS Phase II completed in 1999,
    the initiation of an EBS Phase III in 2002, a reevaluation of the
    base's operational history in 2002, and an all-sites review (now being
    addressed under a RCRA facility assessment ordered by the state)
    initiated in May 2003. The completed studies and documents were made
    available to the Lowry Redevelopment Authority (LRA) for their review,
    as well. Despite these efforts by the BCT, locations containing debris
    were not identified or raised as a concern by any of the BCT members.
        The 1993 EBS mentioned possible demolition debris near the former
    airfield runway, and four rubble sites at Lowry that might contain
    demolition debris. The EBS described a 1973 aerial photo indicating
    possible stockpiling of earth, residual concrete, and building rubble
    from the demolition of the former base hospital near the northern end
    of the former north-south airfield runway. The EBS also briefly
    described a 1983 aerial photo that indicated the northern end of the
    runway was then clear of the stockpiled material, and that possible
    grading or removal of the material to other base locations may have
    occurred since 1973. The 1983 photo showed that several former
    structures near the NWN appeared to have been removed by demolition.
    The EBS states that a former Lowry employee recalled that the
    demolition debris was moved to a solid waste site on Lowry, away from
    the NWN.

        Senator Allard. Very good.
        It is my understanding that this same baseline survey which
    did not reveal asbestos in the soil also failed to include
    dummy munitions later found at the base, failed to include
    eight underground storage tanks filled with hazardous wastes
    left on base, and did not include 20 millimeter high explosive
    fragments from projectiles found at Lowry.
        Knowing this, do you feel that the Air Force has done an
    adequate job of characterizing the extent of environmental
    contamination at Lowry?
        General Fox. Sir, I would like to take that for the record.
        [The information referred to follows:]

        The Air Force, in conjunction with EPA and the State, has done and
    continues to do more than an adequate job of characterizing the extent
    of environmental contamination at Lowry. However, the Air Force always
    seeks to do better, especially when deficiencies are discovered which
    reveal that the painstaking process undertaken by the BCT to identify
    unknown sites did not always succeed. Lowry has been a challenging
    environmental effort, partially due to unknown environmental conditions
    caused by the constant change in the numerous military missions and
    tenants from 1937 until the base closed in 1994. We are continuing our
    due diligence efforts to increase the possibility that other
    potentially contaminated sites are located and receive an appropriate
    response.
        The ``dummy'' munitions that were found were brass shell casings
    that contained no explosive charge or powder and are similar to the
    small shells occasionally kept by military members as souvenirs. They
    were not hazardous.
        The projectile fragments referred to were target practice fragments
    found by the Air Force during its remedial investigation of the base's
    firing range berm, where one would reasonably expect to find such
    fragments as a result of target practice. An ordnance team from Fort
    Carson stated the fragments were not from high explosive projectiles.
        Also, of the eight underground storage tanks referred to, three
    contained hazardous waste, but all were found by the Air Force during
    environmental cleanup, as part of the Air Force's ongoing investigative
    efforts. Of course, the regulators and the redevelopers were kept
    apprised of these Air Force discoveries. The Air Force removed the
    tanks in consultation with the State regulators, who agreed with the
    Air Force's work and disposal plans. When the tanks were discovered and
    removed, the Air Force still owned the property where the tanks were
    located.

        Senator Allard. The Air Force also designated in the
    baseline survey that the Northwest neighborhood was a category
    I site, which means that there was no evidence of hazardous
    materials and no further investigation of that site was
    necessary. Given the discovery of asbestos across the site,
    would the Air Force still give the site a category I
    designation?
        General Fox. Sir, I would have to respond to that for the
    record.
        [The information referred to follows:]

        The Air Force did not designate the entire Northwest Neighborhood
    as a ``Category I site.'' Portions of this property, which encompasses
    over 90 acres, were given other DOD Environmental Condition categories.
    For purposes of environmental due diligence, assigning DOD
    environmental condition categories, and conducting environmental
    restoration, the Air Force did not refer to or consider this entire
    property as a single ``site.''
        Most, though not all, of the property in the Northwest Neighborhood
    was considered DOD environmental condition category I at property
    transfer. Category I property is property where no release or disposal
    of hazardous substances or petroleum products has occurred (including
    no migration of these substances from adjacent areas). Property that
    receives a DOD environmental condition category II through IV can also
    be transferred by deed, and several properties within the NWN fell
    within those categories.
        Had we the information then that we have now, the Air Force would
    not have designated as category I the former hospital site. If the
    amount of health risk did not warrant a CERCLA response, that portion
    of the property may have qualified as a different category that would
    have still allowed the Air Force to transfer the property by deed. If
    the health risk warranted a CERCLA response, then those portions of the
    property would have been a different category that does not allow
    transfer by deed until the necessary CERCLA responses are taken.

        Senator Allard. Does this discovery not make the Air Force
    liable for cleaning up the site? You probably want to consult
    with your lawyer on that one.
        [The information referred to follows:]

        The issue of liability for environmental cleanup can be complex,
    depending on the facts and circumstances, and agreements entered into
    by the parties. It is impossible to generalize. The circumstances vary
    from location to location. The Air Force and the Department of Justice
    are currently investigating and analyzing facts and circumstances
    surrounding the transfer and development of the property within the NWN
    at the former Lowry AFB and the subsequent asbestos cleanup activities.
    This investigation and analysis is guided by current CERCLA case law
    and precedent. No decision has been made by the Federal Government as
    to the liability of the various parties involved at this time. The
    Federal Government, and specifically the Air Force, will pay whatever
    portion of the liability it is responsible for pursuant to law.
        The Air Force is required by Federal law (CERCLA) to promise future
    property owners that it will perform whatever remedial action is
    necessary under Federal law to protect human health and the
    environment. Necessary remedial actions are determined in accordance
    with Federal procedures established under CERCLA. The Air Force is
    conducting a CERCLA investigation of what remedial actions are
    necessary, if any, for the property in the NWN that it still owns. The
    Air Force is also willing to conduct such an investigation for the
    property that it has conveyed. This, of course, is somewhat complicated
    because of actions by others on such property. What reimbursement the
    Federal Government is obligated to make in these circumstances is what
    is under investigation by the Air Force and the Department of Justice.

        Mr. DuBois. Senator Allard, if I might. General Fox, the
    Civil Engineer of the Air Force, has a great many
    responsibilities, but one of them is not the issue of
    environmental cleanup on previously BRAC'd installations. So I
    just wanted for the record to demonstrate that the General,
    knowledgeable about many things, that is why he is taking some
    of these questions to be responsive to you in more detail
    later.
        Senator Allard. Well, why do we not do it this way. Like I
    say, I have a number of questions here, and I did not expect
    him to have the answer on these, but perhaps maybe you want to
    share some enlightenment on it. In view of your comments, why
    do I not just submit them to General Fox with the idea that you
    will work with him and other individuals in the Air Force,
    perhaps working with Assistant Secretary Nelson Gibbs, to see
    if we cannot get a response back to us.
        I would ask that you at least respond to the questions, and
    I know that you will want to give them--perhaps more than one
    person will want to aid in putting together responses.
        Mr. DuBois. We will take your questions, sir. As I
    indicated to you yesterday in our meeting, my understanding of
    the recent events are that we are moving towards a constructive
    dialogue with the seven claimants involved. We take very
    seriously this issue of, A, not characterizing appropriately
    the land. We have many parcels of land, quite frankly, with
    very bad documentation.
        Senator Allard. I understand that.
        Mr. DuBois. B, that we will move to appropriate claim
    adjustments when presented with appropriate documentation,
    which we have some of but not entirely.
        Senator Allard. I appreciate that, and I appreciate again
    your reassurances that you will work with us on that. We will
    get some questions to you. I want to thank you, Mr. DuBois, for
    wanting to work with us. I appreciate that.
        Again, thank you, Mr. Chairman.
        Senator Ensign. Thank you.
        Senator Cornyn, from what I understand, with your
    indulgence, I have to catch a flight, so I just have two quick
    questions and then you can chair the rest of the subcommittee
    and you can ask your questions.
        Mr. DuBois. Put the gavel in his hand.
        Senator Allard. Mr. Chairman, before you go, I also had
    another document I want made part of the record in putting my
    questions. It is an economic development conveyance agreement
    between the Department of the Air Force and the Lowry Economic
    Redevelopment Authority.
        Senator Ensign. Without objection.
        [The information referred to follows:]

        Senator Ensign. This actually would be a fairly quick
    question for each one of the service engineers. Have you, any
    of you, been able to identify an impact to your budget request
    from any element of the housing privatization accounts other
    than direct appropriations that you did not account for? Let us
    go down the line.
        General Williams. I think we in fact have accounted for the
    impacts of privatization on our budget. We certainly have a
    concern, as I mentioned earlier, with the cap and exactly how
    that is going to affect us in our ability to continue with our
    privatization program, our PPV program.
        The one area that we continue to analyze, of course, is as
    we privatize we certainly expect our maintenance and our
    sustainment sort of requirements to go down. However, we
    understand that it is certainly not a one for one sort of an
    exchange. Although sustainment will be decreasing in some
    cases, we still have older facilities that still are required
    to be maintained and we end up pouring more dollars into those
    older ones until we can continue with that overall
    privatization effort.
        I would say that we are in fact looking at that. We are
    looking and taking those into consideration as we go through
    our privatization effort.
        Admiral Weaver. Sir, I believe we have accounted for that
    in the budget submission. Approximately 30 percent of our
    housing replacement is leveraged against 2005, and again we are
    very concerned about the cap for that. But we have also
    accounted for the transfer of housing allowance into the
    purchasing process as opposed to continuing to maintain a
    funding level of traditional family housing support. In other
    words, we see them going in opposite directions, which is what
    we intend for them to do.
        Senator Ensign. General Lust?
        General Lust. Sir, would you restate your question for me?
        Senator Ensign. Have any of you been able to identify an
    impact to your budget request from any element of housing
    privatization agreements other than direct appropriations that
    you did not account for?
        General Lust. Now I understand. Yes, sir. When we do
    privatization, we do not budget for the utilities, the service,
    and maintenance, and that part is affected there. But like the
    Marine Corps, I expected the requirement to drop down more than
    it has. When we got to looking into it, what happened is what I
    have left are a lot of historic quarters, which take a
    tremendous amount of money to maintain.
        But my real concern about privatization, sir, is getting
    the cap lifted. If I get the cap lifted, housing, it is going
    to take $256 million to complete current privatization projects
    to get adequate housing. If it is not, the equivalent MILCON
    will be $2.2 billion. It will take me somewhere over 25 to 30
    years to get it built out. With the cap lifted, I can do it
    somewhere between 8 and 14 years.
        Senator Ensign. Okay.
        General Fox?
        General Fox. Senator Ensign, I will tell you that we may
    have been a little over optimistic when we first started
    housing privatization, and so we looked at the budget and
    removed some operation and maintenance funds prematurely. We
    now have caught up on the privatization side. We are actually
    executing privatization at the rate that we thought we could
    initially. So we are more in line with O&M expenditures as we
    had projected.
        By 2007, as we meet the goal to take care of our housing in
    the continental U.S., our O&M accounts for housing are going to
    come down, and we are already looking at that and how to
    reprogram or budget that actually into base allowance for
    housing. So there will be savings post-2007. But initially we
    had a little problem because we were a little over optimistic.
        Mr. DuBois. Mr. Chairman, if I might, just one quick
    comment. I will sort of take advantage of your question,
    because I think it is not only a matter of housing
    privatization cap, it is a matter of scoring. This is an issue
    that we struggle with, that OMB struggled with. But OMB and the
    Department of Defense are clear, as I believe are a number of
    the members of the House and Senate, that were our housing
    privatization projects to be scored differently than they have
    been scored to date the program would come to a halt.
        Senator Ensign. Thank you. Well said.
        Mr. DuBois, this has to do with the Readiness and Range
    Preservation Initiative. We just want to get it on the record.
    Since being enacted, how have each of these provisions
    specifically, the ones that we have enacted, specifically
    helped the armed services meet their military training,
    testing, and readiness requirements?
        Mr. DuBois. Yes, sir. A complete answer will be provided
    for the record. It is a good question. It is a complicated
    question, whether we are talking about the Migratory Bird
    Treaty Act, the Marine Mammal Protection Act, or the Endangered
    Species Act. I will say just briefly, the Endangered Species
    Act amendment which allows the Sykes Act to be used for a
    holistic approach to critical habitat management and
    designation has resulted in some very significant protection of
    endangered species habitats at the same time of no net loss in
    training areas. This is true whether we are talking about Camp
    Pendleton with respect to the Marines or Fort Bragg with
    respect to the Army.
        But I certainly will take this opportunity, and I
    appreciate the question, to answer in more detail for the
    record.
        [The information referred to follows:]

        Congress passed much-needed legislative provisions in the National
    Defense Authorization Act (NDAA) for Fiscal Years 2003 and 2004 and the
    provisions passed so far are key enablers of range sustainability, part
    of the administration's Readiness and Range Sustainability Initiative.
        The amendment to the Migratory Bird Treaty Act is ensuring that
    military readiness activities can proceed without interruption. As
    directed by the NDAA for Fiscal Year 2003, the U.S. Fish and Wildlife
    Service (USFWS) has issued its proposed rule that will allow the
    Department of Defense to incidentally take migratory birds during
    military training.
        The NDAA for Fiscal Year 2004 authorizes the use of integrated
    Natural Resource Management Plans (INRMPs) in lieu of Critical Habitat
    designation, if approved by the Secretary of the Interior, thus
    allowing ranges and installations to effectively manage their natural
    resources while supporting military readiness. The USFWS has authorized
    the substitution of INRMPs for Critical Habitat designations under the
    Endangered Species Act at Marine Corps Air Station Miramar and other
    INRMPs are being considered.
        Clarification of the Marine Mammal Protection Act's (MMPA)
    definition of Level B Harassment in the NDAA for Fiscal Year 2004
    allows the Navy to test and train with active sonar without
    restrictions based on imprecise statutory language and varied
    interpretation of the act's language. Congress also added a national
    security exemption to the MMPA for military activity in time of
    national emergency, an exemption provided in other major environmental
    legislation that was not present in the original and reauthorized
    versions of the act. These changes allow us to better balance our
    readiness requirements with our legal obligations to ensure military
    activities are protective of marine mammals--allowing us to ``train as
    we fight'' when our activities do not have biologically significant
    effects on marine mammals.
        One of the most useful provisions for countering encroachment is
    section 2811 of the NDAA for Fiscal Year 2003. This provision allows
    the Services to take a proactive role in developing programs to protect
    installations and ranges from urban sprawl by working with states and
    nongovernmental organizations to promote sound land use. The Services
    are now implementing this authority and forming compatible land use
    partnerships at the state and local level. For example:

             In late 2003, DOD, the State of Florida, and the
            Nature Conservancy entered into a partnership to work to
            conserve a corridor of open space stretching from the
            Apalachicola National Forest to Eglin Air Force Base--the
            Northwest Florida Greenway. The Nature Conservancy has praised
            the Greenway as helping to protect an ``epicenter of
            biodiversity in the United States,'' an area increasingly
            threatened by urban sprawl.
             Also in 2003, a landmark cooperative agreement was
            signed between the National Guard Bureau and the Florida
            Department of Environmental Protection allowing each to cost-
            share the purchase of key buffer space around Camp Blanding, a
            training site of the Florida Army National Guard. The
            acquisition of 8,500 acres will be possible through funding
            from the National Guard Bureau and the State's Florida Forever
            Program.
             The Army's Fort Bragg is actively participating in a
            cooperative agreement with the State of North Carolina, the
            Fish and Wildlife Service and several nonprofit groups to cost-
            share the purchase of land or easements to reduce incompatible
            land use and promote ecosystem protection around Fort Bragg. It
            is also spearheading an effort called ``Sustainable Sandhills''
            to strengthen regional planning in the area.
             The Marine Corps' Camp Lejeune in North Carolina has
            worked closely on surrounding regional land issues with
            nonprofit groups and other governmental partners since 2001 as
            part of the Onslow Bight Conservation Forum. In 2002, this
            group purchased 2,500 acres of open space (which was slated to
            become a housing development) adjacent to the Camp Lejeune tank
            and rifle ranges.

        Senator Ensign. Thank you.
        Senator Cornyn.
        Senator Cornyn [presiding]. Thank you, Chairman Ensign. I
    apologize that I was delayed, detained by another hearing on
    another important subject. That has to do with reform of our
    immigration laws. But I did want to come to the hearing and,
    now that Senator Akaka and I have you the rest of the
    afternoon, I just have a few questions I want to ask.
    Seriously, I do not have that many questions, but they are
    important to me and important to the people I represent.
        I know the hearing is designed to cover a range of
    important military installation environment programs, but, as
    Mr. DuBois knows from our earlier meeting this week, I wanted
    to use this opportunity to ask some questions on the record
    about BRAC. With 17 active military installations in my State
    and 1 out of every 10 individuals in uniform calling Texas
    home, this is a very significant issue.
        But as I also told Mr. DuBois during the very helpful
    meeting that we had earlier, I am fully committed to the goal
    of being a good steward for the taxpayer, making sure that
    every dollar that we spend on the Department of Defense budget
    is spent wisely and in the national security interests of this
    country. But this is always a difficult, difficult process, and
    hence my interest and my constituents' interest in this
    subject.
        So Mr. DuBois, I do want to thank you again for your
    courtesy in meeting with me earlier this week. We did have an
    opportunity to meet for a good period of time. But I do want to
    get your answers to some of these questions, some of which may
    be slightly repetitive, on the record so I can know that I have
    discharged my responsibilities and I have you on the record.
        I know you talked about the Global Defense Posture Review
    and how that interacts with the domestic BRAC, and I am advised
    by my staff that you have indicated that this committee and
    Congress ought to be able to get the results of the Global
    Defense Posture Review by the end of May. Is that correct, sir?
        Mr. DuBois. Yes, Senator, that is my understanding of the
    Secretary's intention.
        Senator Cornyn. Very good.
        I have expressed to you in private and I will take the
    opportunity to express again in public my concern that that is
    a lot of balls in the air at one time to do the Global Defense
    Posture Review, which I know has been under way for a number of
    years and which is now just culminating, and at the same time
    we are undertaking to do the base realignment and closing
    process.
        That is why it is important to me and I know important to
    you and everyone at the Department of Defense that it be done
    as deliberately and as carefully and as precisely as it
    possibly can be. So we will be communicating often about that
    subject as we go along, because I am intensely interested in
    how that process is going to go forward.
        Could you explain again just briefly how the joint cross-
    service groups are working with the individual service BRAC
    analytical teams to incorporate jointness in the process?
        Mr. DuBois. This BRAC, that is to say the BRAC 2005,
    Senator, the Secretary has instituted from the beginning of the
    process even joint cross-service groups to look at those areas
    of real property assets that more than one service has. The
    joint cross-service groups operate independently. However, they
    all report to the infrastructure steering group.
        The infrastructure steering group, chaired by the Under
    Secretary for Acquisition, Technology, and Logistics, on which
    I serve as Deputy Under Secretary for Installations and
    Environment (I&E), the four vice chiefs and the three Service
    assistant secretaries for I&E, along with the vice chairman of
    the Joint Chiefs, it is truly an integrated multi-service
    effort. Each joint cross-service group, however--and you have
    asked a very crucial question: how will they interface,
    interact with, the individual Services and military
    departments? We have addressed this issue at the infrastructure
    steering group level. It is our intention and each of the four
    vice chiefs have committed to not only sharing their views of
    life and installations and military value assessments with the
    joint cross-service groups and vice versa--in fact we have a
    time line that shows those individual organizations sharing at
    a particular time--it is also crucial that the Services share
    between the Services.
        Each of the vice chiefs and each of the assistant service
    secretaries for installations and environment committed to
    doing just that. In fact, it is already going on today.
        Now, I hope everyone in this room appreciates the fact that
    we must protect this process. By protection, I mean preserving
    its integrity from outside influences and from an inadvertent
    release, if you will, of information that taken by itself could
    lead one to the wrong conclusion.
        I have been asked frequently why can we not be more
    transparent, and I have answered because I think the process is
    very transparent in what it is supposed to do and how it is
    organized, the selection criteria, the report that the
    Secretary made a week-plus ago. However, the transparency is
    also sustained at the other end of the process. When the
    Secretary reports to the commission no later than May 16, in
    addition to his conclusions and recommendations will come all
    the documentation, all the computations, all the implementing
    guidance, all the so-called subcriteria, all the weightings, so
    that one and all, not just members of the commission but the
    public at large, the impacted communities, will have plenty of
    time to assess how the Department reached its decisions.
        Senator Cornyn. Thank you very much for that. I just have
    one other question. Then I will turn it over to Senator Akaka
    for any additional questions he may have.
        This is a question that, as you noted in our earlier
    meeting, that I put to the Secretary of Defense. But I will ask
    you now here in this meeting, like I asked him, on the record.
    How will homeland defense be factored into the BRAC process?
        Mr. DuBois. The selection criteria by statute requires
    homeland defense to be considered in this process. No one knows
    more intimately or, quite frankly, emotionally than the
    Secretary of Defense as to the importance of our Nation's
    security and our Nation's homeland defense and the
    responsibility that the Department has to keep our people safe,
    secure, alive and free.
        How we go about incorporating the requirements for homeland
    defense--another transparency--is in the selection criteria.
    The Services will do it, the joint cross-service groups will do
    it. As a matter of fact, I have already had discussions with
    the Assistant Secretary of Defense for Homeland Defense, who is
    our principal point of contact with Secretary Ridge and the
    Homeland Security Department, on how to best incorporate his
    views and needs as those of Secretary Ridge.
        So it is a question and it is an issue that we hold dearly.
        Senator Cornyn. Thank you very much for answering that
    question. I would just say in conclusion before I turn the
    floor over to Senator Akaka that I appreciate your recognition
    of the importance of the transparency. Consistent with having a
    BRAC process that maintains its integrity and freedom from
    undue political and other influences. As some sage once said,
    you cannot take politics out of politics. There is going to be
    obviously attempts to politicize the process, and we have
    already seen some of that, unfortunately.
        But as long as I am convinced and I am confident, as long
    as Congress is convinced, that this process maintains its
    integrity and its goals and objectives, as you stated, and as
    we have discussed before, it will retain the confidence of
    Congress no matter how much local disadvantage or disruption
    may exist, as long as those goals of being a good steward of
    the taxpayer dollar and maintaining the maximum efficient use
    of our military force are consistent goals.
        Thank you.
        Senator Akaka.
        Senator Akaka. Thank you, Chairman Cornyn.
        Mr. DuBois, we just received a copy of DOD's assessment of
    its increased need for security guards after September 11, and
    its plan for meeting those requirements on a long-term basis.
    The report indicates that DOD's security guard requirements
    will grow by over 60 percent compared to its size in fiscal
    year 2001 and then will remain relatively stable for the
    foreseeable future.
        It also indicates that DOD managers have expressed a
    preference for hiring new civilian employees to meet these
    needs because, one, civilian guards can be authorized with
    police powers not available to contractors; and two, security
    guards often play important roles in the agency interface with
    the public and it is preferable to have in-house employees for
    this purpose.
        Despite these findings, the report states the Department
    has no intention of hiring any additional civilian security
    guards to meet the increased need. The report states, ``Meeting
    the increase through expanding either the civilian or active
    military work force is difficult because the end strength of
    both work forces is constrained and there are many other
    demands on these personnel.''
        For this reason, the Department has asked us to lift the
    restriction on employing contract security guards. My question
    is, what limitations are imposed on the end strength of the
    civilian employee work force and why are you letting these
    limitations drive you to contract out security guard functions
    even though managers have told you that civilian employees
    would be the preferred solution?
        Mr. DuBois. Senator, that is a very complex question. I
    will take it for the record. But let me answer at least
    briefly.
        The military personnel accounts, of course, the authorized
    end strength of each of the four Services, is set by the
    authorizing committees. It is true that we are trying to move
    as many soldiers, sailors, airmen, and marines pulling security
    duty out of that particular occupational specialty and
    reassigning them to the field, to combat units. Using as an
    example the Pentagon, after September 11 the Army had to
    restation, rotating, not permanently, a battalion of military
    police (MP) to protect the National Military Command Center
    called the Pentagon. In the process I, as the Director of
    Administration and Management, as the so-called mayor of the
    Pentagon, I have increased the Pentagon civilian police force,
    the Pentagon Force Protection Agency, by a factor of nearly
    three.
        It fortunately has been able to now--I have been able to
    return to the Army that battalion of MPs for duties, as you can
    well imagine, in Iraq and Afghanistan and elsewhere.
        There is also a quirk, if you will, in the law that says
    when we were asked for the authority to increase the guards on
    installations so that we could free up uniformed personnel for
    OIF and Operation Enduring Freedom (OEF), it said we could only
    contract out the marginal increase as opposed to restructuring
    where we would put our civilian employed guards.
        I want to take your question for the record. I want to work
    with Dr. Chu, our Under Secretary for Personnel and Readiness,
    so that we can give you the best possible answer.
        [The information referred to follows:]

        The limitations that drive the Department are not based upon
    manpower end strengths but rather the need to reduce the number of
    Reserve soldiers mobilized for this effort. The hiring of contract
    security guards was the most expedient means to get manpower on the
    ground to help reduce the number of mobilized serve soldiers needed for
    this purpose and to overcome the hiring lag of civilian police. The
    Department needs to retain hiring flexibility because we cannot be
    certain, at this time, that there is a long-term requirement that
    justifies the hiring of permanent employees. Nowhere was this more
    evident than in the Army. Section 332 of the National Defense
    Authorization Act for Fiscal Year 2003, provides temporary relief by
    authorizing the Department of Defense to employ new Contract Security
    Guards (CSGs) during fiscal years 2003, 2004, and 2005, to meet the
    increased requirements established in response to the terrorist attacks
    of September 11. This authority permitted the Secretary of the Army to
    hire over 4,100 CSGs, relieving over 4,100 soldiers from installation
    access control missions to perform other more urgently needed
    functions. During fiscal year 2004, the Department of the Army civilian
    police manpower constituted only 30 percent of the authorized workforce
    requirement.

        Senator Akaka. I would appreciate that.
        Mr. DuBois, last year DOD shifted its goal for cleaning up
    formerly used defense sites--we know it as ``FUDS''--from 2014
    to 2020. This year the Army has informed us that the funding
    level for the cleanup of FUDS in its budget is not sufficient
    to meet even the 2020 goal. Moreover, this goal does not even
    include the cleanup of unexploded ordnance at FUDS, for which
    currently we understand there is no goal.
        Why has the Department of Defense not been willing to step
    up to its responsibility and provide adequate funding to clean
    up the environmental problems that it has caused at FUDS?
        Last year the Army provided us with a plan for munitions
    response activities at the FUDS in Waikoloa, Hawaii. The Army's
    preliminary cost estimate for completing the required response
    actions was $680 million. My question there is, when do you
    expect that DOD will start providing the funds needed for this
    cleanup action?
        Mr. DuBois. Senator Akaka, let me be very clear. The
    Department of Defense will clean up any FUDS, including any
    BRAC site, any closed range, wherein we are presented with a
    situation that results or could result in a negative impact to
    health, human health or the environment.
        We are presented every year, unfortunately, with situations
    that we did not plan for or could have predicted. My old
    neighborhood in Washington, DC, Spring Valley, is an example of
    that. We moved dollars during the fiscal year to address the
    Spring Valley situation.
        Each of the individual Services--and I can defer to these
    gentlemen or I can answer in more detail for the record if you
    would prefer--fund FUDS. The Army is our executive agent for
    that cleanup. I know that the Navy in particular in Hawaii at
    Waikoloa have been working with the State for the past 10 years
    on that cleanup situation.
        The unexploded ordnance situation is, as we have promised
    you and as we have testified to, a situation that does not get
    any better defined unless we spend the time and the money to
    characterize some of these sites, which we are doing in
    conjunction with the States, trying to prioritize those sites.
    But I will give you a more complete answer for the record.
        [The information referred to follows:]

        The Army submitted a report to the committee in July 2003, on their
    plan to clean up the former Waikoloa Maneuver Area, in response to
    Senate Armed Services Committee Report 107-151. In general, the Army's
    plan for cleanup of the property is to: 1) perform required munitions
    responses, in the near term, in those areas where the known or
    suspected presence of munitions and explosives of concern pose the
    highest risk to the public and 2) determine the best course of action
    to address the potential risks in other portions of this area in the
    longer term. The Army, in coordination with state regulatory agencies
    and local communities, identified the Waikoloa Village, Waimea Town and
    O'uli parcels as the highest risk because these areas are either
    developed or are immediately adjacent to developed areas and the public
    has encountered munitions at these sites. Since the report was
    submitted, the Army cleared a total of 914 acres of ordnance from
    within the Former Waikoloa Maneuver Area. This initial clearance effort
    concentrated in and along the margins of existing neighborhoods in the
    Waikoloa Village, Waimea, and Lalamilo communities. Due to a variety of
    project efficiencies developed and adopted during this effort,
    approximately 214 additional acres were cleared of potentially
    explosive ordnance. Close to 100 potentially explosive items were
    recovered during the clearance to include Mk II hand grenades, 60mm
    mortar rounds, 81mm mortar rounds, 2.36 inch rockets, M9 rifle
    grenades, M15 burster tubes, 75mm high explosive artillery rounds,
    105mm high explosive artillery rounds, and 155mm high explosive
    artillery rounds. The Army has also initiated a major follow on
    clearance effort expanding the safety margin in and around the Waikoloa
    Village, Waimea, and O'uli communities of the project. Army continues
    to provide construction safety support and property assessment and
    clearance to the proposed Castle & Cook development at Waikoloa and
    residential construction for the Hawaii State Department of Hawaiian
    Home Lands at Lalamilo. In addition, the Army is providing construction
    support to the Waikoloa Highlands and Bridge Aina Lea Ltd. developments
    in the Waikoloa area. Ongoing institutional support includes
    development of educational materials for grade and middle school
    students in the area. Other Army outreach efforts include numerous
    print and video (television) reports, information posters, and
    attendance at community fairs and celebratory occasions.

        Senator Akaka. Last year, Mr. DuBois, unexploded ordnance
    (UXO) was found on a playground of an elementary school at
    Waikoloa. Can you look into this? Apparently it is strewn
    beyond the ranges for some reason. But that was reported and I
    would request that you look into this. I do not know what will
    come out of it.
        Mr. DuBois. I certainly will, Senator. I had not heard
    that. Let me just add for the record: if any Senator comes
    across a situation like this, remember our wonderful country
    has been in existence for well over 225 years. The citizens of
    this country through their representatives in Congress set
    aside land for the purposes of our national security. We admit
    that we have not husbanded it as well as we should have. But
    certainly in the last 10 to 15 years that environmental
    stewardship by the Department of Defense, that obligation that
    we hold dear, has won us awards and we are proud of it.
        But I would say that if there is a situation like this in
    any State or congressional district, I would like to know about
    it as soon as possible, and we will look into this particular
    case.
        Senator Akaka. My final question and I will submit the rest
    of my questions for the record. Mr. DuBois, in last year's
    report the committee directed DOD to evaluate the optimal use
    of test and training ranges--so my question is on test and
    training ranges--to include an assessment of any changes that
    might be necessary to bring the different funding mechanisms
    into closer alignment.
        In December, the Marine Corps conducted its first training
    exercise at Eglin Air Force Base, an Air Force test range.
    Eglin was supposed to serve as one of the primary locations to
    provide training similar to what Navy and Marine Corps used to
    get at Vieques. However, Marine leadership has testified in the
    past few months that training at Eglin is much more expensive
    than anticipated and that the test range cost recovery
    structure is such a significant obstacle that the Marines are
    now exploring other locations.
        These are precisely the types of situations we are seeking
    to preclude with our direction last year. I know the report is
    not due to us until November 2004. However, do you have any
    initial thoughts to share with us about how this issue will be
    addressed to ensure DOD is making the best possible use of all
    of its ranges, especially as we have so many forces preparing
    to go into combat situations?
        Mr. DuBois. Senator Akaka, I am sorry that Senator Inhofe
    is not here because the use of Eglin by the Marines, by the
    Navy, and by the Air Force, along with instrumented ranges in
    the Atlantic Ocean, as well as other ranges on the east coast,
    have replaced the Vieques bombing range and I am told by the
    Chief of Naval Operations (CNO), by the Chief of Naval
    Operations, and the Commandant of the Marine Corps, replaced it
    quite well.
        You have raised a very crucial question and it has to do
    with multi-service, multi-mission installations and how we pay
    for it. It actually has a BRAC connection, for those students
    of BRAC. The notion that we will move towards more multi-
    service, multi-mission bases, while in concept and philosophy
    has been embraced by the Joint Chiefs, the business of
    operating those bases and who pays for what and when is still
    under discussion. You have raised a very important point and
    one that we are working on.
        Senator Akaka. Well, I thank you, Mr. DuBois and all of
    you, for your responses. I really appreciate it.
        Thank you very much, Chairman Cornyn.
        Senator Cornyn. Thank you, Senator Akaka.
        Gentlemen, thank you for being here today. Thank you for
    your service to our country.
        With that, this hearing will be adjourned.
        [Questions for the record with answers supplied follow:]

                   Questions Submitted by Senator John Ensign

                  READINESS AND RANGE PRESERVATION INITIATIVE

        1. Senator Ensign. Mr. DuBois, the National Defense Authorization
    Acts for Fiscal Years 2003 and 2004 included three of the six Readiness
    and Range Preservation Initiative (RRPI) provisions which made
    modifications to the following three environmental laws: the Migratory
    Bird Treaty Act (MBTA), the Endangered Species Act (ESA), and the
    Marine Mammal Protection Act (MMPA). Since being enacted, how have each
    of these provisions specifically helped the armed services meet their
    military training, testing, and readiness requirements?
        Mr. Dubois. The amendment to the Migratory Bird Treaty Act is
    ensuring that military readiness activities can proceed without
    interruption. As directed by the National Defense Authorization Act for
    Fiscal Year 2003, the U.S. Fish and Wildlife Service (USFWS) is about
    to announce its proposed rule that will allow the Department of Defense
    to incidentally take migratory birds during military training. The
    USFWS has recently authorized the substitution of Integrated Endangered
    Species Act at Marine Corps Base Camp Pendleton, and Marine Corps Air
    Station Miramar. INRMPs are also substituting for Critical Habitat
    designation at six Army installations on Oahu in Hawaii. The changes
    made by Congress to the Marine Mammal Protection Act allow us to better
    balance our readiness requirements with our legal obligations to ensure
    military activities are protective of marine mammals, allowing us to
    ``train as we fight'' when our activities do not have biologically
    significant effects on marine mammals.

        2. Senator Ensign. Mr. DuBois, what has the armed services done to
    ensure they are still meeting their stewardship goals and requirements
    under these three environmental laws?
        Mr. DuBois. DOD remains committed to its stewardship goals
    regarding migratory birds, and threatened and endangered species. The
    Department is preparing an INRMP strategic plan to ensure that its
    installations coordinate with all interested stakeholders, complete the
    next round of INRMP updates in a timely manner, and fund all required
    projects. In early February the Department asked the military services
    to report on the status of INRMP funding. The military services
    reported to DOD that all class zero and class one INRMPs were fully
    funded for fiscal year 2004 and programmed for fiscal year 2005. The
    Navy continues its diligent efforts to protect marine mammals while
    training and testing at sea. Naval procedures include protective
    measures such as reducing or ceasing sonar or explosive operations when
    marine mammals are present, detection of animals with lookouts and/or
    passive sonar monitoring, and planning efforts to conduct exercises in
    areas where the marine mammals are least likely to be present. Finally,
    the Navy uses the National Environmental Protection Act where
    appropriate to consider alternatives to any proposed action that might
    impact marine mammals.

        3. Senator Ensign. Mr. DuBois, the committee has been informed that
    the remaining RRPI legislative proposals will be delivered within the
    next week. They include legislation which will modify the following
    environmental laws: the Clean Air Act (CAA), the Resource Conservation
    and Recovery Act (RCRA), and the Comprehensive Environmental Response,
    Compensation, and Liability Act (CERCLA). Specifically, how will each
    of these provisions help ensure the armed services meet their military
    training, testing, and readiness requirements?
        Mr. DuBois. The three provisions that are being resubmitted this
    year reaffirm the principle that military lands, marine areas, and
    airspace exist to ensure military preparedness, while also ensuring DOD
    remains fully committed to environmental stewardship of the lands under
    its care. The modest clarifications DOD seeks to RCRA and CERCLA would
    confirm--not change--the regulatory policy of the last two
    Administrations and a majority of the States. These provisions would
    preclude efforts to shut down munitions testing and training at an
    operational range by claiming that the use of military munitions on an
    operational range is a hazardous waste management activity or the
    ``release'' of a hazardous substance. The RCRA and CERCLA clarification
    would apply only to munitions used on an operational range and only so
    long as those munitions and their associated constituents remain there.
    Regulation of ranges that are no longer operational ranges as that term
    is defined in law, even if the land is still under DOD control, is not
    affected by these two provisions.
        The CAA provision would provide flexibility to States and the
    Department by extending the allowable time to incorporate new military
    readiness activities into a CAA State Implementation Plan when new
    units are moved to an installation.

        4. Senator Ensign. Mr. DuBois, why is it important that these
    provisions are enacted sooner rather than later--are there some
    pressing concerns?
        Mr. DuBois. Our military forces need to test and train with the
    weapons and equipment they use in battle, and it is imperative that our
    ranges remain open for realistic use. We believe it would be
    irresponsible to wait until our training activities are enjoined before
    making the case for legislative adjustment. Lawsuits and other
    challenges to live fire range activities cannot be addressed through
    administrative action; only Congress can clarify its intent to ensure
    our military readiness. Similarly, DOD must often base new weapons
    systems or reposition forces to ensure we can test, train and operate
    effectively. Current law under the Clean Air Act does not provide DOD
    and the States with the flexibility necessary to make such moves in a
    timely manner. We are asking for a legislative adjustment that will
    grant such flexibility while continuing to protect air quality.

        5. Senator Ensign. Mr. DuBois, what will the armed services do to
    ensure they will meet their stewardship goals and requirements under
    these three environmental laws?
        Mr. DuBois. The Department of Defense's goal is to manage and
    operate its operational ranges to support their long-term viability and
    utility to meet national defense mission requirements while protecting
    human health and the environment. Regarding the RCRA/CERCLA provision,
    the Department has established clear policy that requires installations
    to assess the environmental impacts of munitions use on ranges,
    including the potential off-range migration of munitions constituents,
    and begin any necessary remediation by 2008. In order to comply with
    this policy, each of the military departments has budgeted for and
    begun these assessments. These assessments address factors such as
    environmental conditions, mission needs, and munitions use. The CAA
    proposal does not exempt DOD from any emissions limitations or
    pollution control requirements under Federal or State law or
    regulation. It simply allows flexibility to the States and DOD to
    provide basing efficiencies for new weapon systems or realigned
    military readiness activities. DOD will continue to comply with the
    same environmental laws as private organizations when engaged in the
    same activities. It is only for those activities we engage in that have
    no private sector analogue--military readiness activities--for which we
    seek alternative forms of regulation, not exemptions from environmental
    regulation.

               BUDGET AUTHORITY FOR HOUSING PRIVATIZATION PROGRAM

        6. Senator Ensign. General Lust, Admiral Weaver, General Williams,
    and General Fox, a fiscal year 2005 legislative proposal to sustain
    Department of Defense's (DOD) military housing privatization initiative
    by increasing a statutory cap (currently $850 million) is at risk due
    to a change by the Congressional Budget Office (CBO) in the way they
    score the budget implication of the provision. Have any of you been
    able to identify an impact to your budget request from any element of
    housing privatization agreements, other than direct appropriations,
    that you did not account for and if so, can you determine the amount
    and reason?
        General Lust. The budget privatization agreements have not
    generated any additional liabilities on the part of the Government
    beyond the direct investments or scored amounts for loan guarantees. By
    design, these projects limit Government liability and minimize control
    to that necessary to protect the interest of the Government. Financial
    risk of failure fails on either the Army's developer-partner or the
    financial institution that lends money to the projects. The Army does
    not guarantee occupancy. The partner, as Managing Member of the LLC,
    exercises control over ``day-to-day'' housing management activities.
    The soldier/tenant pays rent and has the option of living off-post.
        Admiral Weaver. No. Navy budget requests have fully accounted for
    all impacts associated with military housing privatization. All
    Government financial contributions to military housing privatization
    projects have been scored in accordance with Office of Management and
    Budget guidelines.
        General Williams. No, there was no impact to the Marine Corps
    budget request from any other element of our privatization agreements
    beyond the direct investments or the scored amount of the direct loan
    covered by the direct appropriations. While not part of the
    privatization agreements, the Marine Corps direct appropriations also
    included reductions in the family housing operations and maintenance
    accounts as well as increases in the military personnel account to
    address basic allowances for housing needs associated with planned
    privatization.
        Contrary to the assertions of the CBO, the Marine Corps seeks to
    minimize its financial exposure and liability and negotiates agreements
    that transfer the preponderance of the risk to the private-sector
    business partners. The Marine Corps liability in the enterprise is
    limited to its initial investment. Because the Marine Corps does not
    direct or guarantee occupancy in the privatized housing, the military
    members retain the choice of living in the privatized housing or in
    comparable private sector housing. It is therefore incumbent on the
    managing member in our partnerships to attract sufficient customers to
    enable the projects continued success. If the managing member fails in
    this regard, risk then falls on the financial institution that lent the
    money for the project.
        General Fox. There has been no impact on Air Force budget requests.
    In its eight awarded housing privatization transactions, the Air Force
    only once expended appropriated funds to address an unbudgeted
    financial requirement. This was for an environmental remediation
    project needed to resolve an unforeseen site condition affecting
    construction at Elmendorf AFB in 2001. The requirement was funded
    through the privatization support account. All other unbudgeted
    financial requirements encountered in awarded projects were addressed
    by making use of the income stream available within the project's
    transaction. This is the same approach planned for use in all future
    projects.

        7. Senator Ensign. General Lust, Admiral Weaver, General Williams,
    and General Fox, what feedback have you received from service members
    and their families about the results of housing privatization
    initiatives?
        General Lust. Army resident surveys show improved satisfaction as a
    result of privatization. In particular, the Army has noted improvement
    for items that can be controlled in the short term-the housing office,
    repairs, housing services, and safety and security. There is indication
    that resident satisfaction improves with new and renovated homes. For
    example, Fort Carson where the new construction is 100 percent
    complete, scored the highest overall satisfaction among 28 Army
    installations surveyed in 2003. The privatization program at Fort
    Carson demonstrates a steady improvement in resident satisfaction and
    highlights the importance of quality housing as a predictor of resident
    satisfaction.
        Admiral Weaver. Service members are happy to move their families
    into market-quality, family-oriented housing. Timely response to
    service calls and upgraded security are a few of the tangible aspects
    that distinguish public/private venture housing from conventional
    military family housing. Other value-added features that are mentioned
    include free high-speed Internet access, organized community events and
    children's activities, and upgraded recreation facilities.
        General Williams. The feedback has been positive. The marines and
    their families are encouraged by the progress we are making in
    eliminating our inadequate housing. The members think the new and
    renovated housing is great. Even members in housing still awaiting
    replacement or renovation appreciate the increased level of service,
    the improved responsiveness, the additional recreational opportunities
    and the frequent and timely dissemination of information on community
    events and construction project status. Indicative of this positive
    response is the occupants of one of our privatized neighborhood
    throwing a party for the on-site housing manager in appreciation for
    his efforts.
        General Fox. Senator Ensign, to date, the Air Force has awarded
    eight projects and is on track to award five more within the next few
    months. Service members like the open floor plans, the modern kitchens,
    the garages, and the amenities included in the housing areas.
        While there are a variety of subjective and objective measures of
    tenant satisfaction, a project's occupancy rate is reflective of demand
    for privatized housing. For the six projects closed prior to the last
    reporting period, overall strong occupancy indicates a preference for
    privatized housing. Occupancy rates for the reporting period were as
    follows:

            Lackland AFB, 97.2 percent
            Dyess AFB, 98 percent
            Elmendorf AFB, 99.16 percent
            Wright-Patterson AFB, 97.2 percent
            Kirtland AFB, 86.3 percent (steadily increasing)
            Patrick AFB, 70.1 percent (project closed during this reporting
            period)

        8. Senator Ensign. General Lust, Admiral Weaver, General Williams,
    and General Fox, what will be the impact to your Service's family
    housing programs if we do not raise the budget authority for family
    housing privatization this year?
        General Lust. If the $850 million cap is not lifted, the Army will
    not be able to renovate, replace, and construct new housing as promptly
    as planned under privatization. Without relief, the Army cannot
    complete privatization efforts currently underway at 12 installations
    with about 19,000 homes. Also, long-term sustainment of adequate
    housing would be at risk. The Army estimates more than $2 billion would
    have to be programmed in military construction to eliminate inadequate
    housing at these 12 installations: Fort Drum, New York; Fort Sam
    Houston and Fort Bliss, Texas; Carlisle Barracks, Pennsylvania;
    Picatinny Arsenal and Fort Monmouth, New Jersey; Fort Benning and Fort
    Gordon, Georgia; Fort Knox, Kentucky; Fort Rucker and Redstone Arsenal,
    Alabama; and Fort Leavenworth, Kansas.
        Admiral Weaver. If the military family housing privatization cap is
    not raised this year, the Navy would have to defer planned
    privatization projects until the cap is raised, thus jeopardizing its
    ability to eliminate inadequate family housing by fiscal year 2007.
    Alternatively, the Navy would have to program $540 million for
    traditional military construction to accomplish the investment
    envisioned in these projects through privatization, this same level of
    investment could be accomplished using only an estimated $70 million in
    Government funds. Another alternative would be to significantly alter
    the approach to military housing privatization in order to ensure no
    budget authority is required. In order to accomplish the latter, we
    would be forced to adopt approaches that run counter to the objective
    of providing quality, affordable housing as soon as possible. These
    approaches include significantly prolonging the period of time for
    accomplishment of needed renovations and construction or allowing rents
    to be set at levels higher than the military members' housing
    allowances.
        General Williams. If the cap is not raised, the alternatives are
    either to execute `no cash' privatization projects or to return to
    executing traditional Military Construction projects. `No cash'
    projects could only be realized by an unacceptable lengthening of
    project construction schedules, unfavorable rent increases by military
    members resulting in substantial out-of-pocket expenditures, or both.
    Privatization would no longer be a solution to our housing problem as
    there would be little incentive for military members to choose to live
    in substandard privatized housing while being charged `above market'
    rents. The Marine Corps fiscal year 2005 budget request identified $102
    million in investment ``seed money'' for privatization projects at Camp
    Lejeune, NC; Twentynine Palms, CA; and Kansas City, MO. To provide the
    same project scopes through traditional military construction would
    require $271 million. Therefore, failure to raise the cap would require
    a significant increase in the funding in the military construction
    accounts or an equally significant reduction in project scopes. All of
    these alternatives jeopardize the Marine Corps ability to eliminate
    inadequate family housing by fiscal year 2007.
        General Fox. As of April 2004, the Services have awarded 29
    projects, transferring a total of $543.5 million to the Family Housing
    Improvement Fund (FHIF). Based on projections from all the Services, we
    anticipate the $850.0 million cap will be reached by November 2004. For
    the Air Force, our projections show that we will be able to award a
    total of 20 projects out of our 43 identified projects before the cap
    is reached. The 23 projects above the cap represent 23,815 units.
    Ultimately, the Air Force will be unable to meet the Defense Policy
    Guidance (DPG) goal of eliminating all inadequate housing units by
    2007.

                           OVERSEAS BASING MASTERPLAN

        9. Senator Ensign. Mr. DuBois, the Department has been promising
    Congress a global basing plan ever since it was directed by the Senate
    in the Fiscal Year 2002 Military Construction report. That report
    directed submission of a plan to the congressional committees no later
    than April 1, 2002. Deputy Secretary of Defense Paul Wolfowitz later
    responded that the basing study would be forwarded to the committees in
    ``early 2003". It is now April 2004 and no report has been delivered.
    What is the current status of the masterplan and when will it be
    provided to this committee?
        Mr. DuBois. The Department of Defense is currently compiling a
    report for the overall Global Posture effort based on combatant
    commander and Service input. Per the President's instruction, the State
    and Defense Departments are consulting closely with our allies and
    conducting site surveys to determine feasibility of initial proposals.
    The Department has frequently briefed Members of Congress and their
    staffs on the proposals under consideration. A report to Congress will
    be provided during summer 2004.

        10. Senator Ensign. Mr. DuBois, will the plan be accompanied by an
    estimate of the costs to implement the plan to establish new
    expeditionary bases in numerous countries we do not currently have
    bases?
        Mr. DuBois. Yes. The report will include a broad estimate of the
    overall costs of our posture changes over the Future Years Defense Plan
    (FYDP). While current working cost estimates are continually being
    updated, they represent less than one half of 1 percent each year over
    the FYDP. The estimate will be refined as more detailed plans are
    developed.

        11. Senator Ensign. General Lust, Admiral Weaver, General Williams,
    and General Fox, I was intrigued by a recent quote from a military
    engineering commander in Iraq who, in the context of building enduring
    locations in that country, said ``The engineering vision is well ahead
    of the policy decision.'' This seems to be the case globally. What
    insight did you have into the global basing masterplan as you prepared
    your fiscal year 2005 budgets?
        General Lust. The global basing master plan has not been finalized
    and approved by the Secretary of Defense. However, the Army will
    continue to have a worldwide presence, particularly in Europe and Korea
    based on briefings by the Commanders of U.S. Forces Korea, U.S.
    European Command, and U.S. Army Europe. As such, the fiscal year 2005
    budget request was prepared accordingly.
        Admiral Weaver. Full consideration was given regarding the
    potential outcome of the Integrated Global Posture and Basing Strategy
    (IGPBS) and resource investment was limited to those projects essential
    to mission support. This was accomplished through the following
    strategy:
        Navy has identified key installations in the European theater
    necessary to support DOD mission. While IGPBS has not been finalized,
    the Navy considers these installations as enduring based upon their
    joint mission support capability and their underlying combat
    capability/support to combat operations.
        MILCON projects included in the fiscal year 2005 program directly
    contribute to ongoing recapitalizations of two enduring bases and have
    been supported by Congress with previous MILCON funding. The projects
    provide critical infrastructure upgrades that support joint operations
    and eliminate serious AT/FP violations that unnecessarily place our
    sailors in harms way. The fiscal year 2005 program does not include new
    footprint project at these enduring bases, only recapitalization of
    existing facilities.
        General Williams. The overseas basing strategy was not developed in
    sufficient detail in time to influence the fiscal year 2005 budget. At
    this time, it has not been finalized or approved. If there are
    requirements for redirecting installation funding to support the
    overseas basing strategy, we will address them in the fiscal year 2006.

        General Fox. Working with and based on input from the theater
    combatant commanders, the Air Force fiscal year 2005 MILCON program
    invests in projects at those enduring overseas installations that we
    believe will continue to be required to meet the National Defense
    Strategy.

                     OVERSEAS MILITARY CONSTRUCTION REQUEST

        12. Senator Ensign. Mr. DuBois, considering the fact that DOD is
    still actively engaged in negotiations with our allies about the global
    basing masterplan, is the DOD absolutely sure that the overseas
    military construction projects in the fiscal year 2005 budget request
    will be required once the global basing masterplan and host nation
    negotiations are completed?
        Mr. DuBois. Yes. A careful internal review by the Department
    ensured that the fiscal year 2005 budget request includes only military
    construction projects that are located at installations which are known
    to be central to our future military strategy. We are not negotiating
    the closure or return of any installations where these projects will be
    located.
        Without these projects, the Department will waste resources on
    disparate facilities, instead of consolidating forces and functions
    onto efficient installations, and the quality of life of our forces
    overseas will be adversely affected.

        13. Senator Ensign. Mr. DuBois, has the final number and status of
    U.S. forces to be stationed at each location in Germany and Korea been
    determined?
        Mr. DuBois. While the Department has detailed recommendations for
    future posture in Germany and Korea, precise details are being
    discussed through formal negotiations with these countries. Specific
    details will be provided in the classified annex of the pending report.

        14. Senator Ensign. General Lust, how much money does the Army plan
    to spend over the current Future Years Defense Plan in Germany to
    consolidate forces at one training area at Grafenwoerh?
        General Lust. The fiscal year 2005 President's budget includes
    three projects at Grafenwoehr that total to $77.2 million. Funding
    planned in the FYDP for fiscal year 2006 through fiscal year 2009 is
    $281 million. These projects enable the consolidating and closing of a
    number of small, inefficient installations, thus gaining operational
    and cost efficiencies while providing quality levels of services and
    facilities, ready access to training areas, and enhanced force
    protection to our forward-deployed soldiers and their families.

        15. Senator Ensign. General Lust, will this training area support
    NATO training and if so, how much money will be contributed by NATO?
        General Lust. The facilities at Grafenwoehr are designed for use by
    U.S. forces, but have the capacity and capability of supporting NATO
    training. Forces of various NATO nations have and will continue to
    train at Grafenwoehr on a reimbursable basis and at the convenience of
    the U.S. military. Non-U.S. Armed Forces are billed at $58 per day, per
    soldier. This fee is adjusted annually based on actual Grafenwoehr
    operating expenses. Repayment-in-kind provisions exist that provide
    U.S. Forces reciprocal training opportunities at other national
    training facilities at little or no cost. This quid pro quo billing
    strategy accommodates the training needs of U.S. forces and
    participating nations.

        16. Senator Ensign. General Lust, how much money does the Army plan
    to spend over the current FYDP in Korea to implement the Land
    Partnership Plan (LPP)?
        General Lust. The estimated total military construction, Army
    investment over the current FYDP to accomplish the relocation of U.S.
    forces in Korea under the LPP is $252 million. The estimated Korean
    investment under the LPP is over $2.3 billion.

        17. Senator Ensign. General Fox, what is the status of the Rhein
    Mein relocation initiative for the Air Force and what facility and/or
    infrastructure requirements remain unfunded and who will be paying for
    them?
        General Fox. The replication of Rhein-Main capabilities at
    Spangdahlem and Ramstein Air Bases is on schedule. In accordance with
    the Rhein-Main Closure Agreement, we will return Rhein-Main to the
    Federal Republic of Germany by 31 Dec 05. The agreement's German
    partners or NATO has funded the vast majority of Rhein-Main Closure
    Agreement requirements. Other requirements that were not part of the
    agreement were funded in the fiscal year 2002, fiscal year 2003, and
    fiscal year 2004 MILCON programs. The only requirement that remains
    unfunded is the $4.3 million South Gate/Large Vehicle Inspection
    Station project at Spangdahlem Air Base. All other facility and/or
    infrastructure requirements are currently funded. The South Gate/Large
    Vehicle Inspection Station is an antiterrorism/force protection project
    in the U.S. Air Force-Europe (USAFE) fiscal year 2006 MILCON program
    submission.

                              UNEXPLODED ORDNANCE

        18. Senator Ensign. Mr. DuBois, the General Accounting Office (GAO)
    issued a report titled Military Munitions--DOD Needs to Develop a
    Comprehensive Approach for Cleaning Up Contaminated Sites (December
    2003). In the report, GAO asserted that DOD has made limited progress
    to identify, assess, and clean up unexploded ordnance (UXO) sites. GAO
    recommended that DOD develop a comprehensive plan to: (1) establish
    deadlines for completing its site inventory and initial evaluations;
    (2) reassess the timetable proposed for completing its risk assessment
    reevaluations; (3) establish Service-specific targets; and (4) work
    with Congress to develop budget proposals for timely completion of
    cleanup activities. What is your response to the GAO report on UXO and
    what is DOD doing to address these concerns?
        Mr. DuBois. In our response to GAO, the Department concurred with
    GAO's recommendation to work with Congress to develop realistic budget
    proposals, which will allow us to complete cleanup activities on
    potentially contaminated sites in a timely manner. The military
    services will continue to work with stakeholders to identify additional
    sites and we will add these sites to our inventory, as appropriate. We
    believe that most of the remaining sites not previously identified are
    located on active installations still under DOD's control.
        We plan to complete the prioritization of all of these sites by
    2010, which is 2 years earlier than the original goal. The Department
    has also established interim goals which have been adopted by each of
    the military departments. By 2007, the Department plans to complete all
    preliminary assessments, and by 2010 the Department will complete each
    of the site inspections at these sites. The Department is working with
    each military Service to establish additional goals and measures to
    help us further gauge progress at these sites. In the interim, we will
    continue to look for additional opportunities to accelerate site
    inspections and prioritization to help ensure that resources are
    targeted toward the highest risk sites.

        19. Senator Ensign. Mr. DuBois, what is DOD doing to advance a
    timely cleanup of UXO sites?
        Mr. DuBois. The DOD established the Military Munitions Response
    Program (MMRP) within its Environmental Restoration (ER) Program to
    address the remediation of UXO, discarded military munitions, and
    munitions constituents (MC) located on locations that are or were owned
    by, leased to, or otherwise possessed or used by DOD at sites other
    than operational ranges. DOD's objectives for sites in the MMRP
    include:

             Identifying where, what kind, and to what extent UXO,
            discarded military munitions, or MC are present;
             Determining both explosive safety hazards and
            toxicological hazards to human health and the environment;
             Establishing goals and metrics to track and evaluate
            progress;
             Setting priorities, programming, and budgeting to
            effectively resource MMRP requirements;
             Conducting necessary munitions response actions;
             Developing and implementing effective MMRP-related
            technologies; and
             Ensuring the timely transfer of excess land to allow
            for alternative uses that are consistent with the munitions
            response completed.

        During fiscal year 2003, DOD further developed its inventory and
    identified additional potential munitions response sites. Through a
    publicly available site, DOD shared its inventory results and continues
    to solicit information from both the environmental regulatory community
    and public stakeholders. DOD and the military components will continue
    to work with stakeholders to identify additional sites and add them to
    the inventory, as appropriate, on an annual basis.
        DOD has established interim goals for the munitions response
    program and incorporated them into internal DOD financial guidance.
    Each military component will complete its preliminary assessments by
    2007 and its site inspections by 2010.
        During the early years of the MMRP, the Department will expend a
    large percentage of funding on investigation activities. As the MMRP
    matures the funding will shift to implementing cleanup remedies.
        The Department published a draft proposed Munitions Site
    Prioritization Protocol in the Federal Register on August 22, 2003, and
    is preparing a draft final.

                           CAMP LEJEUNE CONTAMINATION

        20. Senator Ensign. Mr. DuBois, the drinking water at Camp Lejeune
    was contaminated with volatile organic compounds (VOCs), including
    tetrachloroethylene (PCEs) from a dry cleaners just off base and
    trichloroethylene (TCEs) from on-base industrial operations which used
    metal degreasers. The contamination dates back at least to the 1960s.
    VOCs were first discovered in the drinking water in 1980 but the source
    was not known. The drinking water wells were first identified as
    contaminated in 1984 and they were closed in 1985. Please provide an
    update on General Hagee's panel to review the Marine Corps' response
    following the discovery of VOCs in the drinking water at Camp Lejeune.
        Mr. DuBois. General Hagee chartered the panel on March 18, 2004, to
    conduct an independent review of the facts surrounding the decisions
    made following the 1980 discovery of volatile organic compounds in
    drinking water at Marine Corps Base, Camp Lejeune. At its first meeting
    on April 1, 2004, the panel chair, retired Congressman Ronald C.
    Packard, recommended, and the Commandant approved, the addition of two
    distinguished scientists to the original, three- member panel. The new
    panel members are William H. Glaze, Ph.D., and Robert G. Tardiff,
    Ph.D., A.T.S. The panel is expected to complete its review by October
    2004.
        General Hagee chartered the panel because he wanted a better
    understanding of the facts and circumstances leading to the 1985
    closure of the impacted wells. The panel's work is concurrent with the
    Agency for Toxic Substances and Disease Registry's ongoing
    epidemiological study of the health of children born to women while
    living at Camp Lejeune during 1968-1985. This study, which should
    identify whether there is a link between the impacted drinking water
    and certain childhood diseases, will include groundwater and drinking
    water system modeling. The modeling is necessary, in part, because
    exactly when the volatile organic compounds first impacted some of the
    base's drinking water wells remains unknown.

        21. Senator Ensign. Mr. DuBois, there have been some criticisms of
    this independent panel as not being independent on the Camp Lejeune
    issue. Please speak to this issue and what the panel is planning to do
    to bring in outside experts or witnesses to ensure their final report
    is a complete and independent look at the contamination issue.
        Mr. DuBois. At its first meeting on April 1, 2004, the panel chair,
    retired Congressman Ronald C. Packard, recommended, and the Commandant
    approved, the addition of two distinguished scientists to the original
    three-member panel. The new panel members are William H. Glaze, Ph.D.,
    and Robert G. Tardiff, Ph.D., A.T.S. General Hagee chartered the panel
    to conduct an independent review of the facts surrounding the decisions
    made following the 1980 discovery of volatile organic compounds in
    drinking water at Marine Corps Base, Camp Lejeune. The panel is
    expected to complete its review by October 2004. The panel's charter
    makes the panel solely responsible for the contents of its report. The
    panel's charter also urges the panel to consider soliciting public
    comment in fulfilling its duties. However, exactly what the panel is
    planning to do remains within the panel's discretion.

                        FACILITY RECAPITALIZATION RATES

        22. Senator Ensign. Admiral Weaver, I am concerned that this year's
    budget request for the Navy funds a rate of recapitalization equal to
    149 years. That means the Navy must build and maintain facilities to
    last 149 years before the current level of annual funding will result
    in replacement. The GAO recently concluded that the DOD goal of funding
    a 67-year rate of recapitalization by 2008 is based on future funding
    that is unrealistic. As the Commander of Navy Installations, do you
    believe the Navy will meet the DOD goal to reach a level of annual
    construction funding equal to a 67-year recapitalization rate by fiscal
    year 2008?
        Admiral Weaver. The current Navy FYDP (President's budget 2005)
    supports meeting Department of Defense goals to attain an average 67-
    year facilities recapitalization rate by fiscal year 2008.

        23. Senator Ensign. Admiral Weaver, what amount of annual military
    construction funding will be required by the Navy to meet that goal?
        Admiral Weaver. The recapitalization rate is based on investment of
    recapitalization-type funds compared to plant replacement value.
    Recapitalization-type funds include military construction, sustainment,
    restoration, and modernization (SRM) (i.e., O&M), Navy Working Capital,
    and MILPAY appropriations. For fiscal year 2005, the Navy would need to
    invest an additional $874 million of recapitalization funds to achieve
    the 67-year recapitalization rate.

        24. Senator Ensign. General Fox, what funding levels for both
    military construction and restoration funds for the Air Force are
    required to achieve the 67-year cycle and do you believe that the Air
    Force will meet the DOD goal?
        General Fox. Senator Ensign, the Air Force annual requirement to
    meet and maintain the DOD 67-year recapitalization rate is $2.3
    billion. The $2.3 billion requirement includes a combination of
    recapitalization military construction projects and operations and
    maintenance, restoration and modernization funding. With currently
    programmed funding of this annual requirement, the Air Force will be
    able to meet the 67-year recapitalization rate by 2008 and maintain it
    in years beyond.

    OPERATIONS AND MAINTENANCE FUNDS FOR FACILITY SUSTAINMENT, RESTORATION,
                               AND MODERNIZATION

        25. Senator Ensign. General Fox, according to the most recent
    installation readiness report, 77 percent of the total physical plant
    in the Air Force is rated C-3 or worse, and the Air Force traditionally
    has the best facilities. Obviously, the poor condition of our
    infrastructure--developed over the past 10 years due to chronic
    underfunding--affects Air Force readiness. Are you able to quantify the
    impact to readiness?
        General Fox. Due in large part to the funding support we received
    from Congress in fiscal year 2003 and a focused investment strategy,
    the recent 2003 Installations' Readiness Report highlights 67 percent
    of our physical plant remains C-3 or worse. Significant or major
    infrastructure deficiencies continue to severely inhibit or preclude
    mission accomplishment.
        For example in our operations and training facility class, degraded
    airfield pavements pose risk of aircraft engine and structural damage,
    impacting everything from basic airfield operations to day-to-day
    aircraft maintenance. Other examples of deficiencies include obsolete
    airfield lighting systems, inadequate training facilities, and
    deteriorated/inadequate drainage systems. Inoperative fuel hydrant
    systems force personnel to refuel by truck--increasing workload for
    maintenance and supply personnel.
        Deficiencies such as these degrade operational efficiency and make
    operating and maintaining our air bases very challenging.

        26. Senator Ensign. General Fox, what guidance do you receive from
    Air Force leadership to fix the problem?
        General Fox. Senator Ensign, the United States Air Force, fiscal
    year 2006-2011, Annual Planning and Programming Guidance (APPG), signed
    23 January 2004 by the Secretary and Chief of Staff of the Air Force
    provides the following guidance:

            ``Major Commands will identify restoration and modernization
            (R&M) investment requirements taking into consideration all R&M
            funding sources to maintain an annual recapitalization rate
            consistent with the Fiscal Year 2005 Amended Program Objective
            Memorandum (APOM) position for fiscal years 2006 and 2007, and
            to attain a recapitalization of 67 years by fiscal years 2008.
            Major commands should focus on restoring and modernizing
            facilities and infrastructure and concentrate projects on
            eliminating C3/4-rated Installation Readiness Report facility
            classes by 2010. Major commands will include communications and
            infrastructure requirements in the military construction
            programming documents, including cabling, ducting, and
            connectivity to the point of connection.''

        27. Senator Ensign. General Lust, according to the most recent
    installation readiness report, 70 percent of all facilities in the Army
    are rated C-3 or worse. What additional operations and maintenance
    funds are required to buy out just your critical facility requirements
    (C-4) in fiscal year 2005?
        General Lust. It is important that all Army facilities be fully
    sustained to protect our investment and to allow them to support their
    missions for their full life cycles. Critical facility requirements are
    being defined as the cost to improve our facilities to an Army-wide
    average of C-2 (facilities support the majority of assigned missions).
    The total cost to achieve this goal is approximately $12.4 billion. We
    will use primarily Military Construction funds to accomplish this
    objective.

        MIGRATION OF OPERATIONS AND MAINTENANCE FUNDS FROM THE FACILITY
                              SUSTAINMENT ACCOUNT

        28. Senator Ensign. General Lust, DOD has pointed to the goal of
    funding 95 percent of facility sustainment requirements for the
    Services in the fiscal year 2005 budget as an accomplishment. But, a
    recent GAO report suggested that the sustainment level advertised by
    DOD ranging above 90 percent of the total requirement is not being
    experienced at the installation level. They found in random surveys at
    various installations, sustainment funding levels between 35 percent
    and 77 percent. Also, the Services have underfunded their base
    operations support accounts in fiscal year 2005 by up to 30 percent
    with the intention of shifting funds from sustainment to cover must-pay
    bills in 2005, as they did in fiscal year 2003 and fiscal year 2004.
    What were the actual obligations for the Army's facility sustainment
    account in fiscal year 2003?
        General Lust. Actual obligations for sustainment in fiscal year
    2003 were $1.568 billion.

        29. Senator Ensign. General Lust and Admiral Weaver, did DOD's goal
    for facility sustainment have any bearing on your Service's decision
    for facility sustainment account obligations in fiscal year 2003?
        General Lust. Yes. The Army supports DOD's fiscal year 2005 goal to
    fund facilities sustainment at 95 percent. Due to affordability in the
    year of execution, dollars often migrate at the installation level from
    SRM (sustainment) into base operations support (BOS) resulting in low
    sustainment execution. To minimize and control migration of sustainment
    funds, reprogramming greater than 15 percent requires Installation
    Management Agency approval.
        Admiral Weaver. Yes. Although the Navy programmed for a sustainment
    rate of 84 percent in fiscal year 2003, the Navy actually executed 91
    percent of the sustainment requirement. The requirement was based on
    the facilities sustainment model.

        30. Senator Ensign. General Lust and Admiral Weaver, does DOD need
    to establish a goal for funding levels by the Services for BOS similar
    to the goal they have established for sustainment funding?
        General Lust. As DOD has established a model for sustainment and a
    metric for recapitalization, I believe DOD should also establish a BOS
    metric. But first, DOD would need a standard tool to measure progress
    toward the goal. Efforts are already underway to develop such a tool,
    similar to the one developed for facilities sustainment.
        Admiral Weaver. No. The Navy believes that funding levels for
    installation or BOS services are better established through the use of
    requirements models that are based on the required operational
    capabilities of each installation (as determined in consultation with
    the mission commanders) and then applying four varying levels of
    installation services that are priced out and evaluated in terms of
    risks of delivery at each level as well as potential savings at each
    level. Navy leaders thus have a series of funding options that they can
    evaluate based on the output or capability to be delivered, weighed
    against the savings and the risk of delivery of the services at these
    various levels. Using a fixed formula would tend to move us away from
    evaluating risks in determining funding levels. DOD is in the process
    of developing a BOS model with standard levels of service for use by
    all military services.

        31. Senator Ensign. General Lust and Admiral Weaver, what were the
    actual obligations for your Service's facility sustainment account in
    fiscal year 2003?
        General Lust. Actual obligations for sustainment in fiscal year
    2003 $1.568 billion.
        Admiral Weaver. Actual execution for the entire sustainment,
    restoration, and modernization program for fiscal year 2003 was $1,943
    million.

                           HOST NATION BURDEN-SHARING

        32. Senator Ensign. Mr. DuBois, you have been asked for 2 years by
    this committee what support the United States is getting from other
    countries to maintain or build new facilities in Europe, the Pacific,
    and Southwest Asia. You responded that ``burden-sharing reports will be
    published soon, and we are exploring additional opportunities to
    increase burdensharing by our allies.'' Where is the report?
        Mr. DuBois. The Department published the ``Report on Allied
    Contributions to the Common Defense'' in July 2003, covering
    contributions made during calendar year 2002 by our NATO allies,
    Pacific allies (Australia, Japan, and the Republic of Korea), and the
    Gulf Cooperation Council (GCC) nations. The report presents an annual
    assessment of the relative contributions made by our allies to the
    common defense and mutual security, and identifies our efforts to
    increase our allies and partner nations responsibility sharing
    contributions.
        Under legislative provisions dating back to the National Defense
    Authorization Act of 1981 (Public Law 96-342, Section 1006), the
    Secretary of Defense provides this report to Congress annually. The
    most recent report may be found at http://www.defenselink.mil/pubs/
    allied--contrib2003.

        33. Senator Ensign. Mr. DuBois, what support is the United States
    getting to maintain or build new facilities from various countries
    around the world?
        Mr. DuBois. The United States receives significant support from our
    allies to maintain and construct new facilities at overseas locations.
        In Europe, the NATO Security Investment Program has funded about
    $1.7 billion in projects since 1989 for runway improvements, utilities,
    missile maintenance, hangars, piers, ammunition facilities, roads and
    pavements, and support to the Balkans. More than $717 million is being
    provided for projects currently in design or under construction:
                                                                [In millions
                                                                 of dollars]

    Aviano Beddown                                                       243
    Ramstein Upgrades                                                    224
    Sigonella Upgrades                                                    43
    Fairford Upgrades                                                     43
    Lakenheath Upgrades                                                   51
    Mildenhall Upgrades                                                   37
    Souda Bay Upgrades                                                    15
    Keflavik Upgrades                                                     20
    Incirlik Upgrades                                                     41

        Another form of support from our European allies is derived through
    payment-in-kind construction, given in lieu of cash payments for U.S.
    capital investments at facilities being returned to them. Since 1991,
    the U.S. has received payment-in-kind worth $36 million from the United
    Kingdom, $1.6 million from Iceland, and about $372 million from
    Germany. In addition, in exchange for returning Rhein-Main Air Base to
    Germany, the German Government provided $487.5 million worth of
    construction projects to replicate and enhance Air Force mission
    capabilities at Ramstein and Spangdahlem Air Bases.
        Japan's most significant responsibility sharing contribution lies
    in the funding it provides in support of U.S. forces stationed on their
    land. Japan's cost sharing in 2002 totaled $4.14 billion, covering
    about 75 percent of U.S. basing costs (both direct and indirect).
    Further, under the existing 5 year (2001-2006) bilateral Special
    Measures Agreement (SMA), Japan is paying virtually all costs of local
    national labor employed by U.S. forces, as well as a portion of costs
    of public utilities on U.S. bases. The SMA also covers costs of
    transferring U.S. training activities from U.S. bases to other
    facilities in Japan when the Government of Japan requests such
    transfers.
        The Republic of Korea's (ROK) cost sharing support for U.S. forces
    in 2002 totaled $998 million, covering 39 percent of U.S. basing costs
    (both direct and indirect). This was a 15 percent increase over 2001--
    the largest single increase in 8 years. Furthermore, under the 3-year
    (2001-2004) SMA, the ROK pledged to significantly increase their cost
    sharing support by 8.8 percent plus inflation in 2003 and 2004.
        Direct construction support from Japan and Korea is provided
    through their host nation funded construction (HNFC) programs. The
    Japanese Facilities Improvement Program (JFIP) is the host nation
    funded construction program supporting U.S. facility construction
    requirements in Japan. Since its inception in 1979, it has funded
    almost $20 billion in new projects. The Japanese fiscal year 2003 and
    fiscal year 2004 programs were $680 million and $676 million,
    respectively. In addition to the HNFC program, Japan's Special Action
    Committee on Okinawa has funded approximately $120 million in each of
    fiscal year 2003 and fiscal year 2004.
        Korea's HNFC consists of the Combined Defense Improvement Projects
    (CDIP) and the Republic of Korea Funded Construction (ROKFC) programs.
    CDIP projects directly support warfighting capabilities, while ROKFC
    funds support warfighting capabilities, force protection requirements,
    and quality of life initiatives. In calendar year 2003, the CDIP
    program was funded at about $60 million, while the ROKFC program was
    funded at about $156 million.
        In addition to alliances with Japan and Korea, the U.S. seeks to
    sustain and adapt security partnerships with the Nations of the Gulf
    Cooperation Council (GCC)--Bahrain, Kuwait, Oman, Qatar, Saudi Arabia,
    and the United Arab Emirates (UAE). The GCC member States continue to
    serve as important partners in support of our operations in Southwest
    Asia. While they have not been directly involved in combat operations,
    they have provided significant assistance critical to coalition
    operations including basing and over flight rights to a large
    contingent of U.S. forces. Additionally, host nation military bases,
    civilian airports, and other facilities have been used for the bed down
    and storage of U.S. aircraft, equipment, and personnel. A number of GCC
    nations are providing troops and equipment for increased force
    protection requirements as well as additional air traffic control and
    fuel storage.
        Collective efforts with allies and other friendly nations are
    essential in the war on terrorism, since the responsibility and costs
    of meeting the challenges of current and future threats around the
    world cannot be met by any one nation alone.

        34. Senator Ensign. Mr. DuBois, what progress has been made on
    exploration of additional opportunities to increase burdensharing?
        Mr. DuBois. While we encourage our allies and partner nations to
    assume a greater share of the burden of providing for the common
    defense and mutual security, the Department believes that their burden-
    sharing, or responsibility sharing, efforts are generally positive.
    Aside from the important military contributions made to multi-national
    operations, our Allies and partners also provide bases and facilities,
    numerous tax exemptions, and reduced-cost services. They also provide
    direct support through host nation construction funding programs,
    residual value payment-in-kind construction, and common-funded budgets
    such as the NATO Security Investment Program (NSIP).

        35. Senator Ensign. General Lust, what efforts are underway to
    recoup residual value from U.S. investments in facilities at bases we
    are leaving in Germany and Korea?
        General Lust. Since 1991, the Federal Republic of Germany (FRG) has
    provided the United States with residual value compensation of about
    $41 million in cash payments and about $372 million in the form of
    payment-in-kind construction. An additional $487.5 million in payment-
    in-kind compensation was provided by the FRG as part of a ``quid-pro-
    quo'' agreement to return Rhein Main Air Base and move strategic
    capabilities from Rhein Main to Ramstein and Spangdahlem Air Bases.
        The FRG and the Department of Defense have recently completed
    negotiations for the return of a number of sites--including Bitburg and
    Sembach Air Bases as well as the Frankfurt Contingency Hospital--for
    which the proposed settlement is about $20 million in payment-in-kind
    compensation. The FRG is committed to continue compensating the U.S.
    for residual value; however, most of the returns have now been settled.
    Current residual value negotiations are in progress for the return of
    Bad Kreuznach and are expected to be completed in fiscal year 2006.
        Article IV of the Status of Forces Agreement between the United
    States and the Republic of Korea (ROK) relieves the ROK of any
    obligation to compensate the U.S. Government for improvements made at
    any sites being returned. By the same token, the U.S. Government is not
    obliged to compensate the ROK for any environmental damage caused by
    the U.S.

                            ENVIRONMENTAL TECHNOLOGY

        36. Senator Ensign. Mr. DuBois, funding for environmental
    technology is reduced in the fiscal year 2005 budget request. The
    fiscal year 2004 appropriated level was $250 million. The fiscal year
    2005 budget request is $186.2 million. As the Armed Forces seek
    opportunities to reduce their compliance costs and restrictions, it is
    often new technologies that will help meet new environmental standards
    or requirements. Why is funding for environmental technology programs
    being reduced so significantly?
        Mr. DuBois. The Department works diligently to ensure that it meets
    its obligations for compliance with new standards, and reviews annually
    the Armed Forces investment strategy for environmental technology
    opportunities. We believe the DOD has been steadfast for more than a
    decade with its approach for balancing new investment opportunities in
    coordination with the annual budget request when placed against the
    priority environmental requirements of the Services. With this balance
    of investment strategy, DOD continues to focus on two broad,
    overarching goals as we strive to develop and transition environmental
    technologies. These goals are to permit DOD training and testing ranges
    to continue to provide venues for realistic and comprehensive training
    into the future in a sustainable fashion, and to reduce the
    Department's current and future liability by reducing life-cycle costs
    for all aspects of military operations impacted by compliance with
    environmental regulation. We believe the fiscal year 2005 budget
    request adequately supports these objectives.

        37. Senator Ensign. Mr. DuBois, one example which would seem to
    justify a large investment in technology and innovation would be in
    addressing the UXO issue. To what extent are the Armed Forces planning
    to dedicate technology spending towards the UXO issue?
        Mr. DuBois. Senator Ensign, you are correct that advanced
    technology has significant potential to reduce the cost and improve the
    process for addressing the Department's UXO issue. I recently sponsored
    a Defense Science Board study to look at this exact issue. The Defense
    Science Board completed its work this past winter and found that the
    possible return on investment in UXO technology is significant. It has
    the potential to save the Department billions of dollars.
        Given this vast opportunity, DOD prioritized UXO technology
    development as one of our highest environmental technology
    requirements. UXO problems cut across all the Services and therefore
    the leadership for these efforts resides in our DOD-wide RDT&E
    programs--the Strategic Environmental Research and Development Program
    (SERDP) and the Environmental Security Technology Certification Program
    (ESTCP). In the fiscal year 2005 budget request, SERDP and ESTCP plan
    to invest approximately $23 million in UXO technology which represents
    over 25 percent of the total budget of these Defense-wide environmental
    technology programs.

                        DEFENSE REPORT ON CLIMATE CHANGE

        38. Senator Ensign. Mr. DuBois, there was a series of news stories
    in February and early March of this year discussing a study
    commissioned by the Pentagon on national security concerns caused by
    climate change. The study was titled An Abrupt Climate Change Scenario
    and Its Implications for United States National Security, published in
    October 2003. Was this study requested by the Pentagon?
        Mr. DuBois. Yes, the Department did request this study. DOD
    routinely studies a very broad range of possible future world scenarios
    and commissions many studies to help achieve this goal.

        39. Senator Ensign. Mr. DuBois, a San Francisco Chronicle article
    mentions that the Pentagon paid $100,000 for this study, but further
    states that ``it isn't even a Pentagon report in the strict sense of
    the word. It does not constitute an official DOD position paper or
    policy statement . . .'' Can you please explain the process for such a
    study to be initiated?
        Mr. DuBois. The DOD Office of Net Assessment conducts studies in
    three broad areas: To support ongoing net assessments; to better
    understand major periods of change in the past, and to learn why some
    actions and initiatives were successful while others were not; and to
    better understand aspects of the future security environment that are
    relevant to DOD. DOD seeks a wide variety of views and expertise to
    help the Department think through these issues; however, these external
    reports contain the views of their individual authors.
        The climate change study fits in the third category. The history of
    ice cores has shown that there were times in the past when the
    temperature in the Northern Hemisphere abruptly warmed and cooled. If
    the world experienced a temperature change like those seen in the past,
    what would the specific regional climactic changes look like, and how
    would they affect DOD policy and operations? Unfortunately, the climate
    change study was not able to answer those questions.

        40. Senator Ensign. Mr. DuBois, without trying to sound too
    critical, what is the value of this type of report?
        Mr. DuBois. The Department of Defense plans and develops our
    National Security Strategy, assures allies, dissuades military
    confrontation, deters threats and coercion, and, when required,
    preempts or defeats our Nation's adversaries. DOD routinely studies
    possible future world scenarios and commissions many studies to help
    achieve this goal. The Defense Department continuously looks ahead to
    ensure we are prepared in the future for any contingency.
        What prompted DOD interest in the impact of abrupt global warming
    was the National Academy of Sciences' report of 2002.

             What are the different ways in which the climate can
            change suddenly?
             What countries would first be affected? How severe are
            these impacts?

        We want to know so that we can plan on whether affected countries
    would suffer or benefit from climate change. Would that change make
    them more or less stable? More pragmatically, what kinds of climatic
    conditions might our world-wide forces encounter in the future? The
    report was not able to quantitatively address these questions.
        The Schwartz and Randall study reflects the limits of scientific
    models and information when it comes to predicting the effects of
    abrupt global warming. Although there is significant scientific
    evidence on this issue, much of what this study predicts is still
    speculation.

                            UTILITIES PRIVATIZATION

        41. Senator Ensign. Mr. DuBois, on the issue of utilities
    privatization, I acknowledge the DOD goal to make privatization
    decisions by September 2005. In your written statement, you say
    ``Congressional support for this effort in fiscal year 2004 is
    essential to maintain the procurement momentum and industry interest.''
    What do you perceive to be the level of industry interest in taking
    over deteriorated utility systems?
        Mr. DuBois. The ongoing solicitations are normally receiving
    adequate interest to achieve competition. This follows a successful
    effort by the Services to share lessons learned and industry feedback
    to improve solicitation templates and better align the program with
    industry practices.
        Many systems included in earlier solicitations, which closed prior
    to March 2003 did not receive adequate interest. Most of these systems
    were located on small Reserve or National Guard sites. Utilities had
    not been interested in participating in the privatization of these
    systems for a variety of reasons. In general, they perceived that the
    cost of developing a proposal in a competitive arrangement did not
    provide a cost effective business opportunity. With the improved
    templates and engagement with industry representatives, interest has
    improved. The Services are continuing discussions with industry to
    identify barriers and develop resolutions.

        42. Senator Ensign. Mr. DuBois, what can Congress do to maintain
    the level of interest or to increase the incentive to the Services to
    accelerate the privatization of utilities?
        Mr. DuBois. Services have programmed adequate funding to privatize
    those systems that are deemed economical per 10 U.S.C. 2688. To
    maintain the momentum of the program, it is essential that the funding
    levels in the President's Budget are supported by Congress.
        DOD has submitted a legislative proposal that would allow a
    streamlined approach to procurement at certain installations where the
    United States does not own the preponderance of the land underlying the
    installation. Enactment of this legislation would ease some of the
    barriers to privatization at these smaller installations, while
    ensuring that the action would provide long term benefits to DOD.
        Though the Department has not generated any additional legislative
    proposals, we are continually mindful of industry feedback. The complex
    issues surrounding privatization occasionally generate barriers, which
    require a remedy. If your constituents raise issues that require
    legislation, it will be beneficial to ensure a unified approach.
        My office is working closely with the Services as they aggressively
    execute the program. Of the 1,863 utility systems available to evaluate
    for privatization, 436 have been privatized, 195 systems have been
    exempted by the Service Secretaries and 953 systems are currently being
    evaluated following the issuance of a Request for Proposal. The
    remaining 280 systems will be evaluated for privatization as the
    Service plans are executed. No congressional actions are deemed
    necessary to accelerate these actions.

               PROJECTS TO SUPPORT NEW WEAPON SYSTEM ACQUISITION

        43. Senator Ensign. Admiral Weaver and General Williams, the
    Department of the Navy recently announced that they would delay the
    selection of a source for the next helicopter to be used for
    transportation of the President of the United States. The fiscal year
    2005 military construction budget request includes $106 million to
    construct facilities for this program. Is this military construction
    still required in the fiscal year 2005 budget and if so, what would be
    the repercussions to the research and testing of the program from a
    deferral of the military construction projects?
        Admiral Weaver. The Navy included $106 million for vertical lift
    aircraft (VXX) facilities in the fiscal year 2005 budget request in
    order to meet the planned arrival of the first VXX aircraft by November
    2006. Although the Navy announced a delay in the System Development and
    Demonstration (SDD) contract award, no significant delay is anticipated
    in the arrival of the first aircraft. The Navy is using the additional
    time made available by the delay in the SDD contract to more fully
    investigate the design, performance, cost and tradeoff opportunities
    with both offers, thus minimizing the need to delay the arrival date of
    the first VXX aircraft. In addition, the Navy used a fast track 35-
    month versus a more customary 55-month construction schedule to meet
    the November 2006 planned arrival of VXX aircraft. Thus, VXX facilities
    are still needed in Fiscal Year 2005, even if the SDD contract delays
    the arrival of the first aircraft.
        All funds are still required in fiscal year 2005. If these
    facilities are not constructed, there will be an increased risk of
    failing to meet the initial operating capability date as directed by
    the White House.
        General Williams. The military construction required at Marine
    Corps Air Station Quantico in fiscal years 2005 and 2006 in support of
    the next helicopter to be used for transportation of the President of
    the United States is still required despite the selection delay. The
    proposed projects are in accordance with Marine Corps Air Station
    Quantico's master plan to replace facilities built in the 1930s that
    are inadequate to support the existing aircraft. The projects are not
    tied to the new aircraft delivery.

     PILOT PROJECT TO DIRECT MILITARY DEPARTMENT TO EXCHANGE BRAC LAND FOR
                             MILITARY CONSTRUCTION

        44. Senator Ensign. General Lust, Admiral Weaver, General Williams,
    General Fox, Congress provided pilot authority in 2004, directing each
    Service to enter into an agreement with a private entity to trade a
    parcel of excess property from a prior round of Base Realignment and
    Closure (BRAC) in exchange for new construction or land acquisition.
    What is the status of this initiative and will you meet the deadline of
    December 31, 2004 to complete one exchange and if not, why not?
        General Lust. The Army has selected Bellmore Logistics Activity, a
    17-acre property in Hempstead, New York, as its candidate for this
    exchange authority. The property will be offered in exchange for
    construction of a fuel truck storage facility project at Fort Drum, New
    York, estimated at $1.1 million in value. The Army is finalizing the
    disposal plan with support from the U.S. Army Corps of Engineers, New
    York District, and the General Services Administration. A notice will
    be placed in the Federal Register advising of this opportunity and
    requesting proposals. Offerors will be qualified based on their ability
    to accomplish the Fort Drum project, and a selection will be made based
    on the proposal that offers the best value to the Department. We
    anticipate providing Congress an appropriate notification in the
    November 2004 timeframe before executing the exchange.
        Admiral Weaver and General Williams. The Department of the Navy has
    identified a parcel in Novato, California for initial use of this
    authority. We have begun to develop the solicitation and contractual
    documents that will be required for this new type of agreement. Our
    experience with competitive public sale of other BRAC properties, as
    well as contractual procurements of construction projects, indicates
    that it will be difficult to complete an exchange that combines those
    two processes into a single action by December 31, 2004, due to the
    time required to properly market the property, receive and evaluate
    competing proposals, and close escrow.
        General Fox. The Air Force is actively pursuing this initiative
    with a former 247-acre Weapons Storage Area at Carswell AFB by
    completing our environmental investigation and obtaining clearances for
    unexploded ordnance areas to allow unrestricted use of the property. We
    expect the property will be environmentally ready for sale by early
    summer 2004, which will coincide with our ongoing review of several
    candidate MILCON projects that may meet criteria for a potential swap
    with BRAC land. If the private sector expresses interest in the
    proposed exchange and subsequent bids are acceptable, we will complete
    this exchange by December 31, 2004.

                            TRENDS OF MILCON FUNDING

        45. Senator Ensign. Mr. DuBois, looking back at the past 15 years
    of funding for military construction and housing programs, it is
    apparent that the annual budget request top-line for MILCON and housing
    remained relatively constant during the four prior rounds of BRAC. As a
    consequence, the significant costs of military construction and
    environmental remediation required to implement BRAC actions was funded
    by reducing the amount of military construction available to the
    Services for new mission support and recapitalization. For example, the
    percentage of authorization of appropriations requested for only
    military construction in 1987 and 1988 averaged about 65 percent of the
    total request for military construction and housing programs. This is
    about the same percentage as our current fiscal year 2005 request. Yet,
    the amount requested for military construction dipped as low as 25
    percent in 1996 and averaged about 40 percent of the total annual
    request through the four prior rounds of BRAC. This sustained low level
    of funding for military construction new missions requirements and
    recapitalization in the 1990s is a significant reason for the problems
    we face today with over 60 percent of our facilities failing to meet
    standards. Does the DOD plan to sustain from 2008 forward a level of
    military construction funding that results in a recapitalization rate
    of 67 years?
        Mr. DuBois. Yes. But let me expand on that answer with two points.
    First, achieving a 67-year recapitalization rate does not automatically
    result in a fixed level of military construction investment. The
    recapitalization rate results from a combination of investments--some
    from the military construction appropriations and some from the
    operations and maintenance appropriations and other fund sources. Major
    repair projects that recapitalize facilities can be funded in either
    the military construction or operations and maintenance accounts.
    Second, our plan to restore facilities requires that we get below a 67-
    year recapitalization rate in the near term. Once facilities readiness
    is restored, we can revert to the 67-year rate. We currently have
    funded plans in place to get below 67 years beginning in fiscal year
    2008.

        46. Senator Ensign. Mr. DuBois, what level of annual funding for
    military construction and housing programs must be sustained in order
    to achieve a recapitalization rate of 67 years AND fund a level of BRAC
    requirements annually that allow DOD to meet the BRAC requirement of
    achieving a net savings by 2011?
        Mr. DuBois. Our fiscal year 2008 program is presently funded at
    $14.3 billion to achieve these goals. However, the gross total
    requirement for military construction appropriations including family
    housing and BRAC should not be conceived as an annual level of effort.
    For example, for recapitalization of facilities the military
    construction appropriation is one important source of funding, but the
    recapitalization rate is also influenced by operations and maintenance
    appropriations, host nation funding, and working capital funds. Also,
    in addition to recapitalization, housing, and BRAC, military
    construction appropriations also provide for new acquisition of
    facilities--the so-called new footprint requirements. Increases or
    decreases in new footprint requirements and the availability of other
    funding sources will change the gross total requirement for military
    construction resources, so establishing a set level of effort for this
    one appropriation is neither prudent nor necessary.

                            INSTALLATION MANAGEMENT

        47. Senator Ensign. General Lust, now that the Installation
    Management Agency (IMA) is 2 years old, what complaints and challenges
    have you encountered with the program, and what is the Army doing to
    correct deficiencies and improve the IMA?
        General Lust. The Installation Management Agency (IMA) sought and
    received constructive comments from major Army commands regarding IMA's
    performance since its activation. It was concluded that IMA performed
    well in its first year, considering the challenges of the global war on
    terrorism and the centralization of Army installation management. It
    was also noted that IMA needed improvement in areas such as enhancing
    communication with senior mission commanders, strengthening pursuit of
    common standards for installation support services and resources,
    determining baseline requirements for funds and manpower, and setting
    the way ahead with tangible, measurable results.
        Consequently, IMA is aggressively pursuing initiatives such as
    business process redesign of management and operational functions, and
    implementing Army-developed standards for facility design and services
    provided on installations. IMA is also implementing region and agency-
    wide efficiencies generated from good ideas originating from
    installations as well as top-driven initiatives to increase the buying
    power of the base support budget.

        48. Senator Ensign. General Lust, within IMA, how are resources and
    funds allocated to installations? Are you confident that every base is
    receiving an equal share of the funding available for base operating
    support and facility sustainment?
        General Lust. In fiscal year 2004, the Installation Management
    Agency, for the first time, distributed funds directly to
    installations, eliminating intermediate commands with differing
    priorities and methods of allocation. IMA's fiscal year 2004 allocation
    to installations was based on validated requirements and Army
    priorities. Beginning in fiscal year 2005, IMA will improve its method
    of allocation by using quantifiable metrics based on standard measures.

        49. Senator Ensign. Admiral Weaver, as the Commander, Naval
    Installations (CNI), what complaints and challenges have you
    encountered with the program, and what is the Navy doing to correct
    deficiencies and improve the central management of installations?
        Admiral Weaver. Complaints and challenges have generally revolved
    around the lack of consistency in the standards for installation
    service delivery, lack of consistency in installation organization and
    processes, too many layers of organization leading to duplication and
    added cost, and the need to find savings to apply to the operational
    side of the Navy.
        In response, the Navy established a single process owner for
    installation management in the form of CNI on 29 September 2003. This
    allowed the previous eight operational and other mission commanders to
    focus on their primary core missions such as training, warfighting, and
    research and development, while also creating a core of professionals
    whose only mission is to support the warfighters and the other mission
    commands with installation support services in the most effective and
    efficient way possible. While the standing up and staffing of a new
    command is a challenge in itself, CNI has nonetheless been able to
    address these challenges in its 8 months of existence. Integrated
    process teams in each of the nine major installation core business
    areas have established consistent standards of performance and service
    for each major function that are in use today. Installation processes
    are already being consolidated at regional or CNI headquarters levels
    to eliminate duplication and overlap of such functions, generating
    savings in the process. Through use of a matrix organizational concept,
    CNI also uses experts elsewhere to perform some of the technical
    functions that CNI must perform, such as for contracting for some base
    services and materials. CNI uses the Navy Supply and Facilities
    Engineering Systems Commands for these technical functions. This
    enables CNI to avoid duplicate staffing and effort for these technical
    functions, while using expertise that already exists.
        CNI has also adopted and implemented a program centric management
    approach (vice an installation centric approach) which further
    facilitates the ``singling up'' of installation service delivery
    processes above the installation level, thereby eliminating duplication
    and overlaps. Establishment of a capabilities based resourcing process
    now enables the Navy to use models that are based on the required
    operational capabilities of each installation as determined in
    consultation with the mission commanders and then applying levels of
    installation services that are priced out and evaluated in terms of
    risks of delivery for that capability as well as savings. This
    capabilities based process enables Navy leaders to have a series of
    funding options that they evaluate based on the output or capability to
    be delivered, weighed against the risk of delivery of the services at
    various levels of service as well as the savings that could be
    generated by adopting a lower (though acceptable) level of service
    delivery. Other current CNI initiatives include standardization of more
    business processes and organizations across the entire CNI enterprise
    (for consistency and less duplication) and the implementation of a
    human capital and workforce shaping plan to attract, train and retain
    the best and right mix of people to effectively and efficiently deliver
    installation services in support of the warfighter and other mission
    commanders.

        50. Senator Ensign. Admiral Weaver, within CNI, how are resources
    and funds allocated to installations? Are you confident that every base
    is receiving an equal share of the funding available for base operating
    support and facility sustainment?
        Admiral Weaver. With the standup of CNI, the Navy now has one
    entity to turn to for BOS resource requirements. Therefore, for the
    first time, the true cost of BOS becomes evident. For the budgeting
    process, CNI instituted capabilities based budgeting (CBB). This is a
    zero-based ground-up analysis done annually which gives true visibility
    of outputs and levels of service for dollars invested. It publicizes
    what programs do, where dollars go, and what output is achieved for the
    dollars invested. It also describes in detail the risks/impacts of
    outputting at different levels of service allowing the identification
    of where resources are the most critically needed. Funds are allocated
    to the Navy regions and, in turn, the bases, based on the CBB approach,
    where they are most needed.
        This process will have long lasting benefits to the Navy. More is
    learned about what each program buys, what is essential, what is
    discretionary and what alternatives can be done in this era of
    continued efficiencies while still delivering customer requirements. An
    additional benefit from this process is the identification and
    elimination of layering and duplication by centralization and
    streamlining within CNI. The ultimate benefit from this process is that
    there is credibility and confidence in the resourcing requirements.
                                     ______

                 Questions Submitted by Senator James M. Inhofe

                          BASE REALIGNMENT AND CLOSURE

        51. Senator Inhofe. Mr. DuBois, I would like to start with a few
    questions about the report recently sent to Congress that serves as the
    certification of the need for another BRAC round. On page 47 of the
    report you have a table that shows your estimate of excess capacity by
    several categories: Administration; Depots; Industrial; Major Training
    Areas Active and Reserve; Maneuver; Schools; and Test and Evaluation/
    Labs. In the area of major training areas you use base acres and
    maneuver brigades. Do these acres include acres that cannot be used for
    training because of encroachment and because this is a projection to
    2009 and ultimately 2025?
        Mr. DuBois. No, encroachment was not considered in estimating the
    base acres in the BRAC report. The purpose of the report was to provide
    a macro-level analysis of excess capacity, as part of the analysis to
    support the Secretary's certification of the need for closure and
    realignment of additional military installations. In accordance with
    the BRAC statute, the Department of Defense will base all its
    selections on the approved selection criteria with military value as
    the primary consideration. Within the detailed analysis of BRAC 2005
    process, the Army will consider encroachment. To the extent that
    encroachment limits an installation in fulfilling its mission
    requirements, it will be factored into military value under criterion
    two ``availability and condition of land, facilities and associated
    airspace. . . .''

        52. Senator Inhofe. Mr. DuBois, do you account for continued
    encroachment at the current rate and the amount of training land will
    lose by then?
        Mr. DuBois. The rate of encroachment was not considered in the
    macro-level analysis used in the report. Within the detailed analysis
    of BRAC 2005 process, the Department will consider encroachment. To the
    extent that encroachment limits an installation such as a major
    training area to fulfill its mission requirements, it will be factored
    into military value under criterion two ``availability and condition of
    land, facilities, and associated airspace. . . .'' The BRAC 2005
    process will take into account the factor of the current encroachment
    rate in evaluating the need for training or basing spaces that support
    the 20-year force structure.

        53. Senator Inhofe. Mr. DuBois, does this account for the
    significant additional acreage needed by the Army's future units of
    action (brigades)?
        Mr. DuBois. The BRAC report provides a macro-level analysis of
    force structure and capacities, but does not specifically account for
    the additional acreage that may be needed by the Army's future units of
    actions (brigades). The BRAC 2005 process will consist of an in-depth
    analysis to incorporate the requirements of the current and projected
    force structure, including the Modular Brigades.

        54. Senator Inhofe. Mr. DuBois, why are we considering only 43
    brigades in the Army criteria when we know the Army has requested 48?
    Why are we using the lower number when prudence would dictate we use
    the higher number?
        Mr. DuBois. The footnote to the Army's capacity table on page 47 of
    the BRAC report submitted to Congress acknowledges the pending Army
    request to increase the number of brigades and states the resulting
    change in capacity. The footnote states ``The Army's goal is to
    increase the number of Active Force brigade combat teams from 33 to 43
    between now and fiscal year 2007. A determination for an additional 5
    BCTs (for a total of 48) will be made at a later time. This number will
    be reflected in the fiscal year 2006 budget submission. Such an
    increase would reduce the overall excess capacity of the Army from 29
    percent (table 1, page 3 and table 6-5, page 54) to 27 percent.''

        55. Senator Inhofe. Mr. DuBois, I have similar questions about the
    criteria used to determine excess in the test and evaluation/labs
    field. Why did you use acquisition workforce as compared to square
    feet? How is that an accurate measurement for excess purposes?
        Mr. DuBois. Similar to the Department's 1998 report to Congress on
    BRAC, the Army and Air Force compared the size of the facilities used
    for their technical activities to the number of staff performing the
    technical activities. They determined that the ratio of total technical
    facility size, in square feet, to the number of personnel performing
    these functions, represented by the size of the acquisition workforce,
    was a suitable parametric estimate for this facility category. As noted
    in the report, only a comprehensive BRAC analysis can determine the
    exact nature or location of potential excess.

        56. Senator Inhofe. Mr. DuBois, the DOD is still conducting a
    global posture review. The DOD has indicated that it will include the
    findings of this review in the BRAC process. However, it will be done
    without formally submitting the findings to Congress. How do we fix
    this problem and don't you think Congress should have the benefit of
    such a review before it is formalized as part of the process?
        Mr. DuBois. The Department has consulted with congressional defense
    committees on all aspects of the global posture review, including
    projected specific overseas changes. The Department has not yet
    completed its review; however, we will continue to be in close
    discussions with Congress on details on the overseas changes, both
    before and after the Secretary and the President make their decisions
    on such changes. The impact of these decisions on U.S. bases that may
    accommodate any forces returning from overseas will be made within the
    BRAC process and Congress will be provided this information, along with
    all the information supporting the BRAC process, after the Secretary
    provides base closure and realignment recommendations to the commission
    no later than May 16, 2005.

        57. Senator Inhofe. Mr. DuBois, during the recent public comment
    period on BRAC criteria, I submitted a suggestion that the 50/50 law
    and other statutory limitations be included as criteria. I don't think
    that the law can be ignored or violated by closing bases and then
    saying ``sorry we just don't have enough depots to meet the
    requirements anymore.'' However, the answer you published in the
    Federal Register did not adequately explain your rejection of this
    suggestion. The DOD wrote: ``it is inappropriate to include any
    statutory constraints in the selection criteria because they are too
    varied and numerous and could preclude evaluation of all installations
    equally. The absence of these requirements in the text of the criteria,
    however, should not be construed as an indication that the Department
    will ignore these or any other statutory requirements or limitations in
    making its final recommendations.'' I don't understand your answer.
    Will you make sure the final BRAC list complies with the requirements
    in sections 2464 and 2466 of title 10 or not?
        Mr. DuBois. The requirements of section 2466, as well as all other
    statutory constraints, will be carefully considered. For BRAC to be a
    truly comprehensive process and to achieve our objective in support of
    the warfighter, the process must involve all of our installations,
    including those that perform depot-level maintenance and repair. The
    Department values the contributions made by all of its installations
    and depots to our national security. As provided for by law, the
    Department will conduct the BRAC process in a way that treats all
    installations equally and fairly, making military value the primary
    consideration. The Department will also ensure it retains the
    capabilities necessary to protect our national security. As such, the
    Department will examine all of its facilities, including depot level
    maintenance and repair facilities, within this process and within all
    applicable legal requirements, including section 2466.

        58. Senator Inhofe. Mr. DuBois, do you believe that this authority
    to conduct a BRAC gives you the authority to create conditions that
    will circumvent or supercede existing statutory requirements?
        Mr. DuBois. The Department values the contributions made by all of
    its installations and depots to our national security. As provided for
    by law, the Department will conduct the BRAC process in a way that
    treats all installations equally and fairly, making military value the
    primary consideration. The Department will also ensure it retains the
    capabilities necessary to protect our national security. As such, the
    Department will examine all of its facilities, including depot-level
    maintenance and repair facilities, within this process and within all
    applicable legal requirements, including section 2466.

        59. Senator Inhofe. Mr. DuBois, I have seen several cost estimates
    for this round of BRAC. Obviously we won't know the true costs until
    after the process is complete and then even later when the true impact
    is realized. However, we never seem to take into affect the costs to
    the communities, the individuals who lose jobs are displaced,
    businesses shut down, relocated, etc. But, at least we can look
    realistically at what we do know of environmental clean-up costs and
    mission relocation. What is your estimate of the costs of this BRAC?
        Mr. DuBois. The Department has made some preliminary estimates of
    BRAC 2005 costs and savings for budget planning purposes. Based on the
    costs and savings experiences of BRAC rounds 93 and 95 (inflated to
    then year dollars and interpolated to a 20 percent reduction in plant
    replacement value), the Department estimates that total costs and
    savings would be roughly equal at the end of the 6-year implementation
    period. This would result in a cumulative net cost of about $200
    million at the end of fiscal year 2011, followed by annual recurring
    savings of approximately $8 billion. The experience of previous BRAC
    rounds suggests that each military department will achieve annual net
    savings beginning not later than fiscal year 2011. Of course, the
    actual costs and savings from BRAC 2005 actions will depend on the
    specific recommendations adopted.

        60. Senator Inhofe. Mr. DuBois, can we afford those costs at this
    time when the Services are struggling with the costs of this war?
        Mr. DuBois. We cannot afford to stop the BRAC process--we must not
    waste the opportunity. It is true that previous rounds suffered because
    the funding required for implementation competed with weapons systems.
    This competition created a perverse dynamic that limited BRAC's
    potential. For BRAC 2005, the Department is exercising extraordinary
    programmatic oversight to minimize this counter-productive funding
    dynamic. Previous BRAC experience demonstrates that savings from BRAC
    actions begin to accrue immediately, and these savings will be used to
    fund the implementation costs.

        61. Senator Inhofe. Mr. DuBois, the Army just submitted a UFR list
    of $6 billion. On that list were up armored Humvees, body armor, and
    other critically needed force protection needs. If we have Services
    forced to put force protection needs on UFR lists during a war, how can
    we pay $15 billion to shut down bases?
        Mr. DuBois. Previous BRAC experience demonstrates that savings from
    BRAC actions begin to accrue immediately, and these savings will be
    used to fund the implementation costs.

        62. Senator Inhofe. Mr. DuBois, in MG Lust's statement he said
    ``more troops are coming and going on our installations than in any era
    since World War II.'' As we train and deploy these active forces, and
    train, mobilize, and demobilize these Reserve Forces, how do we do all
    this and add the turmoil of BRAC on top of that?
        Mr. DuBois. Fighting the global war on terrorism creates
    significant turmoil for our fighting forces and their families. But the
    Department simply cannot ignore the benefits that a BRAC process offers
    because of this increased level of activity. We cannot afford to stop
    the BRAC process--we must not waste the opportunity to reconfigure our
    current infrastructure into one in which operational capacity maximizes
    both warfighting capability and efficiency. Retaining excess base
    capacity diverts scarce resources away from funding critical military
    capability. I would point out that we implemented portions of BRAC 88
    and conducted the BRAC 91 process during Operations Desert Shield and
    Desert Storm.

        63. Senator Inhofe. Mr. DuBois, how do you see the implementation
    of BRAC while we have forces moving in and out of the country at this
    record pace? What are the costs associated with this added turmoil?
        Mr. DuBois. The Department will apply the lessons learned from
    prior BRAC rounds to ensure the implementation phase proceeds as
    efficiently and effectively as possible, mirroring the excellent track
    record of the past rounds. The costs associated with this heightened
    activity, such as determining beddown requirements for overseas forces
    returning stateside, will be addressed in the BRAC costs and savings
    analyses as those specifics become known.

        64. Senator Inhofe. Mr. DuBois, one of the criticisms in the past
    for BRAC was the slow pace of actually moving things to realize the
    cost savings. Won't all this turmoil slow the process down even
    further?
        Mr. DuBois. I can assure you that savings from prior BRAC rounds
    are real and significant a position shared by both the General
    Accounting Office and Congressional Budget Office. The GAO released a
    report on April 5, 2002, stating: ``In addition to our analyses,
    studies by other Federal agencies, such as CBO, the DOD Inspector
    General, and the Army Audit Agency, have shown that BRAC savings are
    real and substantial and are related to cost reductions in key
    operational areas as a result of BRAC actions.'' This is not an
    isolated finding. The report went on to indicate that ``Our analyses
    have consistently affirmed that the net savings for the four closure
    rounds are substantial and can best be depicted as cost avoidances in
    specific operational areas.'' Through the end of the 1990-2001 BRAC
    implementation period, the Department estimates the four BRAC rounds
    generated savings of approximately $17 billion and that annual
    recurring savings approximate $7 billion. These estimates include
    environmental restoration expenses.

        65. Senator Inhofe. Mr. DuBois, as part of the DOD's Unified
    Command Plan, the Army, Navy, Air Force, and Marine Corps have been
    tasked with learning how to better integrate their warfighting
    capabilities and overall interoperability. In an effort to streamline
    budgets and to get the most use out of our military bases, has any
    consideration been made to creating joint use bases that will collocate
    several Services together allowing for rapid deployment of joint forces
    and the sharing of MILCON expenses?
        Mr. DuBois. Yes, the Department is giving much consideration for
    doing more in the joint arena. In his November 15, 2002, memorandum
    ``Transformation Through Base Realignment and Closure,'' the Secretary
    established the goals and priorities for the 2005 BRAC round. A primary
    objective, in addition to realigning our base structure to meet our
    post-cold war force structure, is to examine and implement
    opportunities for greater jointness. To reinforce the idea that we
    should be looking across traditional lines to examine the potential for
    jointness, the Secretary established an internal BRAC 2005
    decisionmaking body that is joint at every level. The Infrastructure
    Executive Council (IEC), chaired by the Deputy Secretary, and composed
    of the Secretaries of the Military Departments and their Service
    Chiefs, the Chairman of the Joint Chiefs of Staff and Under Secretary
    of Defense (Acquisition, Technology and Logistics) (USD(AT&L)), is the
    policy making and oversight body for the entire BRAC 2005 process. The
    subordinate Infrastructure Steering Group (ISG), chaired by the
    USD(AT&L) and composed of the Vice Chairman of the Joint Chiefs of
    Staff, the Military Department Assistant Secretaries for Installations
    and Environment, the Service Vice Chiefs, and the Deputy Under
    Secretary of Defense (Installations and Environment) (DUSD(I&E)),
    oversees joint cross-service analyses of common business oriented
    functions and ensures the integration of that process with the military
    department and defense agency specific analyses of all other functions.
    Opportunities for increased joint operations through basing actions
    will be aggressively pursued within BRAC 2005.
                                     ______

                  Questions Submitted by Senator Wayne Allard

                             ENVIRONMENTAL STUDIES

        66. Senator Allard. General Fox, in 1993 the Air Force, the EPA,
    and the State of Colorado conducted an environmental baseline study for
    Lowry Air Force Base. While the survey identified a former hospital at
    the site, the survey did not disclose the fact that the Air Force had
    buried debris, including asbestos, across the Northwest neighborhood of
    the Air Force base. Why wasn't information about the buried asbestos
    disclosed by the Air Force in 1993?
        General Fox. The Air Force did not bury asbestos in the Lowry
    Northwest Neighborhood. During past building demolition, some debris
    remained in place, but to the best of our knowledge, the Air Force did
    not intentionally dispose of asbestos construction waste.
    Unfortunately, the Air Force was unaware of the subsurface items
    containing asbestos at the time of the 1993 survey.
        Had we known of remaining construction debris, we would have
    disclosed this information. From the information that was available, it
    wasn't known that anything like that had happened.
        The Air Force, EPA, and State regulators, working together as the
    BRAC Cleanup Team (BCT), have conducted numerous environmental studies
    and reviews to identify any environmental contamination or conditions
    affecting Lowry. These efforts included the 1993 Environmental Baseline
    Survey (EBS), known as the EBS Phase I, which was supplemented in 1994.
    The BCT was also involved in studies and document reviews conducted
    under a facility assessment in 1996, an EBS Phase II completed in 1999,
    the initiation of an EBS Phase III in 2002, a reevaluation of the
    base's operational history in 2002, and an all-sites review (now being
    addressed under a RCRA facility assessment ordered by the state)
    initiated in May 2003. The completed studies and documents were made
    available to the Lowry Redevelopment Authority (LRA) for their review,
    as well. Despite these efforts by the BCT, locations containing debris
    were not identified or raised as a concern by any of the BCT members.
        The 1993 EBS mentioned possible demolition debris near the former
    airfield runway, and four rubble sites at Lowry that might contain
    demolition debris. The EBS described a 1973 aerial photo indicating
    possible stockpiling of earth, residual concrete, and building rubble
    from the demolition of the former base hospital near the northern end
    of the former north-south airfield runway. The EBS also briefly
    described a 1983 aerial photo that indicated the northern end of the
    runway was then clear of the stockpiled material, and that possible
    grading or removal of the material to other base locations may have
    occurred since 1973. The 1983 photo showed that several former
    structures near the NWN appeared to have been removed by demolition.
    The EBS states that a former Lowry employee recalled that the
    demolition debris was moved to a solid waste site on Lowry, away from
    the NWN.

        67. Senator Allard. General Fox, it is my understanding that this
    same baseline survey, which did not reveal asbestos in the soil, also
    failed to include ``dummy'' munitions later found on base, failed to
    include eight underground storage tanks filled with hazardous waste
    left on base, and did not include 20mm high explosive fragments from
    projectiles found at Lowry. Knowing this, do you feel the Air Force has
    done an adequate job of characterizing the extent of environmental
    contamination at Lowry?
        General Fox. The Air Force, in conjunction with EPA and the State,
    has done and continues to do more than an adequate job of
    characterizing the extent of environmental contamination at Lowry.
    However, the Air Force always seeks to do better, especially when
    deficiencies are discovered which reveal that the painstaking process
    undertaken by the BCT to identify unknown sites did not always succeed.
    Lowry has been a challenging environmental effort, partially due to
    unknown environmental conditions caused by the constant change in the
    numerous military missions and tenants from 1937 until the base closed
    in 1994. We are continuing our due diligence efforts to increase the
    possibility that other potentially contaminated sites are located and
    receive an appropriate response.
        The ``dummy'' munitions that were found were brass shell casings
    that contained no explosive charge or powder and are similar to the
    small shells occasionally kept by military members as souvenirs. They
    were not hazardous.
        The projectile fragments referred to were target practice fragments
    found by the Air Force during its remedial investigation of the base's
    firing range berm, where one would reasonably expect to find such
    fragments as a result of target practice. An ordnance team from Fort
    Carson stated the fragments were not from high explosive projectiles.
        Also, of the eight underground storage tanks referred to, three
    contained hazardous waste, but all were found by the Air Force during
    environmental cleanup, as part of the Air Force's ongoing investigative
    efforts. Of course, the regulators and the redevelopers were kept
    apprised of these Air Force discoveries. The Air Force removed the
    tanks in consultation with the State regulators, who agreed with the
    Air Force's work and disposal plans. When the tanks were discovered and
    removed, the Air Force still owned the property where the tanks were
    located.

        68. Senator Allard. General Fox, the Air Force also designated in
    the baseline survey that the Northwest Neighborhood was a Category I
    site, which means that there was no evidence of hazardous materials and
    no further investigation of that site was necessary. Given the
    discovery of asbestos across the site, would the Air Force still give
    the site a Category I designation?
        General Fox. The Air Force did not designate the entire Northwest
    Neighborhood as a ``Category I site.'' Portions of this property, which
    encompasses over 90 acres, were given other DOD Environmental Condition
    categories. For purposes of environmental due diligence, assigning DOD
    environmental condition categories, and conducting environmental
    restoration, the Air Force did not refer to or consider this entire
    property as a single ``site.''
        Most, though not all, of the property in the Northwest Neighborhood
    (NWN) was considered DOD environmental condition category I at property
    transfer. Category I property is property where no release or disposal
    of hazardous substances or petroleum products has occurred (including
    no migration of these substances from adjacent areas). Property that
    receives a DOD environmental condition category II through IV can also
    be transferred by deed, and several properties within the NWN fell
    within those categories.
        Had we the information then that we have now, the Air Force would
    not have designated as category I the former hospital site. If the
    amount of health risk did not warrant a CERCLA response, that portion
    of the property may have qualified as a different category that would
    have still allowed the Air Force to transfer the property by deed. If
    the health risk warranted a CERCLA response, then those portions of the
    property would have been a different category that does not allow
    transfer by deed until the necessary CERCLA responses are taken.

        69. Senator Allard. General Fox, doesn't this discovery make the
    Air Force liable for cleaning up the site?
        General Fox. The issue of liability for environmental cleanup can
    be complex, depending on the facts and circumstances, and agreements
    entered into by the parties. It is impossible to generalize. The
    circumstances vary from location to location. The Air Force and the
    Department of Justice are currently investigating and analyzing facts
    and circumstances surrounding the transfer and development of the
    property within the NWN at the former Lowry AFB and the subsequent
    asbestos cleanup activities. This investigation and analysis is guided
    by current CERCLA case law and precedent. No decision has been made by
    the Federal Government as to the liability of the various parties
    involved at this time. The Federal Government, and specifically the Air
    Force, will pay whatever portion of the liability it is responsible for
    pursuant to law.
        The Air Force is required by Federal law to promise future property
    owners that it will perform whatever remedial action is necessary under
    Federal law to protect human health and the environment. Necessary
    remedial actions are determined in accordance with Federal procedures
    established under CERCLA. The Air Force is conducting a CERCLA
    investigation of what remedial actions are necessary, if any, for the
    property in the NWN that it still owns. The Air Force is also willing
    to conduct such an investigation for the property that it has conveyed.
    This, of course, is somewhat complicated because of actions by others
    on such property. What reimbursement the Federal Government is
    obligated to make in these circumstances is what is under investigation
    by the Air Force and the Department of Justice.

        70. Senator Allard. General Fox, in 1995 the Air Force and the
    Lowry Redevelopment Authority (LRA) signed a land conveyance agreement.
    The agreement included a provision that specifically states some
    buildings and equipment may contain asbestos and that the LRA would be
    responsible for the cleanup of these facilities. However, neither this
    provision nor any other provision of the land conveyance addresses
    asbestos in soils. Have you read the conveyance? If so, do you agree
    that conveyance does not state anything about asbestos in soils?
        General Fox. I have not read the agreement. Other Air Force
    personnel have read the entire agreement. The conveyance agreement and
    its provisions are among a multitude of pertinent facts and
    circumstances being considered by Air Force and Department of Justice
    lawyers.

        71. Senator Allard. General Fox, the conveyance specifically states
    that the LRA is not liable for the Air Force's use of toxic and
    hazardous wastes or materials of any portion of Lowry Air Force Base.
    Do you consider asbestos in soils to be a hazardous material?
        General Fox. The Air Force lawyers do not agree and are conferring
    with the Department of Justice as to its reading of the contractual
    provisions contained in the Economic Development Conveyance (EDC)
    agreement.
        Several provisions have been brought to my attention that pertain
    to this issue. The EDC agreement executed in June 1995, as amended by
    EDC Amendment No.3 in December 1999, contains two provisions regarding
    asbestos on the EDC ``Premises.'' EDC Premises is defined as the entire
    EDC property and not limited to improvements or structures on the
    property.
        First, EDC provision no. 9 warns or informs the LRA that:

             The EDC Premises has improvements that may contain
            asbestos-containing material (ACM)
             The LRA should inspect the premises for presence and
            condition of ACM prior to applying for the EDC or assume the
            risk that ACM may be present
             The Air Force makes no express or implied warranties
            about the presence or condition of asbestos on the EDC
            premises, and the LRA's failure to inspect or be fully informed
            about the condition of the EDC premises will not provide
            grounds for any claim or demand for adjustment or withdrawal by
            the LRA from the EDC agreement
             Information about the EDC premises contained in the
            EDC is based on the best information available to the Air
            Force, but that any omission of information by the Air Force
            does not excuse nonperformance of the EDC or any claim by the
            LRA against the Air Force, and
             The Air Force assumes no liability for damages for
            personal injury, illness, disability, or death to anyone for
            the purchase, transportation, removal, handling, use,
            disposition, or another activity causing or leading to exposure
            to the asbestos on the EDC premises

        Second, EDC provision no. 23, which took effect for all EDC
    Premises in December 1999 as a result of EDC amendment no. 3, provides
    that:

             The LRA assumes responsibility for compliance with all
            laws and regulations related to the presence, containment,
            release, abatement, removal, handling, transportation, and
            disposal of ACM on the EDC premises
             The LRA releases the Air Force of all liability
            associated with ACM on the EDC premises, and agrees to
            indemnify and defend the Air Force against, and hold the Air
            Force harmless from, all claims, suits, demands, actions,
            liabilities, judgments, and costs accruing for death, personal
            injury, and property damage related to any activities
            associated with ACM on the EDC premises

        I mention these provisions to indicate that the situation is more
    complex than it might seem at first sight. This is why we are currently
    engaged in an in-depth analysis of this matter. Asbestos in soil may be
    hazardous, depending on the asbestos type (e.g. chrysotile or
    amphibole), form (e.g., capable of being inhaled and friable or non-
    friable), amount, likelihood of exposure, and length of exposure, among
    other factors. A risk assessment is the method used to determine under
    CERCLA whether asbestos in soil at any given site constitutes a risk to
    human health that warrants remediation. In Colorado, soil containing up
    to 1 percent amount of asbestos can be disposed of as nonhazardous
    solid material in accordance with 6 Code of Colorado Regulations
    sections 1.2 and 5.2.

        72. Senator Allard. General Fox, in section 13.3 of the land
    conveyance, the Air Force recognizes and acknowledges its
    responsibilities under the Comprehensive Environmental Response,
    Compensation, and Liability Act. From my understanding, this provision
    holds the Air Force liable for the removal of hazardous materials
    released during its operations. Was asbestos deposited in soils of the
    Northwest neighborhood of Lowry Air Force Base by the Air Force during
    its operations? If so, under section 13.3 of the land conveyance, why
    isn't the Air Force liable for remediating the hazardous materials in
    the soils at Lowry?
        General Fox. Past operations by the Air Force appears to be one of
    several possible sources of the asbestos contained in soil in the
    Northwest Neighborhood (NWN) at Lowry. Demolition debris, some of which
    contained asbestos, remained in place at the site of demolished
    buildings. Additionally, the Air Force does not remove underground
    utility pipes from base closure property. Lowry followed standard
    building demolition procedures used by industry when the demolition
    occurred. Although the bulk of the demolished building materials were
    removed from the site and properly disposed of, incidental amounts of
    asbestos-containing material likely would have remained at the site.
        Other potential sources of asbestos in soil within the NWN include
    importation of soil into the area by the LRA and builders from other
    portions of the base during redevelopment for use as fill and grading
    material. Additionally, the LRA conducted some demolition of former Air
    Force buildings and structures, including excavation or removal of
    underground utility pipes containing or made of asbestos material, and
    it is not currently known to what extent these activities may have
    contributed to the fragments of asbestos being found in or on the soil.
    The LRA and many of its builders were aware that the Air Force did not
    remove the underground utility lines. It is the developer's
    responsibility to ensure the proper removal of such pipes during
    construction activities. Numerous fragments of asbestos, which the
    State has described as ``discoveries'' of asbestos, have been found on
    the surface of soils in re-graded areas, which indicate the asbestos
    fragments appeared at least partially as a result of relatively recent
    redevelopment activities conducted by the LRA and builders.
        In a letter dated August 28, 2003, the Assistant Secretary of the
    Air Force for Installations, Environment, and Logistics provided much
    of this information to members of the Colorado congressional delegation
    and to the Governor.
        See response to first question above. The Air Force and the
    Department of Justice are currently investigating the facts and
    circumstances, including the provisions in the EDC agreement, regarding
    the transfer and development of the property within the Northwest
    Neighborhood at the former Lowry AFB and the subsequent asbestos
    cleanup activities performed at the behest of the State. No decision
    has been made by the Federal Government as to the liability of the
    various parties involved at this time.

        73. Senator Allard. General Fox, the State of Colorado determined
    in its Final Response Plan that the presence of asbestos at the site
    was a threat to public health. Specifically, the State of Colorado said
    that a risk of 1 excess cancer in 1,000,000 was sufficient for
    remediation. Does the Air Force agree with this standard? If not, why
    then did the Air Force agree with the State of Colorado to clean up the
    commissary site at Buckley Air Force Base, which had a similar problem,
    to this same standard?
        General Fox. There is not a standard in Colorado directly
    applicable to this situation. The State has issued advisories and
    orders concerning the steps it wants taken, but it has not promulgated
    any generally applicable standard for sampling or remediating asbestos
    in soil, nor has it formally adopted the risk limit described above.
    The State made a risk management decision that the presence of any
    detectable asbestos at the site posed an unacceptable risk. It did not
    conduct a site-specific risk assessment to determine what level of risk
    is present at the site prior to issuing response requirements to the
    LRA, builders, and the Air Force.
        Federal agencies conduct cleanup activities based upon an
    assessment, conducted in accordance with applicable law, of the
    potential risk of a situation to human health and the environment.
    Lowering risk to 1 excess cancer in 1,000,000 may be a goal, but
    depending upon the specific circumstances, other risk goals may be more
    appropriate. For instance, U.S. EPA allows 1 excess cancer in 10,000 as
    an acceptable risk for some CERCLA response actions. Analysis by the
    Air Force under the applicable procedures is underway, and an Initial
    Risk Assessment was published by the Air Force last month. Though
    limited to an examination of the retained Air Force property, one of
    its primary conclusions was that the potential health risk on the Air
    Force's property does not require soil removal at the resent time. This
    is significantly different from what the State has concluded.
        As explained above, there is no applicable standard. It is not
    correct that Buckley Air Force Base agreed to follow the same standards
    being imposed at Lowry, either for its commissary site or for its
    construction of the fitness center facility. Buckley AFB did agree to
    excavate surface soils down to the depth of native soil. Sampling was
    done for the purpose of confirming that the native soil level had, in
    fact, been reached during the excavation process. Buckley is now under
    a Colorado Department of Public Health Environment (CDPHE) compliance
    order, citing allegedly applicable state solid waste regulations, to
    remove stockpiled soils and develop a response plan to address other
    soils disturbed by construction and development. It is the State's
    position that asbestos is a waste material and the deposition of soil
    with any concentration of asbestos constitutes illegal disposal. The
    Air Force is appealing this order, and action which clearly indicates
    that the Air Force and the State have not yet reached agreement on the
    asbestos cleanup at Buckley.

        74. Senator Allard. General Fox, before construction can continue,
    the State of Colorado has mandated that the site be cleared up to a
    level of non-detection for asbestos. According to the State of Colorado
    and the LRA, the Air Force was inactive during the discussions and did
    not voice objections to the standards of remediation that were being
    developed at the time. Did the Air Force participate in discussions
    during which standards for the remediation of asbestos at Lowry were
    being developed?
        General Fox. The Air Force participated in discussions, and we did
    object. The Air Force worked extensively with the LRA and builders
    during the time that the LRA, builders, and the Air Force were directed
    by CDPHE in its Compliance Advisories to develop sampling and response
    plans. Air Force personnel and contractors participated in every joint
    LRA/builder asbestos workgroup meeting at which the Air Force was
    invited to attend. At those meetings we provided or offered technical
    support and assistance. This period of time ran from about 1 May 2003
    to early July 2003. The Air Force contractor personnel alone devoted
    over 120 hours of technical support with their participation in LRA/
    builder teleconferences and reviewing and commenting on sampling plans
    directly related to the LRA and builders' efforts. The Air Force
    technical staff devoted numerous additional hours negotiating with the
    state on indoor air sampling requirements and conducting air sampling
    for the City of Denver's Child Care Center in the Northwest
    Neighborhood.
        The Air Force spent many hours working with the LRA's attorney to
    negotiate a funding arrangement to cover certain prospective sampling
    and remediation costs. The Air Force offered $1 million for fiscal year
    2003, and also offered the LRA the opportunity to provide information
    to the Air Force to justify expanding the geographic scope of the
    agreement. No legal claims would have been waived to accept this
    funding. The LRA rejected this offer.
        Additionally, the Air Force fully supported a proposal developed by
    the LRA and builders in a document titled ``Strategic Risk Management
    in Lowry's Northwest Neighborhood, Denver, CO'', dated June 17, 2003,
    in which the LRA and builders proposed to the State an alternative risk
    management approach for responding to asbestos in soil in a manner
    similar to that traditionally used by U.S. EPA. (The method imposed by
    the State is to require soil removal whenever any amount of asbestos is
    detected in soil, however slight.) The Air Force participated in
    numerous meetings with the state in June and July 2003 about
    remediation requirements and where the ``Strategic Risk Management''
    proposal was specifically discussed with the State regulators. In
    addition, the Air Force explicitly told the LRA and the builders that
    their acceptance of the State's requirements would pose problems for
    recovering costs from the U.S. for unnecessary response efforts.
        On more than one occasion, the Air Force, LRA, and builders asked
    the State to provide a copy of its risk assessment or study that the
    State said supported its approach. After failing to get a copy from the
    State, the Air Force informed the State on August 28, 2003 that it
    would initiate a CERCLA response process, including a risk assessment,
    for the remaining property in the Northwest Neighborhood still owned by
    the Air Force. The Air Force released its initial health risk
    assessment in March 2004 and will release the second interim report in
    July 2004. The final health risk assessment report will be issued in
    December 2004.

        75. Senator Allard. General Fox, from your understanding, did the
    Air Force object to the potential risk to exposure or to the standards
    of remediation being developed at these meetings?
        General Fox. During the May 1 to early July 2003 time explained
    above, the Air Force voiced concerns, by teleconference and in person,
    at meetings held with the State regulators, LRA, and builders, about
    the sampling and cleanup requirements the State contemplated imposing
    on all parties. Our counsel specifically raised a concern during a
    meeting attended by the State regulators about how the State regulators
    were trying to interpret their air quality regulation to impose a soil
    standard that required remediation of any detectable levels of
    asbestos. This same concern was voiced by the LRA and builders on
    several occasions, and is reflected in their ``Strategic Risk
    Management in Lowry's Northwest Neighborhood, Denver, CO'' paper
    presented to the State regulators.

        76. Senator Allard. General Fox, given our discussions, is the Air
    Force liable for remediation of asbestos in soils at Lowry?
        General Fox. The Air Force and the Department of Justice are
    currently investigating and analyzing the facts and circumstances
    surrounding the transfer and development of the property within the
    Northwest Neighborhood at the former Lowry AFB and the subsequent
    asbestos cleanup activities. This investigation and analysis is guided
    by current CERCLA case law and precedent. No decision has been made by
    the Federal Government as to the liability of the various parties
    involved at this time.
                                     ______

                Quiestions Submitted by Senator Daniel K. Akaka

                  PRESIDENTIAL HELICOPTER REPLACEMENT PROGRAM

        77. Senator Akaka. Admiral Weaver, a few days ago the Department
    announced a delay in the schedule for the presidential helicopter
    replacement program known as the VXX. The 2005 budget includes
    significant military construction funding that was geared to the
    original time line. What impact does this delay have on your ability or
    requirement to fund this military construction in 2005? Is all of this
    funding still needed in 2005?
        Admiral Weaver. The Navy included $106 million for VXX facilities
    in the fiscal year 2005 budget request in order to meet the planned
    arrival of the first VXX aircraft by November 2006. Although the Navy
    announced a delay in the SDD contract award, no significant delay is
    anticipated in the arrival of the first aircraft. The Navy is using the
    additional time made available by the delay in the SDD contract to more
    fully investigate the design, performance, cost and tradeoff
    opportunities with both offers, thus minimizing the need to delay the
    arrival date of the first VXX aircraft. In addition, the Navy used a
    fast track 35-month versus a more customary 55-month construction
    schedule to meet the November 2006 planned arrival of VXX aircraft.
    Thus, VXX facilities are still needed in fiscal year 2005, even if the
    SDD contract delays the arrival of the first aircraft.
        All funds are still required in fiscal year 2005. If these
    facilities are not constructed, there will be an increased risk of
    failing to meet the initial operating capability date as directed by
    the White House.

                     MILITARY CONSTRUCTION AT FORT STEWART

        78. Senator Akaka. General Lust, this week the committee received a
    notification from the Army invoking an emergency authority to begin
    preparation to create new facilities to house an extra brigade at Fort
    Stewart Georgia as the first example of the Chief of Staff's proposal
    to change the structure of our combat divisions. While I have been a
    strong supporter of Army transformation, this proposal raises some
    questions. This initial military construction proposal we received will
    require additional follow-on funding requests we have not yet seen.
    What is the total cost of this proposal at Fort Stewart?
        General Lust. We are in the process of determining what new
    construction will be required to support the new unit of action (UA)
    coming to Fort Stewart as part of the transformation process. We
    continue to further define all needed facility requirements with
    detailed cost estimates to provide facilities for the new UA.

        79. Senator Akaka. General Lust, when and how will the balance of
    costs for the project at Fort Stewart be funded?
        General Lust. We are still determining the specific facility
    requirements for the Fort Stewart project. The permanent facilities
    will be funded in the Military Construction, Army (MCA) program. We are
    planning to program MCA projects to replace the emergency relocatable
    facilities being erected this summer with permanent buildings over
    several years beginning in the earliest possible MCA program.

        80. Senator Akaka. General Lust, how confident is the Army that
    these facilities can be in place in time to adequately set up and train
    forces under this new structure before they are sent back to Iraq late
    this year?
        General Lust. The plan is to have the first facilities in place by
    early July 2004. The entire emergency relocatable project is expected
    to be finished near the end of this summer to coincide with the full
    staffing of the new UA. We are confident we can meet this schedule with
    expeditious approval of the necessary reprogramming action to allow for
    an early May construction contract award.

                     READINESS AND ENVIRONMENTAL PROTECTION

        81. Senator Akaka. Mr. DuBois, the 2005 budget requests $20 million
    for the Readiness and Environmental Protection Initiative. Does the DOD
    envision the use of these funds for both the purchase of land that DOD
    would own as well as for the purchase of easements without actual DOD
    ownership of the land?
        Mr. DuBois. This funding supports and is consistent with the
    Administration's Readiness and Range Preservation Initiative,
    specifically, 10 U.S.C. 2684a enacted in section 2811 of the National
    Defense Authorization Act of 2003. With these funds, the military
    departments will have greater flexibility to enter into cooperative
    agreements with private conservation organizations or state and local
    governments to cost-share the acquisition of easements to preserve
    high-value habitat and limit incompatible development in the vicinity
    of military installations.

        82. Senator Akaka. Mr. DuBois, would this $20 million defense-wide
    fund be the only funding available to the Services for such purchases,
    or would they also be permitted to use their own funds?
        Mr. DuBois. Under 10 U.S.C. 2684a, enacted by section 2811 of the
    National Defense Authorization Act of 2004, the military departments
    are authorized to use their own funds to enter into cooperative
    agreements with private conservation organizations or State and local
    governments to cost-share for the acquisition of property interests.

        83. Senator Akaka. Mr. DuBois, does the DOD still require advance
    approval by the Office of the Secretary of Defense before the military
    departments may acquire more than 1,000 acres of land, or any land
    worth over $1 million, or are you giving the Services more flexibility
    to execute such arrangements where they see opportunities to prevent or
    mitigate future encroachment problems by acquiring buffer zones?
        Mr. DuBois. Yes, DOD still requires advance approval for any major
    acquisition of real property,  i.e., more than 1,000 acres of land, or
    any land worth over $1 million. For those acquisitions outside of the
    Washington, DC, area the approval authority is the Under Secretary of
    Defense (Acquisition, Technology, and Logistics). For acquisitions
    within the Washington, DC area, the Secretary or Deputy Secretary must
    first approve the acquisition.

                         DRINKING WATER AT CAMP LEJEUNE

        84. Senator Akaka. Mr. DuBois, 23 years ago, a military engineer
    assigned to test the drinking water at Camp Lejeune, North Carolina,
    wrote: ``Water highly contaminated with . . . chlorinated hydrocarbons
    (solvents)!'' It took 2 years for the Marine Corps to confirm these
    findings and another 3 years after that before the contaminated wells
    were shut down. The Marine Corps has informed us that there was no
    regulatory standard in place in the early 1980s for the specific
    contaminants at issue and urged us not to impose today's standards on
    them using 20-20 hindsight. I don't want to look backward at the events
    at Camp Lejeune, I want to look forward. In particular, I want to look
    at the issue of perchlorate. Right now, we know we have perchlorate in
    the drinking water at a number of our military bases and surrounding
    communities. As was the case with tetrachloroethylene (PCE) and
    trichloroethylene (TCE) 20 years ago, we don't have any enforceable
    regulatory standards for perchlorate today. My concern is that DOD's
    position appears to be that it will wait for regulatory standards
    before it takes any action to address perchlorate problems. Don't we
    risk repeating the problems we had with Camp Lejeune if we wait for the
    regulatory system to catch up before we address problems that we know
    we have today?
        Mr. DuBois. Before I answer your question, I would like to briefly
    address the very complex issue at Camp Lejeune. While it is true that
    there were no drinking water standards for the volatile organic
    compounds that impacted the water at Camp Lejeune, and that the wells
    were shut down prior to those standards being implemented, questions
    remain about the reasonableness of decisionmaking leading to the
    closure of the affected wells. To help the Marine Corps address this
    issue, General Hagee chartered a panel on March 18, 2004, to conduct an
    independent review of the facts surrounding the decisions made
    following the 1980 discovery of volatile organic compounds in the
    drinking water at Camp Lejeune. The panel is expected to report their
    findings by October 2004.
        With that being said, the Department's efforts to identify and
    address, where appropriate, perchlorate reflects the Department's
    commitment to respond to any public health threat in a manner
    commensurate with the identified threat and based on the best available
    scientific understanding of the threat. The Department initiated and
    supports significant steps to help identify the threat posed by
    perchlorate including funding, with other Federal agencies, an
    independent assessment by the National Academy of Sciences focusing on
    the science of perchlorate as the basis for the formulation of a
    science-based regulatory standard. The Department continues to invest
    in the development of new technologies to remediate existing
    perchlorate contamination and to develop substitutes for perchlorate
    use.

        85. Senator Akaka. Mr. DuBois, what actions are you taking now to
    address risks to human health from perchlorate contamination at
    military facilities and surrounding communities?
        Mr. DuBois. The Department is committed to using the best available
    science to inform public policies and decisions. DOD believes that the
    review undertaken by the National Academy of Science on health risks
    associated with low levels of perchlorate in drinking water, sponsored
    by DOD, EPA, National Aeronautics and Space Administration (NASA), and
    Department of Energy (DOE) is a clear indication of that commitment. In
    the interim, the Department has undertaken an aggressive environmental
    sampling program requiring the services to sample for perchlorate
    anywhere that there is a reasonable expectation that perchlorate may
    exist and there is a pathway to a human receptor. The Department is
    also researching and demonstrating perchlorate treatment technologies
    at our installations. These efforts will help the Department plan,
    program, and budget for future cleanup requirements once the risks have
    been defined and a standard is promulgated for perchlorate.

                       OPERATION NOBLE EAGLE AIR DEFENSE

        86. Senator Akaka. General Fox, the Air Force is currently using 16
    bases to conduct the air superiority defense mission over the United
    States as part of Operation Noble Eagle. The 2005 budget contains
    military construction funding to upgrade facilities at some of these
    bases to accommodate this mission. However, at other bases, funding is
    not yet programmed pending a decision on whether or not this mission
    requirement is likely to persist beyond a 5-year period. Who will make
    this requirements decision, and when?
        General Fox. The decision to upgrade facilities at some of the 16
    Operation Noble Eagle air defense operating locations was based upon
    recommendations of site survey teams comprised of Air Combat Command,
    Air National Guard and Air Force Reserve representatives. These teams
    performed extensive reviews in response to a HQ USAF Program Action
    Directive published following the Commander, North American Aerospace
    Defense Command (NORAD) decision in December 2003 to upgrade the Air
    Sovereignty Alert mission from a ``contingency'' to a steady state
    alert mission for the foreseeable future.''
        Any decision to discontinue this mission requirement resides with
    NORAD.

        87. Senator Akaka. General Fox, why are military construction
    dollars being devoted to some bases and not to others if no decision
    has yet been made on whether or not the combat air patrol air
    superiority mission is a long-term requirement?
        General Fox. The decision to upgrade facilities at some of the 16
    Operation Noble Eagle air defense operating locations was based upon
    recommendations of site survey teams comprised of Air Combat Command,
    Air National Guard, and Air Force Reserve representatives. These teams
    performed extensive reviews in response to a HQ USAF Program Action
    Directive published following the Commander, NORAD decision in December
    2003 to upgrade the Air Sovereignty Alert mission from a
    ``contingency'' to a ``steady state alert mission for the foreseeable
    future.'' The specific locations chosen to receive military
    construction projects were based upon a basing template created by Air
    Combat Command for all air sovereignty alert bases. Construction
    recommendations dealt mainly with upgrading taxiways, parking aprons
    and crew facilities to meet the minimum NORAD requirements for the
    mission.

                    MILITARY CONSTRUCTION FOR KC-767 HANGARS

        88. Senator Akaka. General Fox, it is my understanding that if the
    Air Force does proceed to lease or purchase 100 Boeing 767 tanker
    aircraft, approximately $600 million in military construction funding
    would be required, because these aircraft will not fit in the hangars
    used for our current fleet of tankers. Is there any military
    construction funding in the current Future Years Defense Program to
    support a tanker replacement program?
        General Fox. The Department is committed to the recapitalization of
    our aerial tanker fleet. The Department will make a decision on whether
    to continue with the KC-767 procurement effort after receiving results
    from the various assessments and investigations. The Air Force has
    MILCON funding programmed in the Future Years Defense Plan to support a
    KC-135 Tanker Replacement program. Should the KC-767 Lease/Buy proposal
    be approved, MILCON funding from the Tanker Replacement program would
    be applied to the associated MILCON requirements.

        89. Senator Akaka. General Fox, how much new military construction
    would be required to bed down 100 new tanker aircraft?
        General Fox. The Department is committed to the recapitalization of
    our aerial tanker fleet. Should the KC-767 Lease/Buy proposal be
    approved, the required MILCON funding would be approximately $650
    million to beddown 100 KC-767 aircraft. Any changes in aircraft beddown
    requirements will result in changes to the MILCON funding estimate.

                          BASE REALIGNMENT AND CLOSURE

        90. Senator Akaka. Mr. DuBois, decisions made in the 2005 BRAC
    round will impact the mission of other Federal agencies. For example,
    these decisions could impact the locations of DOD and VA clinics or the
    requirements the Coast Guard might have to use naval installations to
    support their homeland missions. What steps is the DOD planning on
    taking to consider the impact of its proposals on the missions of other
    Federal agencies?
        Mr. DuBois. The Department understands the decisionmaking value of
    a comprehensive consideration of costs. In accordance with the Base
    Realignment and Closure Act of 1990, as amended, section 2913(d), the
    Department's application of its cost and savings criterion will ``take
    into account the effect of the proposed closure or realignment on the
    costs of any other activity of the Department of Defense or any other
    Federal agency that may be required to assume responsibility for
    activities at the military installations.'' The Department will issue
    guidance to the military departments and the Joint Cross Service Groups
    that incorporates this requirement in the application of criterion
    five.

                       INSTALLATION COMMAND CONSOLIDATION

        91. Senator Akaka. General Fox, in the past few years the
    Departments of the Army and the Navy have both decided to manage all
    installations under one central organization. Is the Air Force
    considering a similar change, or do you plan to maintain the current
    decentralized system?
        General Fox. No, the Air Force is not considering a similar change.
    The current decentralized system, reflects the ``one base-one boss''
    framework which we have determined best supports Air Force operations
    and maintains quality of life.
                                     ______

                   Questions Submitted by Senator Bill Nelson

                             ENVIRONMENTAL THREATS

        92. Senator Bill Nelson. General Lust, Admiral Weaver, General
    Williams, and General Fox, over a year ago, Deputy Secretary Wolfowitz
    sent a memorandum to the Secretaries of the Army, Navy, and Air Force.
    In the memorandum, he asked them to provide ``timely information'' with
    respect to ``any proposed environmental restrictions that you believe
    threaten in a substantial way your ability to ensure the military
    preparedness of the Armed Forces for which you are responsible.'' This
    was for the purpose of utilizing the national security exemption
    provisions available in the environmental laws. In response to Deputy
    Secretary Wolfowitz's memorandum, did the Army, Navy, or Air Force
    submit any information that warranted using the National security
    exemption of the Comprehensive Environmental Response Compensation and
    Liability Act (Superfund), the Solid Waste Disposal Act (also known as
    the RCRA), or the Clean Air Act?
        General Lust. No. The Army has not submitted information requesting
    use of the national security exemptions under the CERCLA, the Solid
    Waste Disposal Act, or the Clean Air Act. These environmental laws were
    written with the understanding that the National security exemptions
    would be rarely used. For example, invocation of the RCRA exemption is
    to be based on ``the paramount interest'' of the United States--an
    exceptionally high standard. These national security exemptions provide
    relief that is brief in duration and focused on individual activities,
    facilities, or pollution sources. They are unsuited to the Army's
    routine, widespread and ongoing training activities, such as the daily
    regimen of our soldiers firing munitions in testing and training on
    operational ranges. These activities will be occurring continuously and
    into the foreseeable future. Protection of these activities through an
    annual invocation of a presidential national security exemption is not
    a reasonable response. That is why we seek to protect our training and
    testing activities through a focused, straightforward codification of
    the existing munitions policy under RCRA and CERCLA.
        Admiral Weaver. The existing exemptions in environmental law are
    intended to be emergency powers exercised only in extraordinary
    circumstances. They are limited in scope and are not meant for managing
    the Department of Defense's routine training and testing requirements
    or basing decisions. In most environmental statutes, the President may
    grant national security exceptions only if it is in the ``paramount
    interest'' of the United States--the highest standard in our laws. And,
    even if an exemption is granted, our activities will not necessarily be
    shielded from challenge in private litigation.
        Although existing exemptions are a valuable hedge against
    unexpected future emergencies, they cannot provide the legal basis for
    the Nation's everyday military readiness activities. To date, the Navy
    and Marine Corps have not asked the Secretary of the Navy to bring to
    DOD's attention a case where a presidential exemption from an
    environmental law would be warranted. Our readiness activities are not
    ``one-time'' events, but part of the day-to-day training regimen for
    our forces and we believe it is not good public policy to ask for
    exemptions for something that needs to take place on a regular basis.
    Rather, we should resolve the basic issue.
        The legislative changes sought by the Department will reduce the
    likelihood of range closures or restrictions affecting live-fire
    readiness activities on military ranges. In addition, they will provide
    flexibility to base new weapons systems and reposition our forces. The
    provisions will ensure that critical live-fire training and testing
    opportunities for our service men and women are protected, and that the
    health and welfare of our military personnel on these ranges or
    installations as well as all citizens outside our range boundaries will
    remain secure.
        General Williams. The Marine Corps has not asked the Secretary of
    the Navy to bring to DOD's attention a case where a Presidential
    exemption from an environmental law would be warranted.
        General Fox. To date, the Air Force has not had a need to submit
    requests in response to the subject memorandum. However, we support the
    proposed OSD RRPI legislative package, which your question directly
    relates to.
        The Air Force has complied with and will continue to comply with
    all environmental laws. Through the use of workarounds, we have been
    able to accomplish our training and testing needs. The RRPI provisions
    will help clarify existing laws and will reduce the likelihood of range
    restrictions that may affect readiness activities. The Air Force
    foresees future challenges similar to other Services if these
    environmental regulation clarifications are not addressed proactively.
        The Air Force is committed to managing the natural resources on our
    installations and ranges. Last year, Congress passed legislation that
    encouraged the substitution of Integrated Natural Resources Management
    Plan in lieu of critical habitat designations. Consequently, this year
    when the U.S. Fish and Wildlife Service proposed critical habitat for
    the California Red-Legged Frog, Vandenberg Air Force Base was excluded
    from that designation because their INRMP was deemed to provide
    sufficient protection for the species. This is an excellent example of
    an RRPI provision providing flexibility to ensure military readiness
    while maintaining, and even enhancing, species viability.
        The initiatives are intended to ensure that critical training and
    testing opportunities for our service men and women are protected. RRPI
    legislative proposals like the INRMP give us the ability to quickly
    adapt and reconfigure the training environment to respond to evolving
    real world combat situations, while at the same time protecting our
    portfolio of environmental resources.

        93. Senator Bill Nelson. Mr. DuBois, I am particularly concerned
    about recent reports that DOD is an extensive contributor to
    perchlorate contamination in the water on or near military bases.
    Perchlorate contamination is incredibly expensive to clean up and I am
    concerned about DOD's response to suspected contamination and how
    environmental exemptions would impact the current and future responses.
    Has the military identified which installations are contaminated with
    perchlorate as a result of DOD activities?
        Mr. DuBois. DOD understands that it is more cost-effective to clean
    up contamination on operational ranges before it has migrated than to
    wait until it crosses the range boundary. The Department has initiated
    a policy to assess potential hazards from off-range munitions and begin
    remediation by fiscal year 2008. Each of the Services is acting on this
    guidance. The Service assessments will include characterization of
    potential areas of munitions contamination, as well as consideration of
    hydrology and potential areas associated with drinking water supplies.
    Our RRPI proposal explicitly waives its protections in the event of
    off-range migration of munitions constituents, providing a powerful
    incentive for the Department to proactively clean up ranges to prevent
    such migration and the loss of the RRPI protections. These incentives
    are reinforced by existing State and Federal authority under the Public
    Health Service Act, which the RRPI does not affect. Under section 300i
    of title 42 United States Code, EPA may issue such orders as it deems
    necessary to protect against not only actual but also ``likely''
    contamination of drinking water sources, as the Agency has done at
    Massachusetts Military Reservation. Finally, RRPI preserves EPA's
    similar order authority under Section 106 of the Comprehensive
    Environmental Response, Compensation, and Liability Act. All of these
    authorities and policies provide powerful incentives for DOD to assess
    and cleanup contamination on ranges.
        The Department of Defense issued an Interim Policy on Perchlorate
    Sampling on September 29, 2004. This policy directs the DOD components
    to ``sample any previously unexamined sites where a perchlorate release
    is suspected because of DOD activities and where a complete human
    exposure pathway is likely to exist.'' This direction includes sampling
    at military installations. A current listing of the sites sampled was
    provided to the Environmental Protection Agency, the General Accounting
    Office, and the state regulators through the Association of State and
    Territorial Solid Waste Management Officials.
        The Department of Defense is committed to addressing any
    contamination that poses an unacceptable risk to human health and the
    environment. If, for any reason, perchlorate in the groundwater within
    the confines of an operational range poses an imminent and substantial
    danger to the public health or welfare, the DOD has the responsibility
    to take appropriate action under section 104(a)(1) of the Comprehensive
    Environmental Response, Compensation, and Liability Act.

        94. Senator Bill Nelson. Mr. DuBois, what plans does DOD have to
    identify those ranges and how is DOD planning to address and remediate
    contamination?
        Mr. DuBois. The Department of Defense (DOD) has identified its
    operational ranges and provided that list to Congress in accordance
    with the requirements of section 366 of the National Defense
    Authorization Act for Fiscal Year 2003. In addition, DOD has directed
    the Services to assess their operational ranges and begin required
    remediation by fiscal year 2008. The Service assessments are underway
    and include characterization of potential areas of munitions
    contamination, as well as consideration of hydrology and potential
    areas associated with drinking water supplies.
        To ensure the process is consistent and defensible, the Office of
    the Deputy Under Secretary of Defense (Installations and Environment),
    in a cooperative effort with the Office of the Deputy Under Secretary
    of Defense (Readiness), is developing a framework for the military
    Services to use when assessing environmental conditions at operational
    ranges. DOD needs such a protocol to enhance the ability to detect the
    migration of munitions constituents toward off-range areas, and prevent
    or respond to such a release before the munitions constituents reach
    off-range areas.
        The protocol developed will create a consistent and comparable data
    set across Services, missions, and range types. The military services
    will use the protocol to plan and execute range assessments and will
    rely on both qualitative and quantitative assessments, and be flexible
    enough to accommodate range- and mission-specific differences.
    Specifically, the protocol will include:

             A discussion of the overarching program objectives for
            operational range assessments
             Specific data quality objectives (DQO) for the
            assessments
             A list of parameters recommended for evaluation (e.g.,
            specific munitions constituents, potential migration pathways)
             Guidance on documenting and reporting the results of
            operational range assessments
             Guidance on releasing or reporting data to external
            parties (e.g., the Federal or State regulatory agencies, the
            public).

        A final product is expected by September 2004.

        95. Senator Bill Nelson. Mr. DuBois, what effort is DOD taking to
    immediately protect the public health of service families residing on
    installations from perchlorate and similar munitions contaminants?
        Mr. DuBois. The DOD is committed to addressing any contamination
    that poses an unacceptable risk to human health and the environment.
    If, for any reason, perchlorate, or other munitions constituents in the
    groundwater within the confines of an operational range poses an
    imminent and substantial danger to the public health or welfare, the
    DOD has the responsibility to take appropriate action under section
    104(a)(1) of the Comprehensive Environmental Response, Compensation,
    and Liability Act. DOD understands that it is more cost-effective to
    clean up contamination on operational ranges before it has migrated
    than to wait until it crosses the range boundary. The Department
    initiated a policy to assess potential hazards from off-range munitions
    and begin remediation by fiscal year 2008. Each of the Services is
    acting on this guidance. The Service assessments will include
    characterization of potential areas of munitions contamination, as well
    as consideration of hydrology and potential areas associated with
    drinking water supplies.
        For perchlorate, DOD issued a sampling policy on September 29,
    2003, which directs DOD components to consolidate existing perchlorate
    occurrence data; sample any previously unexamined sites where
    perchlorate is suspected because of DOD activities; and establish and
    maintain databases containing perchlorate sampling data collected. In
    addition, under the Unregulated Contaminant Monitoring Rule, the
    Environmental Protection Agency required specific DOD water treatment
    plants to sample for perchlorate. The 472 samples taken from DOD
    drinking water systems did not reveal any perchlorate health concerns,
    however the DOD components continue to monitor for potential sources of
    perchlorate releases and will take the appropriate steps should a
    health threat be identified.

        96. Senator Bill Nelson. Mr. DuBois, in previous DOD requests for
    exemptions from public health statues, such as Superfund, RCRA, and the
    Clean Air Act, you have had a broad definition of ``operational
    range'', or the area to which these exemptions would apply. What types
    of ranges are intended for inclusion in this definition?
        Mr. DuBois. The term ``operational range'' is now defined in
    section 101(e)(3) of title 10, United States Code. Operational ranges
    include areas used for the research, development, testing, and
    evaluation of military munitions, other ordnance, and weapons systems,
    and for the training of members of the Armed Forces in their use and
    handling. The definition does not include areas that are no longer
    under the jurisdiction, custody, or control of the Secretary of Defense
    or that have been put to uses that are incompatible with range
    activities.

        97. Senator Bill Nelson. Mr. DuBois, are areas other than live fire
    impact areas included in your definition of operational range?
        Mr. DuBois. Live-fire impact areas are only one part of training or
    testing ranges included under the statutory definition. Operational
    ranges also include areas used for other training and testing
    functions, such as firing points, firing lanes, test pads, detonation
    pads, electronic scoring sites, maneuver areas, safety buffer areas,
    and exclusionary areas. all these various parts of a range or range
    complex are critical to readiness, and are included in the statutory
    definition of an operational range.

        98. Senator Bill Nelson. Mr. DuBois, under your definition, how
    many operational ranges does the DOD possess?
        Mr. DuBois. Under the criteria of the statutory definition, there
    are 525 operational ranges and range complexes, and this number
    includes 443 ranges within the U.S. and its territories.

        99. Senator Bill Nelson. Mr. DuBois, how many acres of land would
    be designated as an ``operational range'' and can you submit a copy of
    identified ranges for the record?
        Mr. DuBois. DOD's land base in the United States is approximately
    30 million acres. Of that  total, only those areas used for testing,
    training or other readiness activities would be considered operational
    range areas. That, however, includes most of the total land base, with
    the exception of the built-up cantonment areas, including support
    facilities such as housing, schools, water treatment facilities, and
    similar non-readiness infrastructure. Typically, our cantonment areas
    occupy only a very small percentage of an overall installation, about 1
    to 5 percent of the total acres.
        A complete list of DOD's training range complexes and ranges is
    attached, as submitted to Congress in DOD's Section 366 Report,
    ``Implementation of the Department of Defense Training Range
    Comprehensive Plan,'' February 2004. The full report is available on
    the web at https://www.denix.osd.mil/denix/Public/News/OSD/i366/
    i366.html.

                                     ______

               Questions Submitted by Senator E. Benjamin Nelson

                   RUNWAY CONDITIONS AT OFFUTT AIR FORCE BASE

        100. Senator Ben Nelson. General Fox, as you are aware, U.S. Space
    Command and Strategic Command merged into an expanded STRATCOM,
    headquartered at Offutt Air Force Base, Nebraska. This new United
    States Strategic Command has a very extensive legacy and new command
    and control (C2) requirements that must continue to be operational and
    fully integrated. The new missions for STRATCOM include global strike,
    global integrated missile warning/missile defense, informational
    operations, global command, control, communications, computer,
    intelligence, surveillance, and reconnaissance (C\4\ISR), and space
    control. STRATCOM is one of seven Unified Commands located in the
    United States and is instrumental in fighting the war on terrorism. In
    short, STRATCOM is reshaping the Nation's military capabilities for the
    demands of the 21st century. I understand that the scheduled runway
    maintenance has nearly doubled in the past year and that there are
    numerous critical conditions negatively impacting current missions. The
    poor runway conditions and the fact that the Air Force has already
    pushed this project back in the Future Year Defense Plan cause me great
    concern. Will you explain why the Air Force decided not to include the
    runway project in fiscal year 2005 budget?
        General Fox. Unfortunately, taking into account the size of the
    fiscal year 2005 military construction program and higher priorities
    for new mission beddown and quality of life requirements, we were not
    able to include this project in the fiscal year 2005 budget. Given
    current anticipated funding levels, we feel this project is an
    excellent candidate to receive funding in our fiscal year 2006 military
    construction program.

        101. Senator Ben Nelson. General Fox, I understand that a
    construction contract has recently been awarded for the installation of
    a Type-3 Hydrant System along the ramp. Is it true that if the runway
    project was included in the fiscal year 2005 budget, thus enabling
    simultaneous construction of the runway and hydrant projects, that the
    negative impact to missions which utilize the ramp and runway would be
    less?
        General Fox. If the two projects were constructed at the same time,
    the impact to the mission would potentially be reduced somewhat.
    However, the risk of extending the duration of the aircraft relocation
    doesn't outweigh the potential benefit of constructing the two projects
    together.

        [Whereupon, at 4:27 p.m., the subcommittee adjourned.]

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                      2005

                                  ----------

                             THURSDAY, MAY 13, 2004

                               U.S. Senate,
                      Subcommittee on Readiness
                                and Management Support,
                                   Committee on Armed Services,
                                                        Washington, DC.

                           ACQUISITION POLICY ISSUES

        The subcommittee met, pursuant to notice, at 2:29 p.m. in
    room SR-222, Russell Senate Office Building, Senator John
    Ensign (chairman of the subcommittee) presiding.
        Committee members present: Senators Ensign, Allard, Levin,
    Reed, Akaka, and Pryor.
        Committee staff member present: Leah C. Brewer, nominations
    and hearings clerk.
        Majority staff members present: William C. Greenwalt,
    professional staff member; Ambrose R. Hock, professional staff
    member; Gregory T. Kiley, professional staff member; Thomas L.
    MacKenzie, professional staff member; and Paula J. Philbin,
    professional staff member.
        Minority staff members present: Madelyn R. Creedon,
    minority counsel; Maren R. Leed, professional staff member; and
    Peter K. Levine, minority counsel.
        Staff assistants present: Andrew W. Florell and Nicholas W.
    West.
        Committee members' assistants present: Lance Landry,
    assistant to Senator Allard; D'Arcy Grisier, assistant to
    Senator Ensign; Davelyn Noelani Kalipi, assistant to Senator
    Akaka; William K. Sutey, assistant to Senator Bill Nelson; and
    Andrew Shapiro, assistant to Senator Clinton.

           OPENING STATEMENT OF SENATOR JOHN ENSIGN, CHAIRMAN

        Senator Ensign. This afternoon, the Subcommittee on
    Readiness and Management Support meets to receive testimony on
    acquisition policy issues in a review of the defense
    authorization request for fiscal year 2005.
        We are departing from the usual practice by conducting this
    hearing after the committee has marked up its bill. However,
    the topics of discussion today will inform potential floor
    action to support the committee in conference deliberations
    with the House and serve as the basis for future oversight
    hearings.
        I am pleased to welcome today's witness on the first panel,
    the Acting Under Secretary of Defense for Acquisition
    Technology and Logistics (AT&L), Mike Wynne.
        Today's hearing will address a full range of acquisition-
    related issues. I look forward to hearing from Secretary Wynne
    on the specifics of how the Department of Defense (DOD) is
    transforming its acquisition process and the future of the
    acquisition workforce.
        In addition, the recent guilty plea to one count of
    criminal conspiracy by a former Air Force official with major
    responsibilities for negotiating the KC-767A tanker contract,
    and other recent cases of potential contractor abuse, have
    raised revolving-door and contractor-ethics issues to the
    forefront of debate on acquisition policy. It is the
    committee's understanding that the DOD has embarked on a
    thorough review of its revolving-door and contractor-ethics
    policies. While I expect we will discuss some of these issues
    today, the subcommittee plans to hold a more detailed hearing
    on the adequacy of procurement integrity safeguards in the
    coming months.
        Our second panel will focus on contract oversight in Iraq.
    Recent events in Iraq have put many of these contracts in the
    spotlight. Questions have been raised about the adequacy of DOD
    contract oversight in Iraq, the appropriateness of functions
    that are being contracted out, and how contractor security
    functions should function in the U.S. military chain of
    command.
        The Senate Armed Services Committee included several
    provisions in its bill this year to improve the oversight of
    contractors performing security, intelligence, law enforcement,
    and criminal justice functions in Iraq and other areas where
    U.S. forces are engaged in military operations.
        In the course of today's hearing, we need to evaluate
    whether more needs to be done. Improving how the DOD buys goods
    and services is critical to our national security. We need to
    ensure that the money spent on defense acquisition is spent
    appropriately and wisely, and I look forward to hearing from
    our witnesses on DOD's efforts to address these challenges.
        Senator Akaka.

                  STATEMENT OF SENATOR DANIEL K. AKAKA

        Senator Akaka. Thank you very much, Mr. Chairman. Good to
    be working with you and to be part of this hearing today, which
    is a tradition of conducting an annual hearing to conduct
    oversight of DOD acquisition policy.
        In previous years, our hearings have focused on issues such
    as public/private competition, the defense industrial base
    proposals to streamline the acquisition process, and even
    shortcomings in the Department's management of its $53 billion
    in services contracts. We continue to have questions and
    concerns about many of these acquisition policy issues.
        This year is different from other years, however; and this
    hearing will be different from other hearings. As we sit here
    today, 135,000 American troops remain engaged in a hostile
    environment in Iraq. Tens of thousands of contractor employees
    are also in Iraq, supporting both the war effort and the
    rebuilding effort. It has been widely reported that as many as
    20,000 contract employees are engaged in security functions
    alone. Our extraordinary reliance on contractors to perform a
    wide array of services in a war zone has raised unprecedented
    questions.
        I would like to mention just three contractor-related
    events in Iraq which I think demonstrate both the extent of the
    contractor role in that country and some of the issues raised
    by that role.
        First, for more than a month, the Marine Corps was engaged
    in combat operations in and around Fallujah, which have
    resulted in a number of American casualties and many more Iraqi
    casualties, helping spark unrest throughout the country. The
    escalation of conflict in and around Fallujah was triggered by
    the brutal murder of four American contractor employees in that
    city in late March, which has raised serious questions about
    the safety of the thousands of other contractor employees
    throughout the country.
        Second, for the last 2 weeks, the attention of the American
    public, Congress, and the world has been riveted on the
    horrible abuses reported at Abu Ghraib prison in Iraq. Press
    reports indicate that at least two contractor employees may
    have either witnessed or participated in abuses. The revelation
    that contractors have been hired to participate in the
    interrogation of prisoners in American custody has raised
    serious questions about whether contractors are conducting
    inherently governmental functions.
        Finally, just last week I received a series of e-mails from
    Hawaii soldiers currently deployed in Iraq, indicating that
    they are suffering a shortage of food because of a contractor
    who appears unable to continue deliveries. One e-mail states,
    ``My soldiers in Iraq have a shortage of food due to enemy
    attack on food supply convoys. As I understand it, the
    subcontractors who deal hands-on with the Army food supply
    lines in Iraq are not being paid by the general contractor and
    so are not distributing the food. I beg of you, please look
    into this situation. Who is not paying our food bills? Do we
    need new contractors to deliver food to our soldiers?''
        I also wanted to tell you, Secretary Wynne, that I noted
    your statement includes a discussion of the progress that has
    been made on corrosion, which is an issue of great importance
    to me. I'm so glad you're here today. You're doing a great job.
    I applaud your efforts, Mr. Secretary. In particular, the
    leadership that I understand that you have personally brought
    into this problem has been great.
        I also understand that the Defense Science Board (DSB) is
    about to release a study estimating that the DOD can save
    billions of dollars in maintenance costs over the next 5 years
    through corrosion prevention and mitigation efforts. I hope
    that this means that the fiscal year 2006 budget request will
    include substantial funding in support of the anti-corrosion
    fight.
        Mr. Chairman, thank you for calling this hearing, and I
    look forward to hearing our witnesses.
        Senator Ensign. Thank you.
        Senator Allard, do you have an opening statement?
        Senator Allard. Mr. Chairman, I just have a few brief
    comments. I want to, first of all, thank you for holding this
    hearing, I want to thank Secretary Wynne for taking time to
    testify before this subcommittee, and just mention that I'm
    going to have to leave here to catch a flight. But I wanted to
    at least be here just to make a few comments.
        Senator Ensign. You go home for the both of us, since I
    can't catch my flight. [Laughter.]
        Senator Allard. Again, like I said, I appreciate, Secretary
    Wynne, you taking the time to testify before the subcommittee.
        I think the acquisition process of the DOD is very
    important. The transformation of the DOD involves everything
    from our increased reliance on joint operations to the
    development of new financial-management systems. Our
    acquisition channels in the Department are also part of this
    transformation policy, and I continue to support the changes
    that DOD and this committee has made in relation to acquisition
    policy. Not only do we need to continue to modify the
    acquisition process so that the Department can be more
    responsive to the rapid changes of our military needs, but we
    also must continue to refine the oversight process of such
    major programs.
        Again, thank you, Mr. Chairman, for having this hearing
    today, and I look forward to the panel's testimony and
    reviewing it.
        Thank you.
        Senator Ensign. Thank you, Senator Allard.
        Now we'll hear from our first witness, the Honorable
    Michael W. Wynne, Acting Under Secretary of Defense for
    Acquisition, Technology, and Logistics.
        Mr. Secretary?

     STATEMENT OF HON. MICHAEL W. WYNNE, ACTING UNDER SECRETARY OF
           DEFENSE FOR ACQUISITION, TECHNOLOGY, AND LOGISTICS

        Secretary Wynne. Thank you, Mr. Chairman, thank you,
    Senator Akaka, thank you, Senator Allard, for holding this
    hearing. I think it's important that you get an annual report
    on the state of play in acquisition, and I'm pleased to be
    here.
        I'd like to start by saluting the performance of the
    134,000 proud members of the acquisition corps worldwide, a
    significant but diminishing resource to protect the expenditure
    of $150 billion in taxpayer-provided resources each year. Since
    1998, this resource has been steadily reduced from 149,000,
    while the number of customer-driven transactions continues to
    increase, and the intensively-managed transactions have risen
    57 percent.
        These people, frankly, serve all over the world with, I
    believe, over 100 deployed right now to Iraq and Afghanistan,
    and are called upon to accomplish extraordinary efforts to
    support our warfighters and participate in phase four of
    warfare, reconstruction of stable democracy.
        I'd like to salute our depot and industry partners from all
    over the world, who respond quickly and, for the most part,
    efficiently to our requests for instant surge and instant
    technology as we gain experience and knowledge of modern
    warfare and its many elements and what it requires from our
    supply. Their performance in our Operation Iraqi Freedom (OIF)
    and in Operation Enduring Freedom (OEF) has lifted the burden
    from our warfighters in many instances, and provided them
    products that are getting more and more reliable, and more and
    more effective.
        I would also like to salute you, members of this committee
    and other Members of Congress, who provided not just resources,
    but also advice from your personal experiences and travels to
    provide feedback from warfighters. I, in my years as a supplier
    and now as a buyer, have not seen this close a connection of a
    laboratory and the front lines to bring our competitive
    advantage to save battlefield casualties.
        As we acknowledge and contend with the spectrum of warfare
    best described as the global war on terror, we cannot turn away
    from maintaining our competitive edge in other warfare specter
    that has kept this nation free over the years. This calls for
    an integrated resource plan that maintains an expected sea
    dominance, maintains now expected air dominance, emphasizes
    expeditionary warfare, and drives us towards knowledge-enabled
    warfare by emphasizing awareness of the battle space.
    Acquisition is responding to this diverse challenge with
    flexible policies, better training, focusing on two defense-
    related customer sets--the warfighter and the maintainer and
    logistician--and working to satisfy our business-related
    customers, that is you, Congress, and our industrial partners
    and international customers.
        I have established goals for the acquisition, technology
    and logistics community that derive from the President's
    management agenda, as well as the Secretary's top issues. The
    defense agencies that report to AT&L have also each set goals
    to emphasize their customers' goals. Defense Advanced Research
    Product Agency (DARPA) is working with service technology
    experts to speed technology to the warfighter. Defense Threat
    Reduction Agency (DTRA) is partnering in the field with engaged
    warfighters and combatant commanders across the world on
    weapons of mass destruction. Defense Contract Management Agency
    (DCMA) is putting their customer goals as their own, using the
    activity-based costing to monitor their progress. The Defense
    Logistics Agency (DLA) is maintaining high supply satisfaction
    while reducing costs of operation with enterprise-wise
    management that has advanced with many in our industry. Defense
    Acquisition University is winning awards from professional
    societies for training and partnering with educational
    institutions, to teach them about virtual university and to
    gain academic credit in management for its professional
    courses.
        Our internal transformation is aimed at improving the
    business of defense, and ranges from automating the end-to-end
    procurement process to embracing unique identification systems
    for all of our purchases, and radio-frequency identification
    technology for logistics tracking.
        Our emphasis on small business has brought us ever closer
    to our difficult goals. In fiscal year 2003, $42 billion was
    awarded to small business, which represented $9 billion more
    than in the previous year. This achievement puts DOD within a
    few tenths of a percent of the 23 percent government-wide
    small-business goal.
        In summary, I'm pleased to report the progress we have
    made, and advise there is still much to be done. We continue to
    strive to get our major programs to be stable performers, on
    schedule, and budget. We need a rational process to negotiate
    contract closure efficiently. We need to pay attention to the
    science and engineering talent pool that exists for the DOD to
    draw on to maintain our technical edge in defense. Further,
    we're in the middle of modernizing the business side of
    acquisition and logistics, and we need to see these through to
    meet your goal within the Chief Financial Officer (CFO) Act, as
    we are a major element of the accounting and the cash flow of
    the Department.
        I want to again thank this committee for its attention to
    this field of endeavor. I'm prepared to answer your questions,
    and seek your continued support.
        [The prepared statement of Secretary Wynne follows:]

                  Prepared Statement by Hon. Michael W. Wynne

        Chairman Ensign, Senator Akaka, and members of the subcommittee:
    Thank you for the opportunity to appear before you and discuss the
    President's 2005 Acquisition Policy and Programs for the Department of
    Defense (DOD). While we have made great progress in making acquisition
    more efficient, in moving capabilities to the warfighter faster, and in
    the transformation of our defense establishment, the Department
    recognizes that we must make even greater progress in the future. I
    thank the committee for your leadership in providing both the authority
    and guidance for our efforts to date and ask for your continued support
    of the Department's transformation program.

                  SUPPORT TO THE GLOBAL WAR ON TERRORISM--IRAQ

        I want to begin by highlighting the Acquisition, Technology, and
    Logistics (AT&L) workforce's efforts in the global war on terrorism,
    emphasizing their work to support our forces in Iraq and the Iraqi
    people. The acquisition workforce is doing extraordinary things under
    the most trying of circumstances to achieve the President's goal to
    establish a more secure, more peaceful, and democratic Iraq that will
    stand against terrorism and no longer threaten America, the region or
    the world. The reconstruction of Iraq is proceeding on a very
    aggressive schedule and entails creating an infrastructure beyond what
    had ever existed. Contracts totaling $5 billion for construction and
    program management have now been awarded in response to requests for
    proposals that were released in early January. Under Army leadership,
    the principal Army contracts office--made up of Army, Navy, Air Force,
    Marine, and civil service personnel--has awarded approximately 1,500
    contracts so far, with almost two thirds to Iraqi firms. With only
    about 30 personnel in-theater, this organization has established a main
    office in the green zone, with three satellite offices around the
    country. Additionally, under the Program Management Office of the
    Coalition Provisional Authority (CPA), the acquisition workforce is
    defining $6 billion worth of requirements for non-construction
    procurements, again with a limited staff.
        An example of the major efforts put forth by our stateside
    contracting workforce to support our troops was the supply of Small
    Arms Protective Inserts (SAPI) plates. Prior to Iraq, the estimated
    fiscal year 2003 requirements were only $17 million. By November 2003,
    we bought $370 million SAPI plates--using contracts awarded within 30
    days, with an average delivery beginning within 83 days. Today, all
    troops in Iraq are equipped with body armor.
        Another example of support to our warfighters in Iraq and
    Afghanistan is the DOD Combating Terrorism Technology Task Force
    (CTTTF). It provides a valuable forum to examine the technology
    alternatives to address immediate operational needs to support the
    global war on terrorism. Leading up to Operation Iraqi Freedom the
    CTTTF reacted to a broad set of operational issues. Technologies were
    accelerated to field several specialized, unique weapons which focused
    on specific, anticipated threats. Notable among these was the AGM-114N
    Thermobaric Hellfire which built upon previous efforts supported by the
    CTTTF in development of thermobaric weapons which were employed in
    Afghanistan in Operation Enduring Freedom. The CTTTF sponsored the
    Passive Attack Weapon to rapidly transition an Advanced Technology
    Development prototype program to production, fielding 230 weapons in
    160 days. This effort included weapons production, development of
    operational tactics, delivery aircraft certification, field testing,
    certification, and deployment.
        A major focus of our current CTTTF effort is to enhance force
    protection capabilities. We have actions underway to mitigate effects
    stemming from terrorist use of weapons such as Improvised Explosive
    Devices (IEDs), mortars, and rocket propelled grenades. A key focus is
    detection and defeat of IEDs and on predictive analysis capabilities.
        Contractor performance in Iraq has been good in many respects. Our
    troops have obtained considerable in-country support from contractors
    such as meals and other logistical needs. However, it has not been
    perfect. Iraq presents a difficult security environment for
    contractors. Many contractors that have not had problems in performing
    their domestic DOD contracts are having difficulties in adjusting to
    the unique environment in Iraq and to their own firms' influx of new
    business. I believe that contractor financial and internal control
    problems will be worked out, and in the meantime we are taking whatever
    actions are necessary to protect the Government's financial interests.
        I want to underscore that I am absolutely committed to an
    integrated, well-managed contracting process in Iraq. The billing of
    costs that are not properly documented and supported will not be
    tolerated. If internal control systems are deficient, I will enforce
    the use of protections, such as contract withholdings, suspension and
    debarment, to safeguard our interests. I will also provide whatever
    personnel and budget resources are needed to enforce integrity in DOD
    contracts.

         RIGHT PEOPLE, RIGHT PLACE, RIGHT TIME, RIGHT PAY, RIGHT SKILLS

        I also want to address, right up front, the size of the AT&L
    workforce. I believe we are at the point where any further reductions
    in the size of this workforce will adversely impact our ability to
    successfully execute a growing workload. The numbers are startling. The
    AT&L workforce, as defined and managed by the DOD, shrank by 10
    percent, from 149,439 people in March 1998 (when it was first defined)
    to 134,431 people in September 2003. However, from a workload
    perspective, the investment account funding (i.e., research,
    development, test, and evaluation (RDT&E), procurement, and military
    construction funds) increased 54 percent, from $96.5 billion in fiscal
    year 1998 to $148.8 billion in fiscal year 2003. Similarly, the total
    number of contract actions exceeding $100,000 (i.e., those that require
    the vast majority of work by acquisition personnel) increased 57
    percent, from 120,560 in fiscal year 1998 to 189,140 in fiscal year
    2003. While the AT&L workforce has been shrinking, we continue to place
    greater demands on our workforce. Today acquisition professionals must
    work harder than ever to manage rising funding requirements, to execute
    a growing number of contracting actions, and to administer an expanding
    range and volume of complex acquisitions, including performance-based
    contracting, services acquisition, major defense systems, and research
    and development. To the extent that the workload continues to grow, we
    will need to assess the size of the AT&L workforce to support the
    growing demands of the global war on terrorism, buying of services, and
    providing weapons systems and new technologies to the warfighter.
        We are also faced with severe engineering shortages. As a result,
    the Department is taking an extremely active role in attracting
    inventors and engineering talent to the defense and aerospace
    industries. There are a number of ``hard science'' areas where the DOD
    provides between one-third and one-half of all government-funded
    university research dollars in disciplines such as aeronautical
    engineering, mechanical engineering, electrical engineering, materials
    science, and computer science. In short, the Department actively helps
    to grow the human element of the aerospace sciences. Over the past
    year, the Department has also increased both the total number and
    annual stipend for its Graduate Science and Engineering Fellowship
    program--providing strong financial incentives to top science and
    engineering students.

                                SEVEN AT&L GOALS

        When I became Acting Under Secretary, I established seven goals for
    AT&L specifically targeted to drive performance outcomes that will
    directly contribute to our joint warfighting strategy and to
    transforming DOD's business processes. These goals are:

            1. Acquisition Excellence with Integrity
            2. Logistics Integrated and Efficient
            3. Systems Integration and Engineering for Mission Success
            4. Technology Dominance
            5. Resources Rationalized
            6. Industrial Base Strengthened
            7. Motivated, Agile Workforce

                     ACQUISITION EXCELLENCE WITH INTEGRITY

        Acquisition Excellence with Integrity is all about improving our
    acquisition processes. Evolutionary acquisition will push systems to
    the warfighter faster by fielding increments of ever-increasing
    capability. Spiral development will ensure systems maintain a
    technology edge through user feedback combined with new/improved
    technology. Our cost estimates must reflect the true total ownership
    costs and be accurate enough to enhance our credibility with Congress
    and the American people. We must ensure we can deliver at an affordable
    cost. To ensure we look at joint warfighting capabilities--not just
    individual programs, we must move to senior leadership capability
    reviews.

                      LOGISTICS: INTEGRATED AND EFFICIENT

        This goal directly impacts joint warfighting operational and future
    capabilities. We have several critical initiatives here, among them:
    moving to enterprise integration business systems and processes; end-
    to-end management of logistics, which reduces logistics handoffs and
    ensures reliable delivery of products and services; weapon system
    support strategies founded on performance-based logistics, which drives
    toward higher availability for weapon systems; designing OUT logistics
    requirements through high reliability systems and reducing the
    deployable logistics footprint of operational and support forces and
    reducing logistics costs of operations.

            SYSTEMS INTEGRATION AND ENGINEERING FOR MISSION SUCCESS

        The purpose of this goal is to restore systems engineering best
    practices at all levels of our architectures. My view is that we
    collectively, both government and industry, almost lost this art, and
    it is one that is sorely missed. As part of the goal, I established as
    a matter of policy the requirement that all acquisition programs apply
    a robust systems engineering approach that balances total system
    performance and total ownership costs within the family-of-systems,
    systems-of-systems context. This context will improve the integration
    of complex systems by establishing net-readiness requirements and
    common interfaces as integral portions of a system's design. In a
    related effort, I have established a standardized methodology for the
    conduct of system assessments. These assessments provide program
    managers expert feedback and insight on their program's systems
    engineering organization and processes. They also provide me insight
    into the program's readiness for entry into the next acquisition phase
    or into operational test and evaluation.
        I have revamped systems engineering curricula and certification
    methods and established a senior systems engineering forum to
    institutionalize systems engineering discipline across the Department.
    I am also establishing a government and industry community of practice.
        We are leading the establishment of the systems view of integrated
    architectures and are participating in the operational and technical
    views. We are leading in the development of roadmaps and I will ensure
    that Defense Acquisition Board (DAB) reviews consider milestone
    decisions in a broader context of what individual programs contribute
    to joint capabilities.

                              TECHNOLOGY DOMINANCE

        Technology dominance provides our warfighters with the best
    equipment today, and the capabilities needed for our future forces.
    While many challenges exist today, technology can help address the
    immediate needs for the global war on terrorism. Technology dominance
    occurs through the alignment of the science and technology (S&T)
    program with the needs of combatant commands and the joint functional
    concepts; the continuing importance of basic research to enable the
    development of future military capabilities; and most importantly that
    we have the best scientific and technical talent available today and in
    the future. Technology has a time value, but we cannot always predict
    when time will confer criticality on any single technology. A diversity
    of investments is required to maintain technology dominance over
    adversaries who can focus on exploiting narrow technical
    vulnerabilities. Our S&T plan seeks a balance of exploiting near term
    opportunities and enabling technologies that might prove pivotal in the
    future. Adroit applied engineering efforts and foresighted basic
    research investments are both prominent in our S&T strategy.

                             RESOURCES RATIONALIZED

        This goal is aimed at rationalizing infrastructure to enhance the
    transformation of common business-oriented support functions, improve
    joint utilization of assets, and reduce the total cost of ownership. We
    will rationalize our infrastructure through both the base realignment
    and closure process (BRAC) and the Global Posture Review. Both will
    successfully allow the Department to position our infrastructure
    globally to support joint warfighting capability, to address new and
    evolving strategic imperatives, and to transform our business
    practices. To that end, I am fully supporting the Department's Business
    Management Modernization Program (BMMP). Three out of six domains fall
    under my purview. They are: (1) Logistics, (2) Acquisition, and (3)
    Installations and Environment domains. Together they are working toward
    a corporate approach to legacy information technology systems and
    business processes. As an example, under the BMMP, the acquisition
    community of interest is working closely with both the BMMP domains and
    the Services to transform our processes and to implement a net-centric
    solution to provide on-demand access to acquisition oversight
    information. As a result, for the first time, the acquisition oversight
    community now has access to acquisition information from their
    desktops, and we are well on our way to accomplishing program reviews
    using our new system. In the future, we hope to provide Congress with
    electronic access to the types of information they need for oversight
    and to eliminate special hard copy reports such as the Selected
    Acquisition Report (SAR). The end-state will streamline DOD processes
    and yield long-term savings and efficiencies.
        Dovetailing with the efforts of BMMP we continue our ongoing
    assessment of the Department's acquisition process from end to end. We
    are currently modeling our acquisition processes and integrating them
    with the other five business domains so that the department's Business
    Enterprise Architecture (BEA) is defined. By collectively defining our
    business architecture we are able to re-engineer our business processes
    to ensure that the best process can be combined with the most capable
    information system infrastructure. Two of our significant systems are
    the Standard Procurement System (SPS) and Wide Area Workflow (WAWF).
    SPS is currently our enterprise system for procurement with over 24,000
    users throughout the DOD. It is the authoritative source of data for
    our business and financial process associated with procurement. WAWF,
    also an enterprise solution, combines process change with technology as
    it streamlines the receipts and acceptance process, moving from paper
    to electronic invoicing, within the Department and commercial
    community. It provides one interaction from the vendor to DOD to
    process invoices, receiving reports and eventually Unique
    Identification Data. This system has already allowed DOD to decrease
    its interest penalty payments and increase its discounts taken for
    prompt payment. Per my direction, WAWF is currently being deployed
    across the DOD and to the vendor community and is processing an average
    of over $1 billion in transactions monthly.

                          INDUSTRIAL BASE STRENGTHENED

        The AT&L transformation mandate requires a defense industrial base
    focused on, and capable of supporting, 21st century warfighting. We are
    developing and employing a logical, capabilities-based approach to
    identifying and evaluating industrial base sufficiency for critical
    warfighting capabilities. Industrial base assessment information will
    be used to identify remedies where critical industrial capabilities are
    insufficient to meet DOD requirements, identify critical industrial
    capabilities smaller innovative firms can provide, focus international
    cooperation activities, and assess export controls. We are developing,
    and plan to implement, policies that encourage smart industrial base
    management on the part of acquisition program managers to keep the
    industrial base robust and responsive.

                           MOTIVATED, AGILE WORKFORCE

        Of course, without a ``Motivated, Agile Workforce'' none of the
    other goals can be realized. Our people are a strategic asset and
    represent a competitive advantage. DOD's transformation and warfighting
    capability are dependent upon a world-class acquisition workforce. We
    now plan to develop, motivate and equitably compensate employees based
    on performance and contribution to mission and will provide maximum
    flexibility to assign employees consistent with the needs of the
    organization and individual's qualifications. We also plan to implement
    a central referral system, a repository for all jobs, which will enable
    the acquisition workforce to apply for jobs across the Department along
    with non-DOD employees.
        The Defense Acquisition University (DAU) will rapidly deliver
    awareness training, through innovations like Rapid Deployment Training
    (RDT), to keep the workforce up to speed on evolving practices and
    major new policy initiatives. DAU is helping to create AT&L learning
    organizations by fully deploying a capabilities-based approach that
    promotes career-long learning and provides the workforce more control
    over their learning solutions by balancing training courses; knowledge
    sharing; and continuous learning.
        In sum, I have set these goals to complement and facilitate
    Secretary Rumsfeld's business transformation and joint warfighting
    objectives and, even more fundamentally, to ensure that the resources
    entrusted to the department are well managed and wisely used. In
    implementing the seven AT&L goals, I have a number of AT&L initiatives
    aimed at improving the way DOD manages acquisitions and programs,
    several of which I would like to highlight for you now.

                         SYSTEMS OF SYSTEMS INITIATIVES

        I have taken action to improve our acquisition decisionmaking to
    account for how our acquisition programs will be integrated into joint
    forces. I now require DAB reviews to include a presentation on all
    other systems that the program under discussion relies on within its
    mission context. I also review what systems rely on the program under
    review. During the recent Space Based Infrared Systems (SBIRS)-High and
    Stryker reviews, this approach achieved good results.
        Working with the Joint Staff, we have begun to examine the use of
    integrated architectures to guide investment strategies across the
    Department. We have done so for Joint Combat Identification and the
    lessons we learned from that process are being applied to other areas.
        One major initiative we have embarked on in order to improve a key
    capability for the joint warfighter is our Joint Battle Management
    Command and Control (JBMC2) Roadmap. This roadmap guides both material
    and non-material aspects of approximately $47 billion of programs
    within the Department. The heart of JBMC2 is the Family of
    Interoperable Operational Pictures (FIOP), initiated to provide an all-
    source picture of the battlespace through the fusion of existing
    sources of data. The FIOP includes a number of elements, to include
    single integrated pictures for Air, Ground, Maritime, Space and Special
    Operations. By fusing multiple sources of sensor, human intelligence,
    and other data, the seamless family of interoperable pictures will
    enable the joint warfighter to execute battle management activities
    with real-time, decision-quality data, even at the tactical level.
        One of the key JBMC2 enablers is the notion of appliques. As a
    spiral development activity, an applique can provide current and legacy
    forces with capabilities now to exchange information across the joint
    force and with coalition partners. The Department believes appliques
    may have broad application for current forces.

                            LOGISTICS TRANSFORMATION

        We are continuing to transform our logistics and supply chain
    business processes. In September 2003, I was designated by Secretary
    Rumsfeld as the Defense Logistics Executive (DLE), and General Handy,
    the Commander of U.S. Transportation Command as the Distribution
    Process Owner (DPO). As the DLE, I will be the single focal point for
    Defense Logistics and Global Supply Chain Management System in the
    Department. General Handy will be the single overseer of the
    distribution process and his organization will be the single ``go-to''
    organization for all distribution related issues. General Handy and I
    have the authority and accountability to manage the complex but
    critical supply chain and distribution process. My goal is to put
    interoperable information systems in place and synchronize distribution
    pipelines in order to optimize the end to end distribution system.
        Another of my strategic imperatives is to implement Radio Frequency
    Identification technology, commonly referred to as RFID. Implementing
    this technology will optimize the DOD supply chain, enhance materiel
    visibility and increase our support to the warfighters. The Department
    joins industry leaders, such as Wal-Mart, in adopting commercial
    standard RFID technology at the case and pallet level to optimize our
    supply chain while further leveraging the market place in driving
    technology costs down. Radio frequency ``tags'' applied to the cases,
    pallets and freight containers shipped to and within the DOD will
    enable hands-free processing of materiel transactions, allowing us to
    re-apportion critical manpower resources to warfighting functions. The
    Department plans to take this technology one step further and apply
    these tags to its most critical assets; those requiring a Unique
    Identification or UID for short. RFID tags applied to the item
    packaging of UID items will enable us to better manage and track these
    critical assets. Likewise, the unique identification of items supports
    our efforts to value military equipment and to develop supporting
    documentation. Together these efforts will enable DOD's property
    accountability, inventory, and financial management information systems
    to achieve compliance with the Chief Financial Officers Act. As we
    implement this new technology, we continue to consult with our industry
    partners and employing commercial open, global standards.

                           SPEND ANALYSIS INITIATIVE

        I have an important initiative underway to identify how to acquire
    services in a more efficient and strategic way. To date, we have
    completed a rough order spend analysis to categorize what we spend on
    services and identify service commodity areas offering potential
    savings from sourcing in a more strategic manner. We are now developing
    strategic sourcing plans for the top service commodities, beginning
    with administrative services. In conjunction with other efforts under
    the Department's BMMP, we are striving to improve our capability to
    obtain acquisition data and enhance our ability to perform spend
    analysis functions to support the development of strategic sourcing
    plans.

                          CORROSION CONTROL INITIATIVE

        Another initiative is resident in my recent corrosion control
    policy to ensure that technologies to enable selection of corrosion
    resistant materials, development of corrosion preventing production
    processes, and application of corrosion prevention treatments are fully
    considered during the acquisition process. Effective corrosion planning
    is now a standard topic for all programs subject to DAB reviews. Among
    our recent accomplishments, the Defense Acquisition University
    initiated Rapid Deployment Training on Corrosion Prevention and Control
    (CPC) Policy and Planning; we have established a DOD Corrosion Web
    site; and we have published a CPC Planning guidebook to help program
    managers plan their CPC efforts. At my request, the Defense Science
    Board has established a Task Force on Corrosion Control to assess
    ongoing DOD corrosion control efforts, especially in research, and
    provide recommendations for improvement. In order to directly enhance
    our research program in corrosion we have included a focused research
    initiative in the Small Business Innovation Research (SBIR)
    solicitation released on May 1. Seventeen corrosion topics of broad DOD
    interest have been included in the Pentagon-sponsored SBIR program in
    addition to the six Service-sponsored corrosion topics. For the first
    time ever, in a consolidated way, the Department has requested $27
    million in the President's budget specific to corrosion prevention and
    control for the Services to fund high return-on-investment projects. We
    also continue to work with the General Accounting Office in a
    completely transparent way to assist in its ongoing review of our
    corrosion efforts and planning.
        Some examples of our corrosion technology transition efforts are:
    The Services will use Av-Dec sealant materials to significantly improve
    corrosion resistance and reduce maintenance; products will be applied
    to aviation systems including C-130s, EA-6Bs, and helicopters. The
    USMC/Army is developing an automated, transportable vehicle wash down
    system to significantly reduce costs and improve corrosion prevention
    in a wide range of environments, including Iraq. The Navy is currently
    adapting commercial technology in advanced, rapid-cure epoxy and
    polyurethane anti-corrosion coatings for use in shipboard tanks; these
    long-life coatings reduce application time and apply to a wide range of
    systems. The Army is prototyping a clear water rinse facility that will
    provide thorough after-mission drive-through rinsing of all service
    helicopters at a number of airfields. The Air Force is using avionics
    grade corrosion inhibiting lubricants and CPCs to drastically reduce
    avionics corrosion failures.

                                  CONTRACTING

        Contract closeout continues to be one of my top priorities. We are
    focused on reducing the backlog of over-age contracts, especially those
    that have been physically complete more than 6 years. I am happy to
    report that we have made significant progress. For example, at the
    beginning of fiscal year 2002, we had approximately 20,000 over-age
    contracts. This number has been reduced by 35 percent. Additionally, we
    identified over 5,000 contracts as being physically complete for more
    than 6 years. To date, 70 percent of these contracts have been closed.
    We are institutionalizing practices to close contracts in a timely
    manner and decreasing the amount of funds needed each year to replace
    older cancelled funds on over-age contracts. This means the military
    services are now using less current-year money to pay old bills.
        To create a new synergy among the congressionally mandated Small
    Business Programs within the DOD, I have approved a coordinated
    initiative developed by the Office of the Secretary of Defense-Office
    of Small and Disadvantaged Business Utilization (OSD-OSADBU) affecting
    the SBIR, the Small Business Technology Transfer Research (STTR) and
    Mentor Protege programs. The newly crafted initiative focuses on
    selected innovative technology topics essential to DOD industrial
    transformation. The effort allows for resources to be applied to
    qualifying SBIR/STTR small business firms to take them from conception
    to the end product through a select Mentor-Protege development plan.
    The initiative allows for a formalized Mentoring relationship with a
    larger prime contractor that possesses the technology infrastructure
    support for the qualifying SBIR/STTR small business firm. Under this
    initiative a SBIR/STTR firm that is selected into the Mentor-Protege
    program should facilitate a quicker return on investment to the DOD
    from topic conception to program application and end production of the
    product or service that may have a commercial application.
        Fiscal year 2003 was a banner year within the DOD for U.S.
    businesses--both large and small. Total contract dollars awarded by the
    DOD set a new record high. DOD awarded close to $190 billion in prime
    contracts to U.S. businesses, of which approximately $42 billion was
    awarded to small businesses--our best-ever year for small business.
    Awards to small business increased nearly $9 billion from the prior
    year, from 21.2 percent to 22.4 percent of total contract awards. The
    DOD also did its part to strengthen the U.S. economy by awarding almost
    $12 billion to socially and economically disadvantaged small business
    concerns. In addition, small business subcontractors also have
    benefited from DOD's increase in contract business opportunities. For
    fiscal year 2002, the latest year for which we have compiled the data,
    small businesses received subcontract awards totaling over $25
    billion--$2 billion more than the prior year.

           FEDERALLY FUNDED RESEARCH AND DEVELOPMENT CENTERS (FFRDCS)

        Since the mid-1990s there have been congressionally-imposed limits
    on FFRDC staff years of effort. These limits, contained in annual
    appropriations acts, restrict the Department's efforts to acquire new
    capabilities and to respond to worldwide operational challenges.
        FFRDCs are an extraordinary source of high quality support on a
    variety of technical, analytic, and operational issues. Given the
    rising acquisition and R&D budgets, and the complexities of
    transforming military forces for the future--while conducting global
    operations against terrorism today--DOD needs all of the first-class
    help it can get. However, since 1996, the DOD budget has grown by 46
    percent in real terms, while FFRDC staff-years of effort have been
    limited to a 9-percent increase. Continued constraints on FFRDCs
    exacerbate negative trends in program acquisition support and in
    achieving program integration in support of joint operations and other
    enterprise-wide objectives. The constraints prevent DOD from obtaining
    technical and analytic support to compensate for reductions in DOD's
    acquisition workforce, the decline in experienced personnel in the
    defense industry due to the aging workforce, DOD budget cuts in the
    1990s, and initiatives that have reduced government oversight of
    acquisition programs. The Department must be able to call on its FFRDCs
    for help when they are the best source of technical and analytic
    support.
        I seek the committee's support in removing the legacy concerns
    regarding management and ``right-sizing'' of DOD FFRDCs. These issues
    have been resolved by implementation of the ``FFRDC Management Plan'',
    which has been used and updated since 1996. This is not a funding
    issue; it is about good governance. The Department needs to be able to
    spend the money Congress provides in the most effective manner.

                 FISCAL YEAR 2005 INVESTMENT ACCOUNTS OVERVIEW

        Before I conclude, I'd like to highlight some aspects of the fiscal
    year 2005 Defense budget request for the investment accounts. This
    includes $68.9 billion for RDT&E--a $7.1 billion increase over the
    fiscal year 2004 President's budget. It also requests $74.9 billion for
    procurement, a $2.2 billion increase over our fiscal year 2004 request.
    The fiscal year 2005 budget increases transformation technologies and
    capabilities--and balances support for this long-term transformation
    with resources for current global operations and requirements. The
    budget includes $3.2 billion to support the transformation of the Army
    by fully funding the Future Combat System and $1.0 billion to procure
    the combat vehicles for the 5th Stryker Brigade Combat Team (SBCT). It
    supports fielding of the fourth SBCT and sustains the three SBCTs
    already in the force.
        For shipbuilding, the request includes $11.1 billion to support
    procurement of nine ships in fiscal year 2005--up from seven ships for
    fiscal year 2004. Fiscal year 2005 begins a period of transition and
    transformation for shipbuilding as the last DDG 51 destroyers are
    built, and the first DD(X) destroyer and Littoral Combat Ship will be
    procured. The Department is also investing in additional technologies
    and capabilities in our next-generation ships. Specifically, $1.0
    billion is requested to continue development of, and procure long-lead
    equipment to support, the planned fiscal year 2007 award of the lead
    ship for the CVN-21, whose innovations include an enhanced flight deck,
    a new nuclear power plant, allowance for future technologies, and
    reduced manning. Another $1.6 billion is requested to continue
    development of technologies to be applied to others of this new
    generation of 21st century surface ships including the DD(X) destroyer,
    Littoral Combat Ship, CG(X) cruiser and the Maritime Prepositioning
    Force (Future) ship. The average shipbuilding rate from fiscal year
    2005-2009 of 9.6 ships per year shows our increased commitment in this
    area. This rate sustains the current force level and significantly adds
    to Navy capabilities.
        The President's budget continues to develop and will begin to field
    the Joint Strike Fighter (JSF), a family of low observable strike
    fighter aircraft for the United States Air Force, Navy, Marine Corps,
    and the United Kingdom's Royal Navy and Royal Air Force. In addition,
    seven other international partners, Italy, the Netherlands, Turkey,
    Canada, Australia, Denmark, and Norway are participating in the
    development program. The budget contains $4.6 billion for restructuring
    the JSF program that will accommodate additional design work and risk
    reduction in its System Development and Demonstration (SDD) phase. The
    total cost estimate for SDD increases from $33.0 billion to $40.5
    billion. Schedule delays on this very complex aircraft are prudent and
    necessary to mature its design and ensure its ultimate success. The
    Department also continues investment in the F/A-22, the next-generation
    air dominance fighter, to counter emerging worldwide threats. We are
    requesting $400 million to develop the EA-18G electronic warfare
    aircraft, the next-generation solution to detect, identify, locate, and
    suppress hostile emitters for decades to come. Finally, $1.7 billion is
    requested to support ongoing development and procurement of 11 V-22
    aircraft. The V-22 program was structured to enhance interoperability
    in the next increment, implement additional cost-reduction initiatives,
    and pursue a more executable production ramp following operational
    testing, Milestone C review and DOD certification.
        I am particularly proud of the Department's efforts to obtain
    efficiencies and synchronize development efforts in the Unmanned Combat
    Air System area. The budget reflects the initiation of the Joint
    Unmanned Combat Air Systems Program (J-UCAS). J-UCAS consolidates
    previous DARPA/Service unmanned combat air vehicles programs as a means
    to develop and demonstrate a common operating system and enhance
    competition between two contractor teams to achieve the best
    capabilities for the Services. The program will accelerate key
    capabilities leading to an operational assessment in fiscal year 2007-
    2009. Unmanned aerial vehicles continue to provide new capabilities and
    advantages that have proven critical in the global war on terrorism,
    and we must exploit this technology to leverage our warfighting edge.
        The transformation of America's military capabilities involves
    developing and fielding military systems to achieve a new portfolio of
    military capabilities to decisively combat the full range of security
    threats--now and well into the future. A key objective is to provide
    robust capabilities and innovative approaches for the full spectrum of
    potential missions. Transformation will continue to require a strong
    S&T program. The fiscal year 2005 S&T request is $10.5 billion, a 1.6
    percent real increase over the fiscal year 2004 request. The program is
    focused on a number of transformational capabilities that hold great
    promise for the future.
        A transformed military cannot function with inadequate facilities.
    To provide and maintain quality facilities in which to work, the budget
    funds 95 percent of facilities sustainment (maintenance) requirements--
    up from 94 percent in fiscal year 2004. To modernize DOD facilities at
    a satisfactory pace, Secretary Rumsfeld established the goal of
    achieving a facilities recapitalization rate of 67 years. The fiscal
    year 2005 request keeps DOD on track to reach that goal in fiscal year
    2008. The budget also keeps the Department on track to eliminate nearly
    all its inadequate military family housing units by fiscal year 2007,
    with complete elimination in fiscal year 2009.

                                   CONCLUSION

        Before closing, I would like to note how extremely proud I am of
    the world-class AT&L workforce. One metric of their ability and
    dedication can be found in the awards they win. Some highlights of
    these are: The Defense Acquisition University was recently recognized
    by Training Magazine as one of the top 50 corporate training
    organizations in America and was cited as Best-in-Class among
    government organizations. The university also received the 2003
    American Society of Training and Development (ASTD) Best Award. Our
    efforts to transform business processes and practices won recognition
    as well. The Acquisition Domain supporting the Department's BMMP was
    selected as a finalist in the 2004 Excellence in Government Awards. The
    Standard Procurement System (SPS) program, the cornerstone of the
    Acquisition Domain business process transformation efforts, received
    the Grace Hopper Government Technology Leadership Award from the
    Council for Excellence in Government and Government Executive magazine.
    SPS was also honored during the 2004 Excellence Government Awards.
    Finally, the SPS Program Manager, Colonel Jacob Haynes, was selected as
    one of the Top 10 Government Career Information Technology Managers by
    the Government Computer News (GCN) magazine and was featured in the
    GCN's ``Profiles in Leadership'' April 19 issue.
        In closing Mr. Chairman, thank you for the opportunity to testify
    before the subcommittee about our acquisition programs, policies,
    processes, and, especially, our people. I would be happy to answer any
    questions you and the members of the committee may have.

        Senator Ensign. Thank you very much.
        I want to delve into the whole ``Buy America'' issue.
    There's a growing perception by some of our allies out there
    that the DOD is not as open as it once was to foreign
    participation in U.S. defense programs. How damaging is this
    perception, and what will you do to address our allies'
    concerns? Does the Department support enactment of the new
    ``Buy America'' legislation?
        Secretary Wynne. Thank you for the opportunity here, sir. I
    would tell you that our allies are a little bit concerned about
    what America's posture is with regard to their assisting us
    around the world, because they mostly have, over the years and
    over the centuries, traded in commerce, as well as foreign
    policy, and supply of force structure. We are, in every case,
    following the rules of engagement that are dictated by the
    procurement regulations and laws, and so cannot fault them.
        That having been said, we would not like to see any
    increased strictures, because it does, in fact, erode, I think,
    a very competent base which we draw on every day. In the case
    of Germany, we're using some of their ``buffalo trucks'' to, in
    fact, get through mine fields or improvised explosive devices
    (IEDs) over in Iraq. We contracted with Japan, on a quick-time
    basis, to get their chemical suits, because we didn't have
    enough chemical suits. These aspirations of our international
    suppliers to be partners with us, I think, bodes very well for
    us, and yet we tend to forget that the foundations of science
    and mathematics and some of our engineering studies were
    founded by the international community.
        So what I'm doing to try to assist our international
    partners in supplying us is working with the State Department
    on transparency and licensing and trying to ensure that they
    get a fair treatment as they come over for foreign comparative
    tasks, and trying to make sure that when they do, in fact, put
    themselves out on our behalf, that we are as sure buyers as
    they are as sure suppliers.
        Senator Ensign. Very good. The issue of whether to further
    reduce the acquisition workforce has been a longstanding issue
    between the House and the Senate Armed Services Committee. The
    Senate believes that these reductions have gone too far, while
    the House proposes that more cuts are necessary. In the next 5
    years, do you anticipate the Department supporting further
    reductions to the acquisition workforce, or do you believe that
    the workforce needs to be expanding, given new demands? What
    are you doing to meet the training needs of the existing
    acquisition workforce?
        Secretary Wynne. The acquisition workforce is extremely
    stressed right now, and stretched. I would say that in some
    areas I've actually had to ask the DCMA to stop inspecting
    where they do not have a major impact, so that they can focus
    on risk areas of nature. So what they have done is, they have
    drawn up a set of business rules to work with their customers
    on what constitutes critical items for inspection. We cannot
    afford, any longer, to spread them any thinner.
        The growth, frankly, in our supplier base is a good thing.
    But when it comes to the DCMA, they don't have enough people,
    essentially, to cover all of them, so I think they need to
    focus on those riskier elements.
        In the area of program office support, we're so thin on
    systems engineers within our program office that we have a
    severe loss of talent in that area, and I've been basically
    trying to make sure that we pay attention, both at the
    contractor level and within the government, to improve our
    systems engineering capability, ever since I arrived. I was,
    frankly, concerned, and have organized ``red teams'' to go out
    and look at the F/A-22 to try help it get into the independent
    operational tests and evaluation. I feel that I have done the
    same thing with other projects of major costs--the Space-Based
    Infrared Radar (SBIR) and now the Joint Strike Fighter (JSF). I
    think this stress on our acquisition workforce did not really
    pay attention to the fact that the products are getting to be
    more and more expensive. At the same time, when we did not have
    the systems engineering talent inside of our program office, we
    went to reach out to the Federally-Funded Research and
    Development Centers (FFRDCs) only to find that a cap had been
    placed on our ability to secure assistance from them. One of
    the results of that is, we're going very wanting, and have
    turned to other styles of contracts to try to make sure that we
    get technical support.
        This having been said, I have turned the Defense
    Acquisition University (DAU) into a virtual university to reach
    out so that any changes that we make at headquarters take only
    72 hours to get out to the lowest level of contracting
    authority. We've tried to make sure that they had communities
    of interest and communities of practice so they can rely on
    each other, if you will, as a peer group and a peer evaluator
    group. This has worked very well. As I mentioned in my opening
    remarks, DAU has won awards, placards, and applause from other
    professional universities for being at the top of the mark.
    That's the way we're approaching it, sir.
        Senator Ensign. Okay, thank you. I have one more question,
    then I want to turn it over to Senator Akaka.
        Even though we're going to have a future hearing on this,
    just briefly, if you could, address the revolving-door issue
    and if you feel that existing laws, regulations, and policies
    governing revolving-door situations are sufficient to ensure
    integrity in the Department's acquisition activities. Have you
    undertaken, or do you intend to undertake, a review of existing
    Department activities to ensure such controls are effectively
    implemented?
        Secretary Wynne. Thank you for that. At every change of
    ethical behavior of people that I actually know personally, it
    is surprising, and it's never to be understood. That having
    been said, the laws and regulations that are on the books today
    are, in fact, sufficient, just as the laws and statutes that
    are underway are sufficient to prevent criminal behavior, but
    criminal behavior still goes on. So all we can do is to
    continue to increase the awareness that this is, number one, a
    highlighted area, it's an area of trust. In fact, in
    acquisition, trust is all you have. So, at the end of the day,
    I have taken a review of what training there is available for
    our acquisition workforce, I have asked the DAU to include in
    the fundamental certification programs an acquisition integrity
    module to make sure that we, in fact, follow one of my
    principal goals, which is acquisition with integrity.
        Senator Ensign. Okay, thank you.
        Senator Akaka.
        Senator Akaka. Thank you very much, Mr. Chairman.
        In response to questions from the Governmental Affairs
    Committee, David Safavian, the President's nominee to head the
    Office of Federal Procurement Policy, indicated that, one, he
    supports the ability of employees to protest A-76 decisions to
    the General Accounting Office (GAO); and, two, he doesn't
    necessarily think that the ``the Agency Tender Official,'' is
    the only person who could adequately represent in-house
    employees in GAO appeals. GAO has provided us with draft
    language that would extend protest authority to a single
    individual appointed by a majority of the directly-affected
    employees.
        Secretary Wynne, do you agree that it is essential fairness
    for the public side of a public/private competition to have the
    same protest rights that the private side has?
        Secretary Wynne. Sir, what I think I have heard is that the
    public side should have protest rights, a la as if they were
    under contract, and I'm not sure that I agree with that. I
    don't agree with that because it would set up a means and
    mechanism to really have an appeal external to their command
    structure, and it would appear to me to not conform, if you
    will, or to introduce a slice of the Federal acquisition
    regulation into an aspect of doing business as a government
    employee too much.
        That having been said, I do agree that there should be some
    appeal capability for the public side to make sure that they
    are treated very fairly during an A-76 process. So while I
    don't support this particular aspect, I, in fact, would reach
    out and try to figure out how to give them the rights of appeal
    through a GAO or some other mechanism, but not the particular
    one-sided.
        Senator Akaka. Do you agree with Mr. Safavian's statement
    that the Agency Tender Officer is not the only person who would
    adequately represent in-house employees in GAO appeals?
        Secretary Wynne. This is a question of, How do you get to
    somebody who could represent the employees adequately in an
    agency appeal? I would tell David Safavian, if he were here,
    that he's probably right, that maybe the agency tender official
    is not the only one who should represent. But getting to who
    should do it, as it is different than that, should probably be
    arrived at, at the beginning of the cycle, and not at the end
    of the cycle, so as not to drag out, if you will, by
    essentially firing your attorney, and then trying to reeducate
    another individual.
        So if it can be accomplished that the agency tender
    official and whoever was going to represent the employees would
    be in it from the start, I think I could go along with his
    statement.
        Senator Akaka. Performance-based services contracting can
    reduce contract costs and increase contractor performance by
    establishing concrete standards against which contractors can
    be measured. The National Defense Authorization Act for Fiscal
    Year 2003 established a goal for the DOD to make 25 percent of
    its services purchases on the basis of performance-based
    contracting in fiscal year 2003 with increasing goals of 35
    percent in fiscal year 2004 and 50 percent in 2005. Can you
    tell us how well DOD did in meeting the statutory goal for
    fiscal year 2003, and what steps you are taking to move the
    Department toward accomplishments of the goals for fiscal years
    2004 and 2005?
        Secretary Wynne. What I would like to do, sir, is take the
    first part for the record so that I make sure that I don't make
    a mistake about what we achieved, because 2003 is just closed,
    and we're just finding out all the attributes of it.
        [The information referred to follows:]

        In fiscal year 2003, the Department awarded contracts for services
    totaling $118,473 million. The portion that used a performance-based
    requirement and specified a firm fixed-price for the specific tasks
    totaled $26,780 million or 23 percent of the total.

        But we are very aggressively pursuing the performance-based
    logistics. In fact, have it as one of our own internal goals to
    successively achieve the targets.
        That having been said, the services contract is exploding
    on us with all of the attributes that are coming on in
    Afghanistan and Iraq, and so I would have to say to you that we
    might have to take a good look at what is an appropriate quest
    and goal, given the anomaly of these two, I would say,
    stability and reconstruction years. Because in these years, as
    you'll hear from the panel number two, the Corps of Engineers
    has let more contracts in 1 year than they usually let over a
    5-year period, mostly service-based.
        Senator Akaka. The National Defense Authorization Act for
    Fiscal Year 2002 required DOD to conduct a spend analysis to
    determine how it was spending its money for services and
    identify possible economies. This legislation was recommended
    by GAO on the basis of a review of best commercial practices.
    We are not aware of a spending analysis conducted by DOD in
    compliance with the legislative requirement. My question is,
    has DOD conducted a spending analysis? If so, what lessons has
    the Department learned from this review, and will you provide
    the committee with a copy of the results?
        Secretary Wynne. We have started on the spend analysis in
    the commodities sector, thinking that it would be beneficial
    across the board, and, in fact, I think, proceeded to contract
    with one of the FFRDCs to conduct such a spend analysis. What
    we intended to do is to consolidate our buying activity and
    then we're going to try, once we pilot that and see what the
    response from industry is, to extend it to the service sector.
    So what I will do, sir, is, I will provide this committee with
    the status of where we are in that regard.
        [The information referred to follows:]

        The Deputy Secretary of Defense directed DOD to conduct a
    Department-wide, commercial-like spend analysis in February 2003. This
    involved analyzing what type of services the Department is acquiring,
    who we are acquiring them from, and who is acquiring them, in order to
    identify how the Department could acquire services in a more efficient
    and strategic way. We completed the initial phase of the spend
    analysis, which identified several specific types of services, i.e.
    commodity areas, that offer significant potential for savings. We are
    forming joint commodity teams to further analyze these pilot areas and
    develop, where appropriate, strategic acquisition programs. The initial
    commodity team has started its effort to conduct more detailed spend
    analysis and identify strategic acquisition approaches for
    ``miscellaneous administrative services.'' We are now forming the
    second commodity team to analyze miscellaneous information technology
    services. In addition, in conjunction with the Department's Business
    Management Modernization Program, we are developing an improved
    capability to obtain enhanced acquisition data which will significantly
    improve our ability to analyze acquisition data and perform spend
    analysis functions. Lack of detailed data hinders our ability to
    perform accurate spend analyses and develop efficient, strategic
    solutions. The Department has approved and funded a pilot program to
    integrate spend information from the military department's business
    intelligence systems. The development and fielding of this pilot
    project will give us visibility into Department-wide detailed spend
    data sufficient to support strategic acquisition of services.

        Senator Akaka. Two years ago, Secretary Wynne, Congress
    established a new Defense Test Resource Management Center
    (DTRMC) to help ensure the Department provides adequate
    resources to its testing infrastructure. Despite the
    requirements of this legislation, the Department has not yet
    appointed a director to head the new office, has moved farther
    away from institutional funding for overhead expenses at test
    facilities, has failed to increase funding for testing
    infrastructure, and has developed only a preliminary version of
    a strategic plan for testing investment. When can we expect to
    see full implementation of the requirements of the testing
    legislation that we enacted 2 years ago?
        Secretary Wynne. I'm pleased to report to you that I meet,
    approximately every other week, with the interim director of
    that activity. We submitted our preliminary strategic plan,
    and, in fact, have done a preliminary certification of the
    budgets back to the Services to make sure that they are, if you
    will, ``on notice'' that this new agency is coming alive and
    being set up. I expect that we are--we will have sufficient
    candidates to close on the director approximately in June. My
    arrangement with the Director of Operational Tests and
    Evaluation is, once we have a director in place, he will begin
    to move over the major elements of management of the resources
    into this new function.
        It's staffed at approximately 55 percent right now. I just
    met with the lady who has been invited on or appointed to be
    the strategic planner. She intends to meet the statutory
    guidelines by having a strategic plan available to this
    committee. I intend to start the process, if you will, of doing
    active certification of the budget to the Secretary as the
    citation requires.
        I will tell you that I think that meets the general intent
    of the authorities that you granted us, and I'll have to follow
    up to make sure that we are thorough in that. But I'm working
    with Tom Christie, we are working as a partnership, together,
    to set this in motion, because he was, as you might remember
    during the hearing, actually on the DSB that argued for setting
    up the DTRMC to start with.
        Senator Akaka. Thank you for that. A series of mergers in
    the defense industry over the last decade have substantially
    reduced the number of major defense contractors. In many cases,
    DOD officials find that they have only one or two sources to
    choose from for key contracts. I have two questions there. In
    your view, do we have enough competition in the defense
    industrial base? The second is, in your view, how does the
    issue of competition relate to the ``Buy American'' issue?
        Secretary Wynne. I think, at the top layer--i.e., at the
    super primes--we have adequate competition. The problem really
    comes out at this third and fourth tier down, where those
    contractors have actually become great marginal producers and
    have come up against their own capacity stops, if you will,
    that they are supplying to all major primes at a very efficient
    price at a very efficient rate. One increase of any of those
    primes in production exceeds the capacity then of this smaller
    company. That is where I'm running into some difficulties, and
    those are very difficult to spot, because everybody's trying to
    save cost. So you tend to go to somebody who's got the marginal
    price.
        I would tell you that our sources are all over the world.
    In fact, I can remember back in time when we had a satellite
    producer who went to see Japan, and Japan realized that it was
    already providing some 25 percent of that satellite's
    infrastructure from Japan, and recognized as a supplier. We
    have also moved to make sure that we have a sufficient supply
    base for all of our major critical needs, and yet want to rely
    on our international partners for innovation, and we encourage
    them to continue to participate with us to gain contracts and
    to gain access to our laboratories.
        Senator Akaka. I appreciate your responses very much. Thank
    you, Mr. Chairman, for allowing me the time.
        Senator Ensign. Just very briefly, to follow up before we
    have the next panel in. Dealing with competition, in Iraq, we
    have the possible consolidation with the insurance, and what
    the Department is looking at doing with the Army Corps of
    Engineers, could you just address that issue in light of
    competition and market forces? If you're going to sole-
    sourcing, how does that, in the long run, get you the lowest
    cost versus market forces getting you the lowest cost?
        Secretary Wynne. In the world of insurance, I think getting
    the largest pool is kind of one of life's answers, because in
    the largest pool, you get, if you will, the lowest probability
    of an individual incident; and, therefore, if you get the
    sufficient revenue in for all of the incidents, it tends to
    give you a lower premium.
        That having been said, let me tell you what our practical
    problem is. Our practical problem is that U.S. Agency for
    International Development (USAID) has, in fact, competed and
    got a pool of insurance for all of the employees or contractors
    within the USAID in the combat zone or in the area of regard, I
    guess, in Iraq, because it is into stability and reconstruction
    phase. Now, that having been said, when we do a contract with
    others, we cannot--and we've done some comparative analysis--we
    can't match their prices. We ask our contractors to supply
    their own insurance. Most of our contractors are seeing that
    they can't fulfill the mission that they thought they were
    going to do, because these are largely--they are cost-type
    contracts, but they're capped as to how much money we can
    allocate to them. They want to complete the mission. So they
    have actually come back to us and asked us for help in making
    sure we can compete against the USAID contract. So what we're
    doing is, we're using the Corps of Engineers to essentially
    do--because this is really not what we'd like to do, and we
    haven't done it--but we've gone now to the Corps of Engineers
    and asked them to run a pilot program to see if, in fact, it's
    true that they can get, and they claim, up to 5-to-1 savings in
    insurance premiums. For small business, this is absolutely
    untenable for them. They can't quite compete.
        So one of the things we're thinking about is, How do we
    ease the burden on the small and disadvantaged businesses that
    want to do business over there, but literally can't compete on
    the insurance basis?
        So it's a balance, sir. Because once I give this contract
    to an insurance pool, which it'll probably be an insurance
    pool, then I must direct all of my suppliers to go to that
    insurance pool, because that's my deal with them, to buy their
    insurance. While it bothers me, I think under these peculiar
    circumstances it may well be to the maximum benefit of the
    taxpayer to do that.
        Senator Ensign. When you say ``the insurance pool,'' are
    you talking a group of insurance companies?
        Secretary Wynne. I would suspect we're going to give it to
    one insurance company, but my guess is they will partner with
    other insurance companies to offer this. It's a fairly large
    base.
        Senator Ensign. The problems in a war zone can be years
    down the line. I'm not an insurance person, but I do know the
    term ``tail,'' and this could be quite a long tail. We're in a
    pretty competitive marketplace today, and what happens if the
    insurance company that gets that bid is also a major insurer
    for, say, a new World Trade Center that happens to get hit by a
    terrorist attack, and they become insolvent with whatever their
    commitments are? What happens in that situation, if you haven't
    spread the risk around?
        Secretary Wynne. Well, and I'm not the world's greatest
    expert on insurance myself. But I do know about reinsurance,
    and most of the insurance companies are--actually kind of take
    it for administrative purposes, and then they will reinsure it
    out the back door, if you will, for a far lesser premium,
    because they're not doing the administration. I think by
    spreading the risk, is how they intend to manage sort of what
    you're describing as the and-on problem. That's about the best
    I could describe it, sir.
        Senator Ensign. Well, considering I'm not an expert on
    this, we'll have a little more discussion on the second panel,
    but I probably will have more questions, and so we'll submit
    those in writing for the record.
        Senator Reed, do you have any questions of the first panel?
        Senator Reed. Mr. Chairman, no, thank you for your
    hospitality.
        Senator Ensign. Okay.
        In that case, we will excuse Secretary Wynne. I appreciate
    your testimony and openness. Like I said, we'll have quite a
    few more questions that we can submit for the record in
    writing.
        Secretary Wynne. Thank you, Senator Ensign.
        Senator Ensign. Thank you.
        I call the second panel to the table. [Pause.]
        I want to welcome the second panel. The second panel
    includes Tina Ballard, Deputy Assistant Secretary of the Army
    for Policy and Procurement; Major General Carl Strock, Director
    of Civil Works, the United States Army Corps of Engineers;
    Major General Wade H. McManus, Commanding General, U.S. Army
    Field Support Command.
        We want to welcome the panel. In that order, we will
    receive your testimony. Know that your full testimony will be
    made part of the record, and so feel free to summarize.

     STATEMENT OF TINA BALLARD, DEPUTY ASSISTANT SECRETARY OF THE
                    ARMY FOR POLICY AND PROCUREMENT

        Ms. Ballard. Thank you.
        Good afternoon. Thank you, Chairman Ensign, Senator Akaka,
    and distinguished members of the Subcommittee on Readiness and
    Management Support. We thank you for this opportunity to
    discuss contracting in Iraq and the role of the United States
    Army.
        I am pleased to represent Army leadership and the military
    and civilian members of the Army's contracting workforce who
    are the forefront in reconstruction and restoration of Iraq's
    infrastructure. We are very proud of our dedicated men and
    women, not only because of their extraordinary efforts to help
    create a stable and successful Iraq, but because of their great
    courage under difficult and dangerous conditions.
        I respectfully request that my written statement be made a
    part of the record for today's hearing.
        Mr. Chairman, nearly a year ago, Secretary Wolfowitz
    designated the Secretary of the Army as the executive agent for
    the Office of Reconstruction and Humanitarian Assistance, now
    known as the Coalition Provisional Authority (CPA) in Iraq.
    Earlier this year, in January, the Deputy Secretary further
    assigned responsibility for acquisition and program management
    support to CPA to the Secretary of the Army.
        The Army is the lead service helping Iraqi people build a
    stable and democratic society. We continue to make steady
    progress. We provide contracting and program-management support
    both in Iraq and here at home. To date, we have awarded more
    than 1,500 contracts valued at more than $11 billion. These
    contracts have been for a variety of things: schools, clinics,
    banks, railway stations, and water treatment plants, for
    example. Contracts have also been awarded to uniform and equip
    police and firefighters, to supply hospitals, and restore
    electricity.
        We are working closely with several government agencies--
    the GAO, the Army Audit Agency, the Defense Contract Audit
    Agency, among them. This is to ensure that the Army has
    followed proper procedures in awarding Iraqi essential-services
    contracts.
        Mr. Chairman, we, in the United States Army, are very proud
    of our role in helping to create and rebuild a stable and
    successful Iraq. We're very proud of the courage, competence,
    and dedicated efforts of our career civil servants and military
    personnel, their success and, indeed, our success in helping
    the citizens of Iraqi move toward governing themselves.
        This concludes my opening remarks, Mr. Chairman. Thank you
    for this opportunity to appear before you. I look forward to
    your questions.
        [The prepared statement of Ms. Ballard follows:]

                       Prepared Statement by Tina Ballard

                                  INTRODUCTION

        Mr. Chairman and distinguished members of the subcommittee, thank
    you for this opportunity to report to you on the United States Army's
    role in contracting in Iraq. It is my privilege to represent the Army
    leadership and the military and civilian members of the Army's
    contracting workforce who are at the forefront in the reconstruction
    and restoration of Iraq's infrastructure. We are very proud of these
    dedicated men and women because of their extraordinary efforts to help
    create a stable and successful Iraq, especially in light of the dangers
    they face every day.
        This is a time of tremendous change, and we are most grateful for
    the committee's wisdom, guidance, and strong support. Over the last
    year, our Army has met the demands of the global war on terrorism, with
    more than 330,000 troops deployed around the world in more than 120
    countries. They are doing what our country needs them to do in Bosnia
    and Kosovo, in the Sinai, in Korea, in Afghanistan, and in Iraq. The
    United States Army--well-trained, well-led, and well-equipped--is an
    important part of our globally engaged joint force. Our Army was
    instrumental in the defeat of Saddam Hussein and the subsequent
    liberation of more than 46 million people from oppression and despair.
    Our Army remains a central and critical participant in Operation Iraqi
    Freedom.

                          THE ARMY AS EXECUTIVE AGENT

        On May 21, 2003, the Deputy Secretary of Defense designated the
    Secretary of the Army as the Executive Agent for the Office of
    Reconstruction and Humanitarian Assistance, later to become the
    Coalition Provisional Authority (CPA) in Iraq. On January 14, 2004, the
    Deputy Secretary of Defense further assigned responsibility for
    Acquisition and Program Management Support for CPA to the Secretary of
    the Army. The Army is the lead Service, helping the Iraqi people build
    a stable and democratic country.
        Our job is enormous, but we continue to make progress in an
    extremely difficult situation. I would like to reiterate the widespread
    neglect of basic services that Deputy Secretary of Defense Paul
    Wolfowitz reported to the Senate Foreign Relations Committee on May 22,
    2003. He said, ``Before the war:

             Large numbers of Iraq's children under 5 years old
            suffered from malnutrition;
             Only 60 percent of the Iraqi people had access to safe
            drinking water;
             10 of Basrah's 21 potable water treatment facilities
            were not functional;
             70 percent of Iraq's sewage treatment plants needed
            repair. According to UNICEF reports, some 500,000 metric tons
            of raw or partially treated sewage was dumped into the Tigris
            or Euphrates rivers, which are Iraq's main source of water;
             80 percent of Iraq's 25,000 schools were in poor
            condition; in some cases as many as 180 students occupied one
            classroom--with an average of one book per 6 students--while at
            the same time every 1 of the first 100 or so schools we
            inspected in Southern Iraq had been used as military command
            posts and arms storage sites;
             Iraq's electrical power system operated at half its
            capacity;
             Iraq's agriculture production had dropped
            significantly;
             Iraq's oil infrastructure was neglected.''

        It will take time to reverse these desperate conditions, but we are
    making steady progress.
        The Army, as Executive Agent, is providing contracting and program
    management support both in Iraq and in the United States. We are
    charged with procuring all non-construction items and services to meet
    the humanitarian needs--the basic needs--of the Iraqi people as well as
    the economic reconstruction and repair of Iraq's infrastructure. To
    date in total, more than 1,500 contracts valued at more than $11.7
    billion have been awarded. Of that total, more than 1,300 contracts
    totaling $1.3 billion have been awarded by our contracting office in
    Iraq. These contracts were awarded for the repair and renovation of
    schools, banks, railway stations, clinics, mosques, a human rights
    building, a teacher training institute, a woman's rights building, and
    water treatment plants. These contracts were awarded to provide police
    and fire fighters with uniforms and equipment; hospitals with badly
    needed supplies; electrical power system equipment; rescue equipment,
    and buses. In addition, our contract awards are helping to build
    playgrounds, youth centers, emergency housing, and roads, sewer and
    irrigation systems.
        Again, of the overall total of more than $11.7 billion, contracts
    awarded within the United States total $2.5 billion for more than 200
    contracts for items and services such as restoring Iraqi Oil, shutting
    down and repairing oil wells, fire fighting, explosive ordnance
    demolition; restoring Iraqi electricity; radio installation throughout
    Iraq; laptops; and emergency medical personnel in each of Iraq's 18
    governorates.

                           PROGRAM MANAGEMENT OFFICE

        Led by Admiral (Retired) Davis Nash, the Program Management Office
    (PMO) for rebuilding Iraq is located in Baghdad with a support office
    located in the Pentagon. As the requirement focal point for all Iraqi
    reconstruction contracting, the PMO is responsible for oversight and
    implementation of the $18.4 billion appropriated by the U.S. Congress
    to support the reconstruction of Iraq's infrastructure. The
    construction sectors are oil, electricity, public works and water,
    security and justice, transportation and communications, and buildings,
    education and health.
        Overall, $12.6 billion will be spent towards actual construction
    over the next few years, and $5.8 billion will be spent on providing
    equipment, supplies and material to help support the construction.
    Computers are needed to monitor and control electrical and water
    systems; vehicles are needed to transport materials or to support
    system maintenance; uniforms and supplies are needed to support the
    police and civil defense corps; and supplies are needed to support
    schools.
        Of the $18.4 billion appropriated in the fiscal year 2004
    supplemental, $10.9 billion was apportioned to various agencies. Of
    this amount, agencies have obligated $3.1 billion through May 5, 2004.
        On January 6, 2004, the Army released seven design/build
    construction solicitations. Proposals were submitted in February and
    the Army established a team composed of 130 civilian and military
    personnel, with over 2,000 years of contracting experience, to support
    the task of awarding construction contracts in approximately 90 days.
    This is an unprecedented contracting mission. Between March 10 and
    March 26, the Army awarded 10 design/build construction contracts for
    the major construction sectors totaling a maximum of $5 billion. On
    March 10, 2004, the Army awarded seven contracts to provide dedicated
    program management and coordination support for all design and
    construction activities being performed for the PMO.

                  A TOUGH JOB UNDER VERY DANGEROUS CONDITIONS
        Our contracting personnel on the ground in Iraq are courageous,
    dedicated volunteers. Since June 2003, when our first person arrived,
    we have been operating in Iraq. We now have a total of 28 individuals.
    They are multi-Service and civilian: 3 Army; 4 Navy; 1 Marine; 11 Air
    Force; and 9 civilians working in small, jam-packed work spaces.
        They are doing a phenomenal job under very tough, dangerous
    conditions. Let me illustrate my point. Army Colonel Elias George
    Nimmer, a Medical Service Corps Officer and a member of the acquisition
    workforce assigned to the Office of the Assistant Secretary of the Army
    (Acquisition, Logistics and Technology) (OASA(ALT)) was deployed in
    late June 2003 as part of a team supporting CPA's work with Iraq's
    Ministry of Health. In the early morning of October 26, 2003, a barrage
    of rockets hit the al-Rashid Hotel where he was staying and a rocket
    impacted directly inside his room. Colonel Nimmer was hit with shrapnel
    in the spine and unable to move. Following three surgeries, he is doing
    remarkably well and recently returned to duty within OASA(ALT).

                               PROPER PROCEDURES

        Currently, the General Accounting Office (GAO), the Army Audit
    Agency, the Defense Contracting Audit Agency, the U.S. Department of
    Defense Inspector General, and the Coalition Provision Authority
    Inspector General, in response to a request from Congress, are
    reviewing Iraq essential services contracts to confirm that the Army
    has followed proper procedures. We are working closely with them to
    ensure that they have all the information necessary to complete their
    work.

                                   CONCLUSION

        I have a deep and growing appreciation for the courage, competence,
    dedication, and efforts of our contracting personnel. Thanks to their
    hard work and extreme dedication, the United States Army leads the way
    in providing contracting support to CPA and the people of Iraq. The
    work has been--and will continue to be--performed in accordance with
    proper procedures, by military and civilian volunteers who are
    concerned and committed to accomplishing their work under the toughest,
    most austere conditions. We are proud of our role in helping to create
    and rebuild a stable and successful Iraq. Our accomplishments are
    helping the citizens of Iraq move toward governing themselves and
    sustaining, operating, and maintaining their own infrastructure which,
    in turn, will help our soldiers, sailors, airmen, and marines to return
    home sooner.

        Senator Ensign. Thank you.
        Major General Strock.

    STATEMENT OF MG CARL STROCK, USA, DIRECTOR OF CIVIL WORKS, U.S.
                        ARMY CORPS OF ENGINEERS

        General Strock. Mr. Chairman and members of the
    subcommittee, I am Major General Carl Strock, and I am the
    Director of Civil Works for the U.S. Army Corps of Engineers.
    But from March through September of last year, I served with
    the Office of Reconstruction and Humanitarian Assistance (ORHA)
    and later with the CPA in a variety of positions, culminating
    as Deputy Director for Operations and Infrastructure.
        I will submit a full written statement for the record, and
    I'll just take a few moments to summarize my remarks.
        I'd like to talk about our preparation, the conditions we
    encountered, and our response to those conditions. The ORHA
    staff focused on three priorities--first, to avert a
    humanitarian crisis in Iraq; second, to set the conditions for
    a rapid return of Iraqi sovereignty; and, third, to restore the
    infrastructure to its prewar conditions. We deployed to Kuwait
    in mid-March 2003, just a few days before the commencement of
    hostilities. In mid-April, ORHA deployed into Baghdad and
    ultimately into Basra, Mosul, and al Hillah. Since that time,
    the CPA has extended it reach and has established its presence
    in each of the 18 governorates of Iraq. The humanitarian crisis
    did not occur, and it became apparent, early on, that there
    would be no quick turnover of sovereignty to the Iraqis. So
    from this point on, I will focus on the infrastructure
    reconstruction mission.
        When we arrived in Baghdad, the conditions were much worse
    than we anticipated. The nation's infrastructure was in
    desperate condition. Due to the speed of the campaign and the
    precision targeting, war damage was really minimal in all
    sectors except communication. A larger problem was the
    extensive looting and sabotage that took place after the
    collapse of the regime. But, by far, our greatest challenge was
    the dilapidated and fragile structure of virtually every public
    utility and system in Iraq. This was caused by decades of
    neglect and mismanagement. We recognized immediately that we
    would have to do more than simply return things to their prewar
    conditions.
        Through a remarkable effort of identifying and mobilizing
    the remnants of the Iraqi public service, we were able to
    return essential services in a relatively short period of time.
    The priority was to electrical power, and then to water and
    sanitation, then to medical facilities. In a parallel effort,
    we stabilized and restored oil production and refineries with a
    specially-formed task force from the Corps of the Engineers.
        We face a sophisticated enemy who understands the
    importance of infrastructure to commerce, education, health,
    and safety. It's clear that the enemy is doing everything they
    can to thwart our attempts to improve the quality of life of
    the Iraqi people. Looting, sabotage, and intimidation of our
    Iraqi colleagues continue to plague our efforts.
        In response to this situation, working with the USAID and
    the Army Corps of Engineers, we created a special electrical
    task force, because we saw that as the center of gravity. It
    was modeled after our domestic disaster response mission. We
    invested over $1 billion in a 90-day period to reestablish the
    electricity grid across the country.
        We have since taken a more formal approach to our support
    and have established an engineer division in Baghdad with three
    districts--in Mosul, Baghdad, and Basra. The Gulf Regional
    Division will support both Coalition military forces and the
    civil reconstruction effort.
        Currently, we have 73 military and 327 Department of Army
    civilians, all volunteers, working in Iraq. We accomplished the
    vast majority of our effort through civilian contractors
    working as an extension of our agency, much as they do at home
    and at other overseas locations.
        Mr. Chairman, that concludes my statement. I look forward
    to expanding on these and any other points of interest you
    might have. I thank you for the opportunity to appear before
    you today.
        [The prepared statement of General Strock follows:]

                   Prepared Statement by MG Carl Strock, USA

                                  INTRODUCTION

        Mr. Chairman and members of the subcommittee, I am Major General
    Carl Strock, Director of Civil Works for the U.S. Army Corps of
    Engineers and I am honored to appear before you today to testify on the
    work of the United States, in concert with our coalition and Iraqi
    partners, to repair and rebuild Iraq. I returned last September from 6
    months in Kuwait and Iraq where I served with the Office of
    Reconstruction and Humanitarian Assistance (ORHA) and the Coalition
    Provisional Authority (CPA). I held a number of positions culminating
    with service as the Deputy Director for Operations and Infrastructure
    for the CPA.

                           PLANNING PRIOR TO THE WAR

        As is usual in military operations, planning for reconstruction was
    conducted simultaneously with planning for war. These plans included
    extensive use of contractors to supplement military and governmental
    capacity. Our original expectations were that we would have to repair
    the damage caused by military action, deal with the humanitarian crisis
    we were expecting to encounter, and set the stage for the new Iraqi
    government to oversee reconstruction. In fact, we worked closely with
    all elements of the joint and combined command in assessing potential
    effects of U.S. and coalition munitions on critical Iraqi
    infrastructure.
        ORHA was an interagency and international organization consisting
    of three ``pillars'': Reconstruction, led by the U.S. Agency for
    International Development; Civil Administration, led by the Department
    of Defense; and Humanitarian Assistance, led by the Department of State
    (DoS). With the expectation of large numbers of displaced people,
    shortages of food, water, and shelter, and the potential for widespread
    disease, humanitarian assistance was the priority effort.
    Reconstruction was focused on returning the country's infrastructure to
    pre-war conditions and assistance in governance. Approximately $1
    billion was allocated to reconstruction, the majority set aside for a
    construction contract. Civil Administration was focused on assisting
    the 23 Iraqi ministries in reestablishing control in their respective
    sectors. We anticipated that the senior leadership would be absent but
    the ministries and their staffs would largely be intact and capable of
    running operations with the assistance of a small cadre of coalition
    advisors--in some case as few as one or two people per ministry.
        Knowing that much of this infrastructure would be critical to the
    future of a free Iraq, the war planners, employing precision munitions,
    deliberately attempted to minimize damage wherever possible. An even
    greater concern going into the war was that Saddam Hussein's regime
    would repeat their actions of the Gulf War, where they set ablaze and
    crippled a large portion of the Kuwaiti oil infrastructure.
    Understanding that the flow of oil was the essential lifeblood of the
    future, free Iraqi economy, the acting Secretary of the Army designated
    the U.S. Army Corps of Engineers as the executive agent for Iraq Oil
    Infrastructure Reconstruction, and we formed Task Force Restore Iraqi
    Oil (RIO) under the superb leadership of Brigadier General Robert Crear
    to exert command and control over this important mission.

                              WHAT WE ENCOUNTERED

        When we entered Iraq, we encountered relatively little war damage,
    but instead an infrastructure crippled by a combination of long-term
    neglect, recent looting, and sabotage. The country's infrastructure,
    while experiencing some damage from the war, was sagging under the
    weight of 30 years of neglect, misrule, and mismanagement. There was no
    electricity, very limited public water supply, no sewage treatment, no
    communication system except what we brought with us, no railroads in
    operation and limited other modes of transportation, and basically very
    little means for the new Iraqi government to do its work. Water was not
    being controlled at the reservoirs on the Tigris, Euphrates, and other
    rivers, so irrigation systems were disrupted and there was major risk
    of flooding. Virtually all public buildings and their contents--
    records, equipment, supplies--were destroyed by looters and saboteurs,
    making it almost impossible to reestablish government and provide basic
    services. Furthermore, the experts on the country's infrastructure were
    Baath Party members who had fled or had been removed. Under the Hussein
    regime public servants did only what they were told by their
    supervisors, so there was no tradition of individual initiative. Our
    relatively small cadre of advisors faced considerable challenges
    dealing with this catastrophic situation.
        I want to stress that we found very little actual war damage. This
    was in large measure due to precision targeting and effects-based
    weapons employment. The Iraqi transportation and utility systems,
    although in near-complete disarray, were little damaged by war. The one
    sector of Iraq's infrastructure that did suffer unavoidable harm during
    the war was the communications network. The Coalition had necessarily
    targeted key communications nodes to prevent Saddam Hussein from
    effectively commanding and controlling his forces. This caused
    communications difficulties that we struggled to overcome early in our
    reconstruction efforts.
        Moreover, the humanitarian crisis--the threat of mass starvation
    and disease--that we feared might occur during the war's aftermath did
    not come to pass, although we quickly had to rebuild the water supply
    in many locations to help minimize these threats. Creating even greater
    difficulties for reconstruction, many of the local Iraqis with
    expertise necessary to restore and operate critical infrastructure were
    either unavailable or fearful of working with the coalition.
        During this period, early in the reconstruction, the effects of
    widespread sabotage and looting were constantly undermining our
    efforts. Because we had anticipated and planned for operations in just
    such a difficult and dangerous environment, one of our immediate and
    major efforts in the early days was to secure critical facilities. The
    damage resulting from the actions of saboteurs and looters, however,
    still turned out to be significant. As an example, it is estimated that
    fewer than 50 high voltage electricity transmission towers were toppled
    or significantly damaged as result of the war. At the peak of sabotage
    and looting, this number grew to more than 700 as criminal elements
    scavenged copper from the high voltage wires.
        The greatest problem we faced, however, was dealing with an
    infrastructure that had been neglected and mismanaged for 30 years as
    the Saddam Hussein regime used such basic utilities as water and
    electric supplies to reward his friends and punish his enemies. The
    country suffered from a lack of capital investment as Saddam chose to
    purchase weapons and build palaces instead of power plants and water
    treatment facilities. International sanctions also contributed to the
    lack of maintenance. It is a tribute to Iraqi engineers that the
    country's systems were able to function at all, and that we were able
    to assist in restoring them as quickly as we did.
        It should be noted that those of us who were part of the OHRA team
    initially suffered many of the same hardships as the Iraqi people. Like
    them, we did not have basic services such as reliable food, water,
    power, and sewage; nor did we have an adequate work area. Also like
    them, we were greatly hampered by the lack of reliable communications
    in the area; In fact, we often had no communications at all.

                                  WHAT WE DID

        In rebuilding Iraq's infrastructure, we faced an enormous and
    monumental task. A country similar in size and population to
    California, Iraq was not going to be successfully rebuilt without a
    significant effort. In order to do this, we assembled a team consisting
    of representatives from the following agencies: United States Agency
    for International Development; Department of State; Department of
    Transportation; Department of Health and Human Services; Department of
    Agriculture; Department of Commerce; the Corps of Engineers; United
    Nations agencies such as UNICEF, UNESCO, and UNDP; Iraqi Ministries;
    non-government organizations such as the International Committee of the
    Red Cross and CARE; and the private sector. We also knew going in--and
    this was part of our planning--that Iraq's successful reconstruction
    would require considerable contractor involvement.
        My initial involvement was as a member of the ORHA. I arrived soon
    after Baghdad had been secured, and was part of the group tasked with
    the initial responsibility for reconstruction. As we began to establish
    operations, the Logistics Civil Augmentation Program (LOGCAP)
    contractor was essential in providing basic services such as food,
    water, power and electricity. The LOGCAP contractor also provided
    transportation and security services for ORHA. The contractor provided
    these services to ORHA just as it did to military units across the
    country.
        The military units on the ground accomplished the very earliest
    reconstruction, restoration, and relief efforts. They were restoring
    electricity, water, sewage, and other basic services all across the
    country. They helped rebuild schools and often provided employment
    opportunities to many Iraqi citizens. Throughout Iraq, these military
    units were the coalition presence, setting up local governments and
    reestablishing safety and security in their areas. From the earliest
    days, as we worked to get the infrastructure of Iraq back on its feet,
    it was often a coalition military unit working directly with the local
    Iraqi citizens doing the work.
        Within the ORHA, we provided advisors to many of the Iraqi
    ministries. We assumed these advisors would deal with ``decapitated''
    ministries--ministries where the Baath leadership was absent but with
    facilities and workforce largely intact. What we found, though, were
    ministries that were non-functional. Their facilities were destroyed or
    incapacitated due to a combination of warfighting, sabotage, looting,
    and long-term neglect, with no communications, and no equipment.
    Workers were fearful for their personal safety, and influence of the
    Baath party, whose members had to be removed, reached deeper than we
    had anticipated. Even when provided a place to work, many members of
    these ministries were either unwilling or unable to return to these
    vital public service agencies. Soon after arrival, therefore, we
    quickly went to work assisting in the performance of initial,
    rudimentary repairs to their workplaces, providing a secure work
    environment, and offering our communications systems to assist them in
    the day-to-day operations of a country struggling to restore its
    society and culture and establish a new democracy. The advisors we
    assigned to these ministries provided both technical expertise and
    assistance in setting up models of governance and public service that
    would work in a democracy, as opposed to the old models designed to
    support a totalitarian regime.
        We knew from the beginning that identifying and engaging Iraqis who
    had the expertise in Iraq's infrastructure would be critical. Due to
    the initial enormity of the tasks, even with the valiant efforts of the
    military units, we knew that this group of Iraqi specialists would be
    essential to the rapid restoration of basic services. Once again,
    however, we found the lack of a basic communications system, such as
    telephones, hindered this effort. All meetings had to be face-to-face.
    For example, we scheduled regular meetings with the Iraq Ministry of
    Electricity. During one of these meetings, I was introduced to an
    expert in another utility area. I arranged a meeting at an appointed
    place and time, but I was unable to make the appointment due to
    security and transportation difficulties. Without a functioning phone
    system or any other means of communication, I had to wait until the
    next regularly scheduled meeting to arrange another appointment, and
    hope we would both be able to meet at the agreed upon time and place.
    Despite these challenges, we quickly identified essential Iraqi
    citizens who often ``bridged-the-gap'' between efforts of the military
    units and efforts of the contractors provided by ORHA and later, the
    CPA.
        Soon after coalition forces initially secured Baghdad, we
    established Task Force Fajr, which translates to ``dawn'' or ``first
    light.'' Task Force Fajr consisted of approximately 20 people--mostly
    from the Corps of Engineers--led by Brigadier General Steve Hawkins,
    commander of our Great Lakes and Ohio River Division. The initial
    mission of Task Force Fajr was to initiate the restoration of power and
    potable water, first in Baghdad, then throughout Iraq, to assist in the
    hydrology and watershed management, and provide assistance in
    reestablishing hospitals in Baghdad.
        One of the early challenges facing Task Force Fajr was potential
    flooding in the Tigris and Euphrates River basins. Rivers were rising
    and the Iraqis who understood and operated the system had fled.
    Employing ``reach-back'' techniques--Corps satellite video
    teleconferencing kits--we were able to place engineers on the ground at
    key reservoirs and link them via satellite with technical experts in
    our Mobile District. The Mobile District used this and other
    information to construct a hydraulic model of the entire Euphrates and
    Tigris River Basins. The Mobile District then linked back to Task Force
    Fajr Engineers at key reservoirs, and working with local Iraqis used
    these reservoirs to regulate flow and avoid potentially catastrophic
    flooding.
        In reestablishing a normal life for Iraqis, our first priority was
    to restore electrical power. Upon arrival in Baghdad, one of our first
    challenges was to find the ``wiring diagram'' for the national
    electrical grid. We soon discovered that the Saddam Hussein Regime
    restricted this information to very few loyal Baath party members. In
    fact, electrical power was used as a tool of punishment and reward,
    with loyalists in the ``Sunni Triangle'' receiving ample power and the
    southern Shia and northern Kurds receiving little. Because of this
    strict, centralized control, few copies of the plans for the national
    grid existed and had been destroyed before we secured Baghdad. The
    first schematic of the entire Iraqi electrical grid was actually drawn
    by a lieutenant in the Corps of Engineers 249th Prime Power Battalion.
        As we began to restore power, we found that the system was more
    like a string of old fashioned Christmas lights than a modern national
    power grid. When one key facility went out, the entire system failed.
    After years of operating as part of a totalitarian regime, power plants
    now fell under the control of local governments in their area. Having
    local government control pieces of the national power grid was not the
    most effective or efficient method for meeting the country's energy
    needs. Early on, for example, a number of power plants were forced by
    local governments to put power on the local grid and drop off the
    national grid. As a result, the remaining plants on the national grid
    were asked to provide more power than they had available to meet the
    national demand. The power plants still on the national grid were shut
    down to prevent overload, and soon, the entire grid shut down. Whenever
    this happened, we were forced to begin the laborious process of getting
    all of the stations back up and running, applying power back to the
    national grid. Accomplishing this, we might experience a failure at a
    different power plant due to lack of maintenance or damage from looting
    and sabotage.
        Without an effective national communications network and with
    antiquated control systems, we were sometimes unable to react in time
    and were required to go through the entire process of shutting down and
    restarting all over again. Over time, we educated individual plant
    operators, negotiated operating schedules with local governments,
    provided military communications systems to assist in operations and
    control, and began providing reliable power across the country.
        The combination of military units and local Iraqi people allowed us
    to restore and stabilize basic life support functions. As planned, we
    also began using contractors from numerous agencies, to include USAID
    and the Corps of Engineers to provide more long term, permanent
    solutions.

                      EARLY CORPS OF ENGINEERS INVOLVEMENT

        To illustrate the use of contractors in the reconstruction efforts,
    I will highlight two from the Corps of Engineers that assisted me in my
    role overseeing the reconstruction of a portion of the infrastructure.
    I must emphasize that these were only a few of the many contractors
    that provided essential life support, security, and construction
    services across Iraq.
        To accomplish the mission of getting Iraq's oil production running
    again, we established Task Force Restore Iraqi Oil (RIO). In Central
    Command's planning for the Operation Iraqi Freedom, safety and security
    of the oil fields was considered paramount to the overall success of
    the operation. During the Gulf War, Saddam Hussein had demonstrated a
    callous disregard for human health and the environment, as he set the
    oil fields of Kuwait ablaze. Task Force RIO's immediate mission was to
    secure the oil fields, put out the fires, and get the oil flowing to
    provide refined fuel products for domestic use and ultimately oil for
    export. With more than 12,000 wells in the southern Iraq Oil Fields
    alone, the potential for disaster was enormous. We knew that this
    effort would require extensive contractor involvement and the short
    notice, requirements for secrecy, and essential nature of the mission
    limited our contracting flexibility.
        Task Force RIO operated in two main areas--Rumaila and Kirkuk. The
    Task Force achieved tremendous early success. There were fewer than 10
    significant fires, which we fought in a cooperative effort with
    Kuwaitis. What we did encounter was extensive damage caused as looters
    stole various components of the system. Terrorists and saboteurs
    continually targeted the oil pipelines that cross Iraq. They recognized
    that disrupting the flow of crude oil and refined petroleum products
    could delay efforts to restore peace. Before the war, we estimated it
    would take 12 weeks to reopen the fields. Due in large part to the hard
    work of Task Force RIO, its contractors, and especially the Iraqi
    experts in oil production, however, it took only about 3 weeks to get
    the oil flowing again. Despite the fact that terrorist attacks against
    the infrastructure continue today, Iraq is now producing more than 2.5
    million barrels per day of crude oil, more oil than before the war.
    Additionally, Iraq is now exporting more than 1.8 million barrels of
    oil per day. These exports are pumping much needed funds back into the
    Iraqi economy, much of which is being used to restore infrastructure.
        The situation with Iraq's electrical grid, however, was not faring
    so well. After initial restoration and stabilization efforts,
    electricity production leveled off during the late summer at a peak
    production capability of approximately 3,000 mega-watts. By this time,
    responsibility for reconstruction had transitioned to the Program
    Management Office (PMO) of the CPA. The PMO had the lead and was
    working an excellent plan using USAID and Bechtel to provide large
    scale generating, transmission, and control projects. What was needed
    though was an immediate, short-term solution that would give a much-
    needed boost to the availability of electricity across Iraq.
        In September, the Corps of Engineers was asked by Central Command
    to look at the electrical situation in Iraq again and see if there was
    anything we could do to provide immediate assistance in order to allow
    USAID to focus on more long-term solutions. We did this with Task Force
    RIE (Restore Iraqi Electricity). Using our well-honed domestic
    emergency management skills, within 2 weeks we had a team of more than
    30 Corps of Engineers employees in Iraq working under the leadership of
    the PMO. Working closely with the PMO and Iraqi Ministry of
    Electricity, Task Force RIE initially was assigned 26 projects that
    included new generation, generator rehabilitation, and restoring
    transmission lines and control systems. Just as we do in domestic
    emergency management situations such as recovery from Hurricane Isabel,
    we used existing, competitively bid contracts to accomplish this work.
    At the peak of activity, more than 2,000 contractor employees were on
    the Task Force RIE team. The initial efforts of Task Force RIE placed
    more than 500 mega-Watts of power back onto the Iraq electrical grids,
    but more importantly, helped ensure the reliable distribution of that
    power.

                                   CONCLUSION

        From the beginning of planning through current efforts, we have
    recognized the enormity of the tasks facing us required extensive
    contractor involvement on the Corps and coalition teams. This need was
    not unique to either our prior wartime experience or our day-to-day
    operations at home and abroad. The contractors involved in the
    reconstruction effort brought extraordinary technical expertise,
    dedication, and commitment to the team. I believe we would not have
    enjoyed the success we experienced without their contributions.
        I am intensely proud that I had the opportunity to work alongside
    the extraordinary, professionals in the U.S., coalition, and new Iraqi
    government. Thank you for allowing me to spend time with you today, and
    once the other members of this panel have made their statements I will
    be happy to take your questions.

        Senator Ensign. Thank you.
        General McManus.

    STATEMENT OF MG WADE H. McMANUS, JR., USA, COMMANDING GENERAL,
                    U.S. ARMY FIELD SUPPORT COMMAND

        General McManus. Mr. Chairman, members of the subcommittee,
    I thank you for the opportunity and privilege to appear before
    you today and discuss contractor logistics support.
        In my capacity as the Commander of the Army Field Support
    Command, we provide the majority of that type of support to the
    force as it's deployed today. Among the many missions and
    responsibilities that we execute, the LOGCAP is the primary
    means by which we provide that support, and it's really the
    major mission we're executing today in support of operations
    in-theater.
        The military and our Nation have relied on contract
    logistics since the birth of our Nation. Today, our Armed
    Forces and our Nation rely on our strong reliance with industry
    to provide critical support capability when and where it's
    required to support our forces as they are deployed and
    employed.
        Now, LOGCAP is a formal, competitively-awarded program
    that's been in existence for really over a decade now. We are
    on our third iteration of this contract. During this decade we
    have, with each successive deployment of forces, that LOGCAP
    mission has, indeed, grown in support of the missions. Today, I
    will tell you we're at unprecedented levels in our support
    mission, in terms of magnitude, flexibility, speed in response,
    and, indeed, criticality. With each LOGCAP award, we've built
    on lessons learned; yet with each iteration of employment, we
    face new challenges in the spaces we employ and deploy forces,
    and we support them.
        LOGCAP provides critical and essential life and mission
    support for men and women in uniform, for those civilians
    deployed in supporting our national objectives, and for our
    coalitions partners, as well. The LOGCAP, in my view, is truly
    an element of our national power, both today and tomorrow.
        I thank you for the opportunity, and, again, I look forward
    to your questions. That concludes my statement, Mr. Chairman.
        [The prepared statement of General McManus follows:]

               Prepared Statement by MG Wade H. McManus, Jr., USA

                                  INTRODUCTION

        Mr. Chairman and distinguished members of the subcommittee, thank
    you for this opportunity to report to you on the Logistics Civil
    Augmentation Program (LOGCAP).
        The LOGCAP provides vital support to our forces both in peace and
    war. It increases the efficiency and warfighting capability of the
    Armed Forces, immediately improves the quality of life for soldiers and
    forces on the ground, and actually allows fewer soldiers to accomplish
    a larger mission. While this specific program and the capability it
    provides has been in existence for over a decade supporting American
    forces in contingency operations around the world, the role of private
    enterprise and contractors on the battlefield is as old as our Nation.

                                   BACKGROUND

        LOGCAP I covered the period 1991 to 1996. The contract was
    competitively awarded to Brown and Root Company, and managed by the
    Corps of Engineers. During this period, support was provided for the
    Southwest Asia pipeline and principally to contingency operations in
    Somalia and the Balkans.
        LOGCAP II covered the period 1997 to 2001. The contract was
    competitively awarded to DynCorps and managed by the U.S. Army Materiel
    Command (AMC) and supported contingency operations in East Timor,
    Colombia and the Philippines.
        The latest contract, LOGCAP III covers the period from 2002 to
    present. Again, this contract was competitively awarded to the company
    now known as Kellogg, Brown, and Root Services, Inc. with continued
    management by the U.S. Army Materiel Command. As of today, LOGCAP III
    provides support to contingency operations in Iraq, Kuwait,
    Afghanistan, Djibouti, Republic of Georgia, and Uzbekistan while
    planning for contingency operations in other locations depending on our
    national security needs.
        Through LOGCAP, the Army plans for contractor logistics support for
    existing operational and contingency plans and conducts exercises and
    training events. More to the point, LOGCAP provides contingency support
    wherever and whenever required.

                              THE LOGCAP CONTRACT

        The LOGCAP umbrella contract statement of work (SOW) specifies the
    support, which may be provided by the LOGCAP prime contractor divided
    into three broad categories: supply operations, field services, and
    operations and services. The flexible nature of the umbrella contract
    allows the commander in the field to call on contractors to overcome
    the logistics shortfalls as the situation on the ground evolves.
        As I mentioned, LOGCAP is about providing support to our troops and
    this support covers the full logistics spectrum. Some of the more
    critical functions include laundry and bath, facilities and billeting,
    clothing exchange and repair, waste and sanitation, food service,
    mortuary affairs, supply support, maintenance, transportation and
    distribution, and power generation and distribution to list but a few.
    The more austere the operating environment, the more difficult it
    becomes for the Army to insert theses critical services for our troops.
    The current environments in Iraq and Afghanistan are among the most
    difficult and challenging in which we have had to operate on a
    sustained basis.
        Although contract support is essential throughout the Army's
    operations, here at home as well as overseas, exercising the option of
    LOGCAP is not automatic. The initial choice to use LOGCAP is a careful
    and deliberate analysis of all available support options in terms of
    adequacy and time. Combatant commander requirements may be supported by
    U.S. Active, Reserve, and National Guard support units; allied military
    arrangements such as the North Atlantic Treaty Organization; host and
    other foreign nation support; and, organic, in-theater contracting
    capabilities. LOGCAP program managers assist the supported force with
    planners to review all support options available.
        The LOGCAP III umbrella contract was competitively awarded to Brown
    & Root Services, Inc. (BRS) of Houston, Texas, now known as Kellogg,
    Brown, and Root, December 14, 2001. The Army Materiel Command awarded
    this contract following a competitive procurement, using best value
    source selection techniques. Best value allows the Army to access
    tradeoffs among cost and non-cost factors and accept the most
    advantageous proposal. Two other major defense contractors submitted
    proposals during this competition. We evaluated the companies on their
    management plan, technical plan, past performance, financial capability
    and proposed cost structure. We awarded the contract, without protest,
    to the company determined to provide the best value to the U.S. Army
    considering cost and all other factors.
        The contract is an indefinite delivery, indefinite quantity (10/10)
    contract. This allows the government to immediately set requirements
    within the scope of the contract without further competition.
    Requirements are placed against the basic contract as separate task
    orders. Task orders are generally priced on a cost-plus-award-fee
    basis, although some smaller tasks can be firm-fixed-price or cost-
    plus-fixed-fee contracts. Cost-plus-award-fee contracts are appropriate
    for contingency operations in which the performance parameters of the
    contract, such as the size, location and field conditions of the
    supported force, are not known with precision and are subject to
    change. The Army pays only for work performed. No funds are applied
    solely for having the contract awarded to a company.

                               THE LOGCAP PROCESS

        Timing is key to all military operations. A LOGCAP contract is
    designed to allow the warfighter the ability to place task orders on
    contract rapidly, to support evolving, dynamic operations to provide
    critical and essential life support to our forces operating in harsh
    environments where host nation assets are unavailable or do not satisfy
    the support requirement. LOGCAP contracts provide a means to respond to
    a wide range of needs while retaining checks and balances to ensure
    effective management of tax dollars.
        Combatant commanders, or other supported customers such as the
    Coalition Provisional Authority or the Iraqi Survey Group, develop
    requirements for support based upon operational plans. The customer
    examines the possible alternatives for satisfying that requirement
    which including organic support, Reserve component units, host nation
    support, or LOGCAP.
        After the customer determines that LOGCAP is the only viable
    capability to provide the support, normally within compressed timelines
    due to operational realities and exigencies, the customer writes a
    scope of work with the assistance of Army LOGCAP planners. This scope
    of work is forwarded through channels to the Army's Deputy Chief of
    Staff, Logistics, or G4, and then to the U.S. Army Field Support
    Command's LOGCAP contracting office. The AFSC is AMC's subordinate
    command responsible for executing the LOGCAP program.
        Following reviews for legal and contractual compliance, the
    procuring contracting officer (PCO), sends the scope of work to the
    contractor and requests a rough order of magnitude (ROM) estimate of
    the cost of performance and a technical execution plan. The contractor
    develops this estimate and plan and provides them to the PCO and the
    customer. After the customer accepts this estimated cost and execution
    plan, and funds are received, the PCO issues a notice to proceed to the
    contractor who initiates action to satisfy the warfighter or customer
    requirement. In urgent circumstances this process can be completed in
    72 hours following receipt of a scope of work. The ability to meet
    urgent requirements in such an expedited time frame is one of the major
    advantages and benefits of the LOGCAP contract.
        At this point the government and the contractor have entered into
    an unpriced contractual action, on a cost-plus-award-fee basis. The
    rough order of magnitude estimate of the cost of performance has become
    a ceiling, or ``not-to-exceed'' value for the contract. The estimated
    cost of the action, against which the award fee will be calculated, has
    to be ``definitized,'' the negotiated details of specific deliverables
    and costs associated with resolution of a previously undefined task
    order. The contractor will provide the PCO a proposed estimated cost
    for completing the work under the task order. The Defense Contract
    Audit Agency (DCAA) audits this proposal and provides the results to
    the PCO. The PCO negotiates the cost estimate with the contractor and
    modifies the task order to establish the definitized estimated cost
    base.

                                LOGCAP IS GLOBAL

        The first task order to support operations in Southwest Asia
    awarded under LOGCAP III was for an update of the Worldwide Management
    and Staffing Plan in January 2002 at a price of $853,000. The first
    task order to support base camp operations was awarded in April 2002
    for Karshi-Khandabad, Uzbekistan, at a price of $17 million. The Army
    currently has identified 76 task orders against the LOGCAP III
    contract. Of these, 16 directly support Operation Enduring Freedom and
    38 support Operation Iraqi Freedom.
        Two of the task orders that we executed under the LOGCAP contract
    for OIF involved planning and preparation for the need to immediately
    restore the Iraqi oil fields following hostilities. Following receipt
    of funds and a scope of work from the Department of Defense, we issued
    a task order for development of an oil field restoration plan in
    November 2002. With hostilities imminent, OSD requested an additional
    task order be issued in February 2003 to pre-position personnel and
    equipment for a restoration effort. Following this effort, the Army
    Corps of Engineers assumed total responsibility for the program called
    ``Restore Iraqi Oil,'' and issued a contract to Kellogg, Brown, and
    Root.
        LOGCAP is currently supporting America's global war on terrorism
    contingency operations in seven countries. The program also assists
    with the planning, training, and deployment of forces in the United
    States.
        Not only is Kellogg, Brown, and Root performing in Iraq, Kuwait,
    and Afghanistan, but also in support of contingency operations in
    Uzbekistan, the Republic of Georgia, and Djibouti as well as continuing
    to support planning requirements and missions in the continental United
    States. Over 25,000 employees and subcontractor employees are deployed
    to augment U.S. forces. To date, Kellogg, Brown, and Root has suffered
    a total of 29 casualties, of which 5 Americans were killed and 12
    wounded as a result of hostile fire while performing these services in
    support of U.S. military operations. The environment in which we are
    applying the skills and services of our LOGCAP contractors is not only
    harsh, but continues to be highly dangerous.
        At this time the LOGCAP contractor is responding to further changes
    in requirements due to the current troop rotation in support of OIF.
    There are pending missions to support the Department of State when they
    assume the CPA function in July and to support other agency projects in
    Iraq.

                          LOGCAP REVIEW AND OVERSIGHT

        The Government has a contract administration program in place to
    oversee performance of the contract and manage costs. The PCO has
    authorized Kellogg, Brown, and Root to requisition material from the
    government supply system and to order material off of General Services
    Administration supply schedules. The PCO also delegated authority to
    the Defense Contract Management Agency (DCMA) to provide on site
    administrative contracting officers (ACO). DCMA is a critical strategic
    partner in the overall management and execution of this process.
        The DCMA ACOs are located at numerous sites to provide daily
    contract compliance oversight, review and approve all requisitions over
    $2,500, evaluate and manage quality assurance, and monitor the use and
    control of government property acquired under the contract. The ACO
    team performs technical reviews of contractor cost proposals that
    support the negotiation of the contract cost base.
        The Defense Contract Audit Agency (DCAA) also plays a key role on
    the government's contract management team. DCAA auditors perform audits
    on the contractor's cost proposals. They review and approve the
    contractor's cost estimating and accounting systems. DCAA reviews and
    approves the contractor's payment vouchers, prior to sending them to
    the Defense Finance and Accounting Service (DFAS) for payment. DCAA
    audits all costs incurred to support the government contracting
    officer's final determination of which costs are allocable, allowable,
    and reasonably incurred under the contract. Any cost not found
    allocable, allowable and reasonably incurred under the contract will
    not be paid by the government.
        Kellogg, Brown, and Root Services, Inc is also a critical,
    strategic partner in this effort. In order to properly manage costs,
    the contractor must account for those costs in accordance with both
    Federal cost accounting standards and generally accepted accounting
    practices. The contractor is required to maintain adequate accounting
    systems, purchasing systems and invoicing systems. The corporate ACO
    periodically reviews these systems.
        In addition to the incentive to incur costs in a reasonable manner,
    the contractor has two other incentives to exercise prudent cost
    control. Controlling costs is evaluated by the PCO and becomes a part
    of the contractor's performance record. This record, in turn, is used
    as an evaluation criterion when the contractor competes for future
    government business. Contractors who have a record of proven cost
    control will be better positioned to win additional contracts. Finally,
    the contractor's performance on cost control is one of the evaluation
    factors, which determines the award fee.

                         LOGCAP IN IRAQ AND AFGHANISTAN

        In these first phases of supporting our troops, the focus and
    priority has been on responsiveness, but all within the framework
    established by the Federal Acquisition Regulation (FAR). The process of
    definitizing task orders has taken longer than we would like and
    certainly much longer than we expected or even planned for. The speed
    and volume of task orders placed and the numerous valid changes to the
    customer's requirements have been major factors. The changing nature of
    operations in Southwest Asia has impacted the contractor's ability to
    submit valid cost proposals in a timely fashion and certainly has
    impacted our collective ability to satisfy the 180-day requirement of
    the FAR to definitize undefined contractual actions. The pace of
    setting new requirements and changes to current requirements has
    greatly exceeded the original plans of both the contractor and the
    government.
        Finally, the harsh operating environment of Iraq and Afghanistan,
    the non-linear and non-contiguous operating area, and major
    infrastructure shortfalls have hindered the implementation of robust
    business management systems. Both the contractor and the government
    have recently made substantial progress in augmenting personnel and
    systems support. A firm timeline to establish final requirements and
    costs has been established along with metrics and standards to measure
    the performance of all agencies involved in this process. This
    primarily includes the PCO, DCAA, DCMA, and KBR. Progress has already
    been made, as we have negotiated three task orders for definitization
    and have a commitment from KBR to accelerate the schedule of the next
    few task orders. These include the two contract actions that supported
    OSD for planning and preparation to restore the Iraqi oil fields.
        The negotiated estimated cost will be the base against which the
    award fee is calculated. The fee structure of the LOGCAP contract was
    proposed by Kellogg, Brown, and Root Services Inc as a maximum of 3
    percent, which comprises KBR's projected profit on this contract. One
    percent is the base fee and a maximum of 2 percent is the award fee.
    The award fee is determined by the government, following an evaluation
    of the contractor's performance in terms of timeliness of technical
    performance to include timeliness of response, quality of response,
    quality of work, cost control and overall management. In the event we
    cannot satisfy the established timelines for definitization, or we are
    unable to agree, the Army is prepared to unilaterally definitize the
    task orders.
        When we enter into a cost-plus-award-fee contract, we realize that
    the management of costs incurred under the contract is an important
    responsibility. This instrument enables the contractor to control costs
    throughout the process as they use their own capital to satisfy our
    requirements prior to payment. The government only pays for goods and
    services that meet certain criteria. DCAA audits all costs incurred
    under the LOGCAP contract, as part of the definitization process and as
    a final audit prior to the government determining the amount of final
    payment.

                                 LOGCAP FUNDING

        I think it is also important to address the LOGCAP funding process.
    Army LOGCAP funding starts at the Department of the Army level and is
    passed down to Forces Command (FORSCOM). FORSCOM in turn allocates
    funds to their subordinate levels (i.e., Combined Forces Land Component
    Command or CFLCC). CFLCC issues funding authority to the various OEF/
    OIF task forces (i.e., CJTF7, CJTF180 and CFLCC Forward). The task
    forces furnish funds to the Army Field Support Command, AFSC, Resource
    Manager who validates the accounting data and initiates acceptance.
        Upon acceptance, funds are released to the AFSC contracting office
    to create the task order for fulfillment of an approved requirement.
    This task order gives the contractor authority to incur cost against
    the LOGCAP contract. A copy of the task order is made available to the
    LOGCAP customer for recording of the obligations and disbursements in
    their own accounting system to meet their financial reporting
    requirements.
        Coalition Provisional Authority (CPA) and Iraq Survey Group (ISG)
    funds flow is slightly different. Funds are allocated through AMC to
    AFSC from DA. AFSC establishes the accounting record in the AFSC
    accounting system. The funds are certified and then released to the
    AFSC contracting office for generation of the task orders. All
    accounting for these funds are recorded within the AFSC accounting
    system and certified at the end of the fiscal year. CPA and ISG funds
    account for approximately 10 percent of the LOGCAP funds received at
    the AFSC.
        Over the next 12 months, the LOGCAP government team will work with
    the combatant commander in-theater to continue to improve the process
    and control costs. The focus is on the requirements process to refine
    and improve the total LOGCAP process through internal process
    improvement teams and meetings between government representatives and
    KBR. We will aggressively definitize completed task orders and stay on
    task with KBR on the agreed to plan of action. Additionally, we will
    develop a strategy to determine the most effective method of transition
    from contingency contract operations to sustainment contract
    operations.

                                 LOGCAP SUMMARY

        The role of the LOGCAP program is recognized and valued by the
    supported combatant commander and our troops. I believe that it has met
    its original intended goals and has proven that it has even greater
    potential than originally expected of a contingency contracting
    instrument.
        It provides a flexible, viable alternative for supporting our
    logistics requirements and providing augmentation to our support units
    for early entry of our forces, as well as long term sustainment needs
    that would otherwise place great strains on our warfighters. We have
    seen an unprecedented level of contractors on the battlefield, with
    more than a division's worth of contractors working side-by-side with
    our soldiers. They too are our troops and we need to ensure that the
    policies and systems are in place to support and take care of our total
    force, which includes our contractors
        We are committed to supporting current operations and transform
    simultaneously. Supporting our soldiers remains our number one priority
    and ensuring they get the very best quality of life and other logistic
    support is one way that the people of AMC do that. As I have described
    to you earlier, LOGCAP contracting is a process we need to constantly
    review and improve if we are to improve the Army's tooth to tail ratio.
    We will improve and continue to improve our management of this program.
    Thank you for your support of America's armed forces and our efforts to
    support them.

        Senator Ensign. Well, thank you all.
        There are so many different places that I want to go with
    questions. I guess, let me start with--Department of Defense
    Inspector General (DODIG) raised concerns that Iraq contracts
    they reviewed did not have adequate oversight after contract
    award, and the GAO has raised concerns that the staffing may be
    inadequate to oversee Iraqi reconstruction contracts. How are
    you addressing these concerns for the contracts that you
    administer?
        Ms. Ballard. Mr. Chairman, we've addressed those concerns
    by increasing the staffing in Iraq, working directly with DCMA
    in Iraq to provide contract-management oversight. Our staffing
    has gone up to 54 people this month, and will reach 70, and
    that is just for the contracting support. Overall, we will
    have, in program management and contracting support, more than
    400 people in-theater by the end of June. Additionally, sir, we
    are leveraging our contracting assets in the United States.
        I would defer, then, to General Strock to speak to the
    Corps of Engineers staffing in-theater.
        General Strock. Thank you, ma'am.
        Sir, I think we do have an adequate level of oversight in-
    theater now. The Army Corps of Engineers is involved in a
    variety of different missions over there, and, as I mentioned,
    we have taken a traditional approach by establishing a command
    in the theater. Currently it is comprised of about 400 people,
    and they are focused on all aspects of contract management,
    from the actual contract specialists to construction
    representatives on job sites to see that we are getting what we
    pay for.
        We are mobilizing and will increase the force as the
    contractors mobilize and move forward. I have absolutely no
    concerns about the level of oversight of our contract activity,
    sir.
        Senator Ensign. Can you describe how Iraqi reconstruction
    contracts currently overseen by the CPA's Program Management
    Office (PMO) will be managed after the CPA is abolished on June
    30?
        Ms. Ballard. Senator, right now our plans and all the
    discussions center around a few key points. One is that the
    Secretary of the Army has been very clear to his staff and in
    meetings with the State Department that the Chief of Missions
    and the State Department will be responsible for the
    supplemental money that will be managed by CPA and by the
    contracting office. They will also set priorities for
    requirements. The PMO and the contracting people in-theater
    will continue to operate under the Army and our executive-agent
    responsibility.
        Senator Ensign. Just so I understand what you said there,
    you said post-June 30, though, the contract authority goes for
    Department of State, but yet the people responsible for
    overseeing the contracts are still under Department of Army?
        Ms. Ballard. No, sir, let me clarify. All of the
    contracting and program management will continue to be done by
    the Army under our executive-agent responsibility. The Chief of
    Missions will be responsible for the supplemental, expenditure,
    and the prioritization of requirements.
        Senator Ensign. Put that in plain English.
        Ms. Ballard. The State Department has the money.
        Senator Ensign. Give me an example of a contract.
        Ms. Ballard. An example of a contract----
        Senator Ensign.--and a contract existing, and then a new
    contract that happens, post-June 30. Who has responsibility
    now, and who will have--for that contract that exists now, who
    will have oversight? Then who will have oversight post-June 30?
    Then if a new contract comes in, who has responsibility, also,
    post-June 30?
        Ms. Ballard. Right now, the process is, there's a
    Requirements Review Board in-theater, and that board falls
    under the responsibility of Ambassador Bremer. Those
    requirements, once approved, are contracted for by the PMO and
    the Army and our contracting people in-theater. So Ambassador
    Bremer, right now, determines the requirements and the priority
    of those requirements. We do program management and
    contracting.
        After June 30, the chief of missions and State Department
    will fulfill what Ambassador Bremer currently does, and we will
    continue to do program management and contracting.
        Senator Ensign. So, in simple terms, you all will work for
    State instead of CPA.
        Ms. Ballard. Yes, sir.
        Senator Ensign. Okay. That's kinda the simple thing. You
    have to keep things simple for Senators. [Laughter.]
        The next question has to do with the level of violence
    that's there today. With contractors--we hear press reports of
    all kinds of contractors leaving. Let me just state the
    question accurately. Has this number remained the same since
    April--as far as the number of contractors in Iraq working on
    construction projects--has this number remained the same since
    April, or are contractors now returning to Iraq? Because they
    dropped prior to April, from what I understand. Basically, just
    walk through the numbers, what you're seeing right now. Either
    one of you, any of the panel can answer that.
        Ms. Ballard. Senator, I'd like to take the specifics on
    numbers for the record.
        [The information referred to follows:]

        Only one Project and Contracting Office contractor, Lucent
    technologies, has stated that it will move it's folks to Jordan in the
    next 2 weeks or so. We are unaware of similar statements to leave by
    any other contractors. Contrak IntI however, has indicated that it will
    be shutting down operations for a week to 10 days until the sovereignty
    changeover is complete upon advice of their security managers.
        Many contractors previously in Iraq are returning. The following
    file contains an ``approximation'' of contractors in Iraq under the
    listed companies for the Design/Build (D/B) and Sector Program
    Management Office Contract (SPMOC) contracts. The list also includes
    some KBR personnel numbers and USAID contractors but is not a complete
    listing nor was it intended to be relied upon as a complete and
    comprehensive listing of contractor personnel in-theater. Since the
    data is not segregated out by monthly totals, it is not possible to
    provide monthly figures. The lists are updated as necessary and were
    not intended to provide for or show monthly fluctuations. The
    fluctuations in personnel can be attributed to increased work required
    in country, R&R rotations, or other nonsecurity related situations.
        We have contacted the Contractor Coordination Cell (3C) in Kuwait
    for a more comprehensive listing of contractor personnel. The data is
    currently being staffed for concurrence and will be provided once
    received in our office.

        Ms. Ballard. In my discussions with Admiral Nash, what he
    has provided to us is that our contractors have continued to
    work in-theater on the reconstruction effort.
        Senator Ensign. So the press reports that we read about
    contractors leaving are inaccurate?
        Ms. Ballard. I have no knowledge of our Army contractors
    leaving the theater, no, sir.
        Senator Ensign. Okay.
        General Strock. Sir, there are, I understand, some
    contractors who have left, but it's a relatively small number.
    Some of those doing the electrical rehab, I understand, have
    left the country, some Russian contractors. But, for the most
    part, as Ms. Ballard has stated, our contractors have stayed on
    the job.
        Now, during the intense period of violence, they hunkered
    down, but they have gone back to work now, largely, across the
    country. It's a challenging environment, but it's one we're
    working through.
        Senator Ensign. Once again, I have a lot more questions,
    but I want to give the rest of the subcommittee a chance to ask
    their questions, and so we will. I'm sure we'll have many more
    questions for you in writing for the record.
        Senator Akaka.
        Senator Akaka. Thank you very much, Mr. Chairman.
        Last week, I received a series of e-mails from Hawaii,
    soldiers currently deployed in Iraq, indicating that they are
    suffering a shortage of food because of a contractor who
    appears unable to continue deliveries. One e-mail states, and
    I'm quoting, ``My soldiers in Iraq have a shortage of food due
    to enemy attack on food supply convoys. I understand that the
    subcontractors who deal hands-on with the Army food supply
    lines in Iraq are not being paid by the general contractor and,
    so, are not distributing the food. I beg of you, please look
    into this situation. Who is not paying our food bills? Do we
    need new contractors to deliver food to our soldiers?''
        General McManus, I believe you----
        Senator Ensign. Can you chair the hearing?
        Senator Akaka [presiding]. I believe you are responsible
    for the LOGCAP contract. Were you aware that we have troops in
    the field who are not getting food because the contractor is
    not paying its bills? Would you agree that it is unacceptable
    for our troops to experience a food shortage because of a
    billing dispute with a contractor? How will you address this
    problem?
        General McManus. Senator Akaka, the food shortage issue
    really, I think, was probably about 3 or 4 weeks ago. It was in
    the height of the conflict, and there were some limitations on
    convoy operations because most of our delivery is via our
    LOGCAP--our convoy operations there. However, at that point in
    time, when we were slowing down convoys, the theater manages,
    on a daily basis, the level of food stocks at each of the base
    camps throughout the theater of operation. At no time during
    either the heightened intensity, or even if there were
    disrupted supply lines of operation, was I ever aware of any
    issue of the inability for the Army to feed forces or the
    contractor support forces in the various dining facilities.
        I'll certainly look into that. I can take that on for the
    record and come back to you.
        But I was never aware of any break in the supply line to
    supply the force.
        [The information referred to follows:]

        To our knowledge, troops have always received meals although the
    type of meal provided may vary. In April 2004, terrorist attacks on our
    convoy operations required the Army to increase security measures to
    counter the changing terrorist tactics. As a result, supply deliveries
    were delayed for several weeks in April which affected the supply of
    fresh food delivered to our troops in areas of Iraq. KBR continued to
    move supplies, but at a slower pace until May when more robust security
    procedures allowed supplies to resume at the required delivery pace
    conducted before the April attacks. During the slowdown of convoy
    movements in April, the Army changed the feeding cycles from three hot
    meals a day to two hot meals and one cold meal daily to conserve fresh
    food supplies until normal convoy operations resumed in May. Again, to
    our knowledge, no soldiers were without meals to include the period
    while convoy security was improved.
        We also reviewed the issue of troops possibly not receiving food
    due to KBR not paying its subcontractors and determined that services
    by KBR subcontractors to our dining facilities have not been
    interrupted. The Defense Contract Audit Agency questioned some of the
    costs of KBR subcontracts for dining facility services. KBR initially
    responded by withholding payment to some of its subcontractors, pending
    an internal KBR review. After the review was completed, KBR determined
    that its subcontractors should receive full payment in accordance with
    the terms of the subcontracts, and KBR has made those payments. The
    government can withhold payment to prime contractors when a dispute
    arises over costs. During the period when KBR withheld payment to its
    subcontractors, all subcontractors continued performance at the dining
    facilities.
        Food service to troops in Iraq varies. Some receive MREs, while
    others have access to a full dining facility. The availability of each
    level of meals depends upon the location of the troops, ongoing
    operations, the security situation at that location, and other factors.
    The combatant commander decides the level of meals provided.

        General McManus. The other issue of the payment of
    contractors, that's the issue there, sir, I think. I know this
    is an issue we're working with now, in terms of how we manage
    the prime and the prime-to-sub relationship. Those issues are
    being resolved. But at no time was I aware of any of those
    issues affecting the ability of our Army to support or feed the
    forces in the various base-camp locations.
        Senator Akaka. As I indicated in my opening statement,
    contractor employees have played a central role in key events
    that may play an important role in shaping the future of Iraq.
    First, the brutal murder of four contract employees in Fallujah
    in late March triggered an Iraqi uprising that led to numerous
    American and Iraqi deaths last month. Second, press reports
    indicate that at least two contractor employees may have either
    witnessed or participated in the abuses at Abu Ghraib prison.
        At a hearing on the abuses at Abu Ghraib prison earlier
    this week, I asked Lieutenant General Lance Smith, the Deputy
    Commander of Central Command, who is responsible for keeping
    track of the contractor employees in Iraq--I asked him who
    would have information on how many such contractor employees we
    have over there, and what are they doing? General Smith said
    that Central Command is not tracking any of this information,
    and that perhaps the contractors would have it. That was his
    comment.
        Ms. Ballard, General McManus, and General Strock, do any of
    you have this information? Is it really possible that we are
    sending thousands of noncombatants into a war zone without even
    keeping track of how many there are or what they're doing?
        Ms. Ballard?
        Ms. Ballard. Senator, I, too, am shocked and remorseful
    about the things that have occurred at Abu Ghraib prison. The
    Army, in our contracts, has published, and we are using, a
    contract clause that requires our contractors to do personnel
    administration. They are responsible for keeping track of all
    their deployed personnel. They are responsible for processing
    them through a central location. They are responsible for
    keeping emergency contact information on them. Additionally,
    our contracts have other provisions with regard to security,
    life support, and other things in this area.
        Senator Akaka. General McManus.
        General McManus. Yes, sir. Senator Akaka, for their
    contracts that we're responsible for, as Ms. Ballard indicated,
    we put the same stipulation on them as we would on a unit, in
    terms of the pre-deployment/deployment administrative
    processing. In line with that, what we do within the contracts
    that we manage within my command--and specifically I'll address
    LOGCAP, if I could, sir--we go through the process of
    accounting up through to the corporate headquarters, and I get
    daily reports, just as they do. Accountability, in terms of
    specific locations by base camp or mission, is done within the
    theater. But on a daily basis, we get the numbers and we track
    those, because the missions change, and the skill sets required
    will change, the numbers required will change. So there is, if
    you will, an up-and-down approach to this, because some will go
    in, some will come out; in some cases, some will complete tours
    of duty, they will redeploy back, they will be replaced; or, in
    some cases, they'll redeploy, their mission is not required,
    they won't be replaced. So all that is handled through a daily
    status reporting process and a weekly accounting process, if
    you will, between my command and the corporate headquarters
    that owns that contract.
        Sir, if I may, we also have in-theater for those contracts,
    too. We have what we call a Contractor Coordination Cell. So as
    we coordinate for these contractors into the area, they will
    process out of a location within the United States, they will
    be picked up as they arrive in-theater, through this Contractor
    Coordination Cell, and then they will be sent to the mission
    locations that they will be performing while in-theater.
        Senator Akaka. I understand that the contractor employees
    who were murdered in Fallujah were heavily-armed security
    contractors. At least one of the contractor employees who was
    implicated in events at Abu Ghraib was hired as an
    interrogator. Other contractor employees are currently
    providing security for CPA Administrator Paul Bremer, and DOD
    has awarded a contract for a private company to provide
    security for the Green Zone, where most of U.S. officials live
    and work.
        Has the Department undertaken a legal and policy review to
    determine under what circumstances is it appropriate for a
    private contractor to provide security to U.S. personnel and
    facilities in a war zone? In particular, do you have a legal
    determination that it is appropriate for contractor employees
    to provide security for U.S. government personnel and property,
    and conduct interrogations of enemy prisoners of war and other
    detainees?
        Ms. Ballard. Senator, the contractors that we have in-
    theater are providing security in three ways--personnel
    security, as you mentioned, non-military site security, and
    non-military convoy security. All of those are provided in
    accordance with the terms and conditions of our contracts.
        Senator Akaka. Any other comments?
        My time is expired. Let me call on Senator Reed for your
    questions.
        Senator Reed. Thank you very much, Senator Akaka.
        First, let me thank Senator Ensign for this timely hearing,
    and for his excellent line of questioning and his hospitality
    in allowing me to participate. I think I always have to thank
    General Strock, because he was my escort last July, and I
    apologize for forcing him to fly in a Black Hawk helicopter
    with the doors open. [Laughter.]
        General Strock. Not at all, sir.
        Senator Reed. Sorry about that, sir. [Laughter.]
        We had Hueys when I was in the service, and the doors
    always seemed to be open. Forgive me.
        I want to follow up Senator Ensign's question. With the CPA
    going away on July 1, June 30, I've been told that there are
    different standards for contracts for CPA versus DOD contracts.
    Will there be a unified standard in terms of forms, the
    requirements, regulation, after July 1?
        Ms. Ballard. Let me be sure I understand your question,
    sir. Are you asking if we are using different regulatory
    requirements in DOD contracts versus CPA contracts?
        Senator Reed. Yes, ma'am. What will happen after July 1,
    when the CPA no longer exists.
        Ms. Ballard. The contracts that we award using appropriated
    funds are, by law, required to follow the Federal Acquisition
    Regulation (FAR), and we do use those regulations for any
    contracts using appropriated funds. Contracts using other fund
    sources, such as Development Fund for Iraq (DFI) or other
    money, in Iraq is governed by a CPA order--I believe, sir, it's
    number 4. It is my understanding that there is a transitional
    administrative law that says the orders established by CPA will
    continue to be used after June 30. From that, sir, I have
    concluded that the CPA order number 4, which applies to DFI
    funds, would continue to be used.
        Senator Reed. Thank you very much.
        One of the issues that has risen in this investigation of
    the prison is a contractor and there's been allegations made
    that he might be engaged in inappropriate conduct. He seems to
    have not been charged or in any way restrained, which raises
    the issue, do you feel we have the legislation to hold
    contractors accountable in Iraq at this time?
        Ms. Ballard. Sir, the government has legal and contractual
    options available to it regarding contractors' conduct in-
    theater. These come in the form of the War Crimes Act of 1996,
    the Military Extra-Territorial Jurisdiction Act of 2000, the
    Uniform Code of Military Justice, which would apply to
    civilians who are retired military. Additionally, sir, Title
    10, Section 2408, provides prohibitions against contractors who
    are involved in defense contract related felonies. So we do
    have several means by which we could take action.
        Senator Reed. After July 1, what agency could invoke those
    legal sanctions against the contractor?
        Ms. Ballard. Sir, CPA order number 17 specifies that
    contractors, Coalition contractors, and subcontractors in-
    theater are not affected by Iraqi law. As I said under the
    transitional administrative law, that order will continue to
    prevail. Therefore, in consultation with General Counsel, we've
    concluded that those acts which I addressed would apply to our
    contractors in-theater.
        Senator Reed. Let me ask a question that might seem fairly
    naive, but in listening to all this, it appears that, on July
    1, the sovereign government of Iraq will have no direct
    authority or responsibility with respect to all these
    construction activities and reconstruction activities in Iraq.
    Is that accurate?
        Ms. Ballard. Sir, I'd have to take that question for the
    record.
        Senator Reed. Could you please do that?
        Ms. Ballard. Yes, sir.
        [The information referred to follows:]

        Upon dissolution of CPA, Ambassador Negroponte, the United States
    Chief of Mission, assumed responsibility for the $18.4 billion Iraq
    Relief and Reconstruction Fund (IRRF). He will set the policy and
    establish the priorities for the execution of projects funded by the
    IRRF.
        While IRRF funds were being obligated prior to July 1 to strengthen
    Iraq's economic and security situation, several billion dollars
    remained uncommitted as of July 1, in order to provide Ambassador
    Negroponte with the resources and flexibility he needs. The Department
    of Defense is ready to support him in managing both existing and new
    contracts.
        On July 1, State Department's Iraq Reconstruction Management Office
    (IRMO) assumed responsibility for policy and program oversight of the
    IRRF. The dissolution of the CPA and PMO will not jeopardize continuity
    in the execution of the reconstruction programs in Iraq.
        Army's Project and Contracting Office (PCO), formerly the Program
    Management Office (PMO), will continue to provide contracting and
    program management support as requested by the Chief of Mission and
    other agencies.
        The various agencies (e.g., DOD, State, USAID, and Treasury) that
    have been executing contracts funded with IRRF resources will continue
    to do so after the transition. The current list of infrastructure
    projects were prioritized working closely with the Iraqi ministries,
    governorates and the military commanders on the ground to decide which
    projects would have the most impact on the country.

        Senator Reed. All right.
        I have been told that, on July 1 or sometime after that,
    that security for the Green Zone will be provided by
    contractors, not by American military personnel. Is that
    accurate? Has a request for proposal (RFP) to that extent been
    released?
        Ms. Ballard. Sir, we'll take that question for the record.
        [The information referred to follows:]

        Contractors have always been involved in certain aspects of
    security within the Green Zone, such as guarding some building
    entrances and providing personnel security details (PSDs), and this
    continues to be the case after June 30. Military forces will continue
    to provide overall security to the Green Zone in coordination with
    Chief of Mission.

        Senator Reed. Thank you very much.
        I'm also under the impression that as security cost goes up
    from a fixed amount of money, then construction progress must
    go down, and there's an inverse relationship. We understand
    security costs are going up. Do you, Madam Secretary, or any of
    the general officers, have an estimate of the present security
    costs and the likely impact on real progress in construction?
        Ms. Ballard. Yes, sir. Security costs range generally about
    10 percent. CPA originally estimated security cost at about 20
    percent of the construction cost. I gave you the range of 20
    percent based on what we saw in the offerors' proposals on the
    recently-awarded construction contracts.
        Actually, the security costs will vary, depending on
    circumstance. It's very environment-dependent, it's very
    requirement-dependent. For example, one of the areas I
    mentioned that we have security provided by contractors is
    personal security. Security for a delegation or a senior
    government official would require a different level of
    security, perhaps, than site security. Also, the periods of
    performance vary. So all of these factors make estimating
    actual security costs very fluid.
        Senator Reed. Ms. Ballard, if we assume a 20 percent
    security cost, in dollars, what would that represent for the
    contracts that are already outstanding and the contracts you
    anticipate in the next year? How many billions of dollars?
        Ms. Ballard. We have awarded $5 billion in construction
    contracts, sir. So if we use that as a sample, and apply 10
    percent to that, as that is the range that was shown, we'd be
    looking at, if my math is anywhere near good, about $500
    million in security costs as the range that we saw in the
    contractors' proposals.
        Senator Reed. Thank you very much. Thank you for your
    testimony.
        Thank you.
        Senator Akaka. Senator Levin.
        Senator Levin. Ms. Ballard, just on that same point, the
    estimate which our staff got from the CPA Inspector General
    (IG) about security costs on contracts for the reconstruction
    is that they may now be running as high as 25 percent. Would
    that surprise you, or is that consistent with your answer?
        Ms. Ballard. As I said, my estimation is based on what we
    saw in the construction contracts. I don't know what the IG
    used, because there are other government entities in-theater.
    So if they used USAID rates or other contracting entities'
    rates, that may be affecting the percentage that they provided.
        Senator Levin. Now, on top of the security costs, there are
    insurance costs, which we understand now run from 8 to 25
    percent of payroll. Is that your understanding, too? Any of you
    can just chime in at any time.
        Ms. Ballard. Sir, again, in using our construction
    contracts as a baseline, those insurance costs did range
    between as low as 5 percent and 20 percent. There were some
    factors that affected that. The contractors don't apply their
    insurance the same across the board, so contractor A may have
    different insurance costs than contractor B. The employee pools
    may be different. So those affect what exact percentages we'd
    get in the range of security.
        General McManus.
        General McManus. Sir, on the LOGCAP contract, my security
    costs, as part of the contract cost, tend to be on the lower
    range, around the 5 percent category. That's been consistent
    from the origin of the operation. That may change over time,
    but right now we're on the lower end of that range, just right
    at 5 percent.
        Senator Levin. Now, does the Army provide the security on
    those contracts?
        General McManus. Sir, for the LOGCAP contracts, the answer
    is yes. On the resupply missions we require them to integrate
    with the theater security operations. So the military provides
    security for those contractor logistics operations that we
    provided under the LOGCAP instrument.
        Senator Levin. So that's one of the reasons why costs are
    lower.
        General McManus. Yes, sir. Of course, by the same token,
    the insurance costs may be variable, because some employees are
    in safer areas, some in more dangerous missions are not
    exposed, but you're exactly right.
        General Strock. Sir, if I might, also. I think the LOGCAP
    contract generally is focused on fixed installations and the
    lines of communication between those; whereas, the construction
    contracts tend to be out in the community, and, hence, the
    security requirements are higher and more costly, and they
    cannot take advantage of military security.
        Senator Levin. Thank you.
        Now, Ms. Ballard, it's been reported that we're currently
    paying for as many as 20,000 private security employees in
    Iraq. Now, you didn't have a range before, you wanted to supply
    numbers, for the record, I think, to Senator Reed, but does
    that sound like an approximation, or do any of you know, in
    terms of the number of private security employees in Iraq?
    That's been a published figure or estimate, I believe.
        Ms. Ballard. Sir, the 20,000 number that I'm aware of is
    reported in relation to all contractors in Iraq, and I am
    looking at Army contractors in Iraq. As I indicated, that
    number fluctuates. But General Strock has additional
    information.
        Senator Levin. Okay.
        General Strock. Yes, I'm not sure where this fits into the
    big picture, sir, but due to the sabotage that we were
    experiencing on the oil infrastructure, we created a thing
    called Task Force Shield, which is a security force of about
    14,000; 150 of them are non-Iraqi, but the bulk of those are
    Iraqi security personnel who guard the oil infrastructure. So
    that number does not sound out of line if you include the Task
    Force Shield.
        Senator Levin. Okay. In terms of the legal status, you
    believe that that legal status, Ms. Ballard, is governed by
    interim administrative law, is that correct? After July 1, I
    mean.
        Ms. Ballard. Yes, sir, the transitional administrative law.
        Senator Levin. General Strock, on March 8, 2003, the Corps
    of Engineers awarded a sole-source contract to Halliburton.
    This was for the reconstruction of the Iraqi oil fields.
        General Strock. Yes, sir.
        Senator Levin. On March 25, 2003, there was a fact sheet
    that was issued that stated that the Army Corps of Engineers
    had ``put in place a bridge contract with Brown and Root, which
    will be used for an interim period as a bridge to
    competition.'' Then it was stated as follows, that ``the Corps
    of Engineers will limit orders under this contract to only
    those services necessary to support the mission in the near
    term.'' Now, that sole-source contract remained in place for
    roughly a year, in which time more than $2 billion worth of
    orders were placed under the contract. For a period of 10
    months, roughly, the DOD fell short, then, on a promise--and
    there were more than one--about getting a fully competitive
    follow-on contract in place while the value of the work awarded
    to Halliburton continued to rise. I just want to go through
    some of these commitments that were made to us.
        In April of last year, the Army Corps said that they
    expected to award a fully-competitive contract in June. In May,
    the Army Corps said they expected the competitive award to be
    made by August. In June, the Army Corps delayed the contract
    award until October. In October, the Army Corps delayed the
    contract award until December. In December, the Army Corps
    delayed the Army contract until January. Then new contracts
    were finally awarded on January 16.
        Now, the amount of work that was awarded under the original
    Halliburton contract, which was $700 million at the end of
    August, had grown to more than $2.2 billion by January. By
    contrast, the maximum value of the two follow-on contracts,
    taken together, is only $2 billion.
        Now, even after the award of the follow-on contracts, the
    DOD waited some 2 months to release supplemental money to fund
    these contracts. Consequently, work continued to be performed
    under the original Halliburton contract for a substantial
    period after the award of the competitive contracts.
        Why didn't the Army Corps live up to that commitment to
    rapidly award a competitive contract and to limit orders under
    the Halliburton contract to only those services that were
    immediately needed?
        Ms. Ballard. Senator, if I could, I'd like to address the
    aspects of the date associated with awarding the contracts.
        Originally, sir, we did start planning immediately for the
    competition for oil, the Restore Iraqi Oil contract. At the
    time that we began our acquisition strategy, there were several
    things that needed to be overcome. For example, at that time,
    we were just reaching the end of hostilities, and there were
    laws on the books that would preclude us from actually having a
    contract in Iraq. This was intended to be a full and open
    competition. Also, the Trade Agreements Act had to be
    considered. We had Coalition partners that were not covered
    under the Trade Agreements Act, and so we needed to address
    that. We had to determine the best acquisition strategy, we had
    to develop the solicitation, and several other actions that
    went into getting proposals from offerors.
        Once the proposals were received, sir, the evaluation
    process took considerable time as we made sure that not only it
    was a competitive acquisition, that each offer that was
    received got a full evaluation, and that we leveraged the
    expertise of members of the community, including DCMA and the
    DCAA, personnel from Tank-Automotive and Armanents Command
    (TACOM). So we brought in the best experts we could to make
    decisions about how we would structure, run, and evaluate this
    contract. That continued to move that award date to the right.
        Senator Levin. But weren't those factors known in March
    2003, when that fact sheet was issued which said that the Corps
    would limit orders under this contract to only those services
    necessary to support the mission in the near term?
        Ms. Ballard. Yes, sir. Those factors were known. However,
    what we didn't know is how much time it would take to execute a
    fully substantiated decision on who should receive the award.
        General Strock.
        General Strock. Yes, if I might add, the mission did change
    over time. In March we really didn't fully understand what we
    were getting into.
        I would like to point out that, as I look at the invoices
    we received on that to date, we have about $2 billion of
    invoices of about $2.5 billion that's been done. Of that $2
    billion, approximately $1.4, $1.3, something like that, has
    been for the acquisition of refined fuels and was not directly
    associated with the reconstruction of the oil industry, which
    was the focus of that contract and task force. We did not
    anticipate that we would be in the fuel-delivery business, and
    so that was a huge expense that was added onto this contract. I
    can get you the details of that for the record, sir.
        [The information referred to follows:]

        Given the unforeseen circumstances we encountered--the domestic
    fuel crisis, the sabotage, and the escalating post-war violence--we
    don't believe the time required to end the bridge contract with
    Kellogg, Brown, and Root and award the competitive contracts for
    Restore Iraqi Oil (RIO) was excessive. The acquisition strategy took
    about 3 months to draft and be approved. The presolicitation conference
    was held in July. At that time we said we would award two follow-on
    contracts by mid- to late-October. As we were preparing our final
    analyses of the proposals submitted, the corps realized we would
    probably exceed the maximum amount allowed within 2 to 3 months and
    would be required to recompete basically the same contract within a few
    months. It made sense to issue an amendment that allowed the companies
    that had submitted proposals to reevaluate their proposals based on a
    higher projected amount ($800 million in the north and $1.2 billion in
    the south.) That amendment and the desire to ``get it right'' delayed
    the award until January 2004. Our goal in this process was to find the
    best possible contractor working under the best possible contract, not
    necessarily award a contract by a specific date.

        Senator Levin. Thank you.
        General Strock, Halliburton's performance on the sole-
    source contract raised serious questions about the adequacy of
    its estimating, accounting, labor, billing, budgeting,
    compensation, material, and purchasing systems. As a result,
    the DCAA issued a warning on January 13, 2004, which said the
    following, ``A previous audit report was issued on August 20,
    2002, which concluded that BRS' estimating system and related
    internal control policies and procedures were adequate. The
    purpose of this memorandum is to inform you DCAA no longer
    believes the opinion expressed on August 20, 2002, is accurate.
    Collectively, the deficiencies described above bring into
    question Halliburton's ability to consistently produce well-
    supported proposals that are acceptable as a basis for
    negotiation of fair and reasonable prices.'' So that's the DCAA
    warning.
        Despite receiving the memorandum, the Army Corps awarded
    Halliburton a follow-on competitive contract 3 days later. The
    Army Corps' source-selection memorandum gave Halliburton top
    ratings for its business systems, stating that Halliburton
    ``showed the ability to perform cost accounting on a daily
    basis''--that's in quotes--in Iraq, and that its purchasing
    system, ``has been government approved for over 10 years, and
    it has an exceptional understanding of best-value procurement
    and property control.''
        My question. Is the Army Corps' failure to heed DCAA's
    warning about Halliburton's performance and its internal
    controls unique to this contract, or is there some kind of a
    broader breakdown in the ability of different parts of the DOD
    contracting system to communicate with each other?
        Ms. Ballard. Senator, if I may just address a couple of
    those points.
        DCAA was a participant in our evaluation of that award that
    was made to KBR. Additionally, sir, just prior to the award, in
    accordance with the regulation, the contracting officer made an
    affirmative determination of responsibility, meaning that KBR
    could, in fact, receive the award. The regulation also requires
    that when there are findings regarding contractor systems, that
    we have an obligation to proceed through due process. We must
    identify the deficiencies, we must assess those, and determine
    whether or not a contractor can correct them. To not award a
    contract to KBR on the basis of DCAA's advice to us would
    constitute, potentially, a de facto debarment. The courts have
    continually held that we cannot deny awards to contractors on
    the basis of allegations.
        Senator Levin. Okay, now, what you're saying is you cannot
    bar them from offering a proposal. But that's a different issue
    from how you evaluate their performance. The evaluation of
    their performance was pretty tough here. It brings into
    question, according to DCAA, Halliburton's ability to
    consistently produce well-supported proposals that are
    acceptable as a basis for negotiation. I mean, that's pretty
    strong language there. Yet the contract was awarded anyway. So
    I'm not talking about a ban on their offering bids. I'm talking
    about evaluating their performance.
        Ms. Ballard. Let me clarify, Senator. It is not to say that
    I am speaking to a ban, other than to note that if we did not
    award to them when they have been evaluated in accordance with
    the regulations to be the best value offer, or are including
    consideration of their estimating system, including an
    assessment as to whether or not they can correct any systemic
    issues, in effect, we are not complying with what the courts
    have continually held. We were bound to evaluate them based on
    that proposal. We did rely on DCAA membership. Senator, I
    personally requested that DCAA provide a senior auditor, who
    did participate in that evaluation, not only at the working
    level of that evaluation, but then on a senior advisory board.
    So DCAA participated. There was a past-performance evaluations
    done, and the conclusion of the people who evaluated that was
    that KBR could perform this contract.
        Senator Levin. Well, in other words, there's a disconnect
    inside DCAA, then.
        Ms. Ballard. No, sir, I'm not----
        Senator Levin. But, I mean, this is a DCAA warning.
        Ms. Ballard. It is a DCAA warning that----
        Senator Levin. Did the person who represented them at that
    conference that you just described not heed their own warning?
        Ms. Ballard. That warning came in essentially at the end of
    the evaluation period. The evaluation did consider past
    performance. It considered evaluation information that was
    obtained from DCAA. That one incident would not be
    significant--or substantial enough, let me say, to prevent an
    award to KBR.
        Senator Levin. Well, it's not just one incident; it's the
    whole estimating system.
        Ms. Ballard. Yes, sir.
        Senator Levin. Related internal control policies and
    procedures are inadequate. It said, at one point, they were
    adequate. Then this warning says that the DCAA no longer
    believes that that's accurate. I mean, that's more than just
    one incident. That's a pretty strong condemnation, it seems to
    me, of the whole estimating system and internal control
    policies. Do you disagree with that?
        Ms. Ballard. Sir, I would say that DCAA provides us a
    service in reviewing the estimating systems. They provide
    advice to the contracting officer. We had reviewed that
    proposal, we determined that the contractor could perform.
    Whatever findings there were made by DCAA, the contractor could
    correct those findings. The regulatory requirement is that we
    have to make a determination that a contractor cannot correct--
    we have to go through due process. So even though DCAA had
    these findings that were in the letter, we could not deny an
    award to the contractor on the basis of that.
        Senator Levin. So that if a contractor's performance has
    been as inadequate as this one is, if you believe it's
    correctable, you have to ignore their previous performance?
        Ms. Ballard. No, sir. We consider their previous
    performance, but we cannot deny them an award when it is
    correctable.
        Senator Levin. Can you consider the previous performance in
    awarding something?
        Ms. Ballard. Yes, sir, and we do.
        Senator Levin. Is that called denying them an award, or is
    that just called considering previous performance?
        Ms. Ballard. What I am trying to communicate, sir, is that
    we did, in fact, consider this in their previous performance.
    We considered all the data made available to us by DCAA, and
    the conclusion of the evaluation team was that it was
    appropriate to award to KBR, and the procuring contracting
    officer (PCO) made an affirmative determination of
    responsibility.
        Senator Levin. Are you sure that this warning was
    considered at that time?
        Ms. Ballard. I am certain that the contracting officer made
    an affirmative determination----
        Senator Levin. No, I know that, but----
        Ms. Ballard.--responsibility. I can't----
        Senator Levin. Do you know whether----
        Ms. Ballard.--provide for you the date line.
        Senator Levin.--that warning was considered?
        Ms. Ballard. Sir, I'd have to take that for the record,
    because you're asking me a timing question.
        [The information referred to follows:]

        Yes, the DCAA Flash Warning Memorandum of January 13, 2004, was
    considered by the contracting officer in reaching his Responsibility
    Determination.
        As the source selection for the follow-on Restore Iraqi Oil (RIO)
    contract was being reviewed by Army General Counsel (AGC) prior to the
    January 16, 2004 award date, the AGC required the United States Army
    Corps of Engineers (USACE) Chief Counsel to personally review the
    source selection documentation in Dallas, Texas.
        While that review was being completed, USACE received a copy of the
    memorandum from DCAA. The memorandum was reviewed and a determination
    made by the contracting officer that the memorandum would be addressed
    in his responsibility determination.
        The responsibility determination was prepared as a memorandum for
    record dated January 15, 2004. The contracting officer determined that
    the estimating system issues should not change current source selection
    determinations or contract award since they could be overcome and the
    contractor could be brought into compliance given a reasonable
    opportunity.
        The responsibility determination was reviewed by counsel and the
    source selection authority and assessed as adequate to support contract
    award.

        Senator Levin. Yes, very much so, because it was just,
    what, 5 days later, something like that? That despite a warning
    like that--I mean, were there any meetings between the time of
    that warning and the time the contract was awarded, if it's
    only a 3-day period later?
        Ms. Ballard. Sir, I'm saying----
        Senator Levin. Were you involved personally in a meeting?
        Ms. Ballard. Yes, I was involved personally.
        Senator Levin. Do you remember whether the DCAA person who
    was involved with you at that deliberation was aware of this?
    Do you have any idea?
        Ms. Ballard. I was involved to the extent that I received
    briefings regarding the decisions on the source selection. I
    would have to go back, for the record, and get you information
    on that.
        [The information referred to follows:]

        The DCAA panelist who served on the Source Selection Panel was in
    fact aware of the DCAA Flash Report and participated in communications
    on the subject.

        Ms. Ballard. But I do know personally that an affirmative
    determination of responsibility was made by the PCO. I know
    personally because I discussed it with General Counsel that
    even if we had received this letter 5 days before the award
    decision, due process would be required, and we could not deny
    the contractor an award.
        Senator Levin. Is that a written opinion?
        Ms. Ballard. Sir, there is actually legal case law
    regarding our inability--the courts have continually held that
    we cannot deny contractors awards on these sorts of bases.
        Senator Levin. On the sort of a warning like that? You've
    got a case that says that?
        Ms. Ballard. Yes, sir. In fact, Myers & Myers versus the
    United States Postal Service would be one reference. General
    Counsel has pulled several, because we wanted to consider every
    legal aspect of this prior to making a decision on the award.
        Senator Levin. I'd be interested in you giving us those
    citations that say that a warning like this cannot be
    considered in awarding a contract, because what's the point of
    the warning?
        Ms. Ballard. It is advice to the contracting officer, sir,
    but we will provide that for the record.
        [The information referred to follows:]

        Courts have consistently held that imposing the consequences of a
    suspension or debarment, without complying with the agency's due
    process procedures of providing the contractor notice and an
    opportunity to be heard, is tantamount to an improper de facto
    debarment. Following are two case law examples:

              In Myers & Myers, Inc. v. United States Postal Serv., 527
            F.2d 1252 (2d Cir. 1975), the court found de facto debarment
            where the Postal Service refused to renew six delivery
            contracts because of suspected criminal conduct.
              In Leslie & Elliot Co. v. Garett, 732 F. Supp. 191 (D.D.C.
            1990), a de facto debarment was found because the Navy attacked
            the contractor's integrity and developed a policy to declare
            the contractor nonresponsible on all contracts.

        Senator Levin. Do either of you have comment on that?
        General Strock. No, sir. I would defer to Ms. Ballard for
    this. I was not directly involved in this, and can't speak with
    any authority over why these decisions were made and the
    timing. So--
        General McManus. Sir, nor was I.
        Senator Levin. It goes back, Ms. Ballard, to a fundamental
    question. It's not whether they can be denied an award. Of
    course you can't deny someone an award if they're entitled to
    an award. The question is whether or not, in deciding who
    should receive a contract, that kind of performance and the
    warning about it can be considered. It's obvious that it can be
    considered.
        Ms. Ballard. Yes, sir. I'm not denying that it can be
    considered.
        Senator Levin. Well, if it can be considered, we have to
    know why was it considered. You're going to tell us that for
    the record, because you don't know for sure.
        Ms. Ballard. For the timing purposes of it, sir. You're
    citing the specific date----
        Senator Levin. That's correct.
        Ms. Ballard.--of the warning in relation to when the
    decision was----
        Senator Levin. That's correct.
        Ms. Ballard.--made on the contractor----
        Senator Levin. That's correct.
        Ms. Ballard.--selected.
        Senator Levin. So you're going to let us know whether this
    was considered----
        Ms. Ballard. Yes, sir.
        Senator Levin.--and if it wasn't considered, why it wasn't
    considered.
        Ms. Ballard. Yes, sir.
        [The information referred to follows:]

        Given the unforeseen circumstances we encountered--the domestic
    fuel crisis, the sabotage, and the escalating post-war violence--we
    don't believe the time required to end the bridge contract with
    Kellogg, Brown, and Root and award the competitive contracts for
    Restore Iraqi Oil (RIO) was excessive. The acquisition strategy took
    about 3 months to draft and be approved. The pre-solicitation
    conference was held in July. At that time, we said we would award two
    follow-on contracts by mid to late October. As we were preparing our
    final analyses of the proposals submitted, the Corps realized we would
    probably exceed the maximum amount allowed within 2 to 3 months and
    would be required to recompete basically the same contract within a few
    months. It made sense to issue an amendment that allowed the companies
    that had submitted proposals to reevaluate their proposals based on a
    higher projected amount ($800 million in the north and $1.2 billion in
    the south.) That amendment and the desire to ``get it right'' delayed
    the award until January 2004. Our goal in this process was to find the
    best possible contractor working under the best possible contract, not
    necessarily award a contract by a specific date.

        Senator Levin. You'll let us know that for the record.
        Okay, thank you. Thank you all.
        Senator Akaka. Thank you, Senator Levin.
        I want to follow up on a question that was asked by
    Chairman Ensign regarding oversight of existing contracts. I
    want to ask Ms. Ballard, Do you believe that it's appropriate
    to rely on contractor personnel to oversee the efforts of other
    contractors?
        Ms. Ballard. Senator, contractors do not exercise any
    inherently governmental functions, so, no, we follow that rule
    very closely, sir, that they don't exercise inherently
    governmental functions.
        Senator Akaka. I want to thank our panel, too, Secretary
    Ballard, General Strock, and General McManus, for appearing
    today at our hearing. I think it has answered some of our
    questions, and I want to thank you for coming.
        On behalf of the chairman of this subcommittee, Senator
    Ensign, I adjourn this hearing.
        [Questions for the record with answers supplied follow:]

                   Question Submitted by Senator John Ensign

                       DEFENSE BASE ACT INSURANCE PROGRAM

        1. Senator Ensign. Secretary Wynne, you testified last week that
    the Department of Defense (DOD) and Army Corps of Engineers intend to
    move forward with the implementation of a DOD centrally managed Defense
    Base Act insurance program that would rely on one insurance firm--in
    effect a monopoly--to cover all workers' compensation insurance abroad
    for U.S. defense contractors. Given the realities we now face in Iraq
    and elsewhere, can one insurance provider actually cover the rising
    risks without exposing itself and, perhaps, ultimately the DOD to a
    rash of unmanageable claims?
        Secretary Wynne. We have encouraged the U.S. Army Corps of
    Engineers (USACE) to pursue a Defense Base Act (DBA) workers'
    compensation insurance pilot program because we received complaints
    last year from companies doing business in Iraq (and from the
    Professional Services Association) that: (1) the rates for this
    mandatory insurance had increased precipitously--going from $4 to over
    $20 per $100 of labor costs, and (2) in some cases, they could not get
    DBA insurance at all. This difficult DBA insurance market hit small
    businesses particularly hard because there is often a minimum premium
    of $15,000, regardless of how few contractor employees are overseas or
    how short a time period they will be there.
        The USACE pilot program we envision is based on two similar,
    successful programs at the Agency for International Development (AID)
    and the Department of State (DOS). AID has been awarding its
    competitive requirements contracts for DBA insurance since the late
    1970s, while the DOS program began in 1992--with regular recompetitions
    for these contracts every 5 years. The DBA insurance rates under both
    the AID and DOS programs have been very reasonable, with no minimum
    premium requirements.
        It is incorrect to categorize the planned USACE pilot program as a
    monopoly or sole source procurement. As with the DBA programs at AID
    and DOS, the USACE pilot program contract will be competed; but after
    award, all requirements for DBA insurance on USACE contracts will be
    placed with the winning contractor for an initial period of 2 years.
    This is no different from what DOD does on other competitive
    requirements-type contracts. If the USACE pilot program proves
    successful, it will be periodically recompeted thereafter. We also want
    to emphasize that this is not a DOD-wide program; it will be limited to
    the DBA insurance requirements of USACE contractors only.
        USACE currently plans to issue a draft request for proposals (RFP)
    for its DBA Insurance pilot program and then to carefully consider any
    industry comments before issuing a final RFP and evaluating proposals.
    If the proposals submitted for the pilot program are not advantageous
    to the government based on comparison with open market DBA rates and
    availability, USACE will not award a contract. However, in view of the
    longstanding, successful programs at AID and DOS, we expect that the
    USACE pilot program will also prove successful.
                                     ______

                   Questions Submitted by Senator John McCain

                               LEASE REVIEW PANEL

        2. Senator McCain. Secretary Wynne, on October 15, 2002, you
    established the Tanker Lease Review Panel (LRP) and subsequently served
    as the panel's co-chairman. To your knowledge, has the LRP ever
    favorably recommended to SECDEF or anyone else the execution of the
    lease for 100 Boeing 767 Tankers?
        Secretary Wynne. The Leasing Review Panel was established on
    November 1, 2001, in a joint memorandum between the previous Under
    Secretary of Defense (Acquisition, Technology, and Logistics), Pete
    Aldridge, and the Under Secretary of Defense (Comptroller), Dov
    Zakheim. This panel was formed to review the benefits of leasing, prior
    to the 767 lease proposal being put on the agenda. A working group of
    the Leasing Review Panel first reviewed the 767 lease on December
    7,2001, continued to evaluate the pros and cons of both leasing and
    purchasing 767 tanker aircraft, and presented its findings periodically
    to the Leasing Review Panel. Subsequently, Secretary Aldridge
    recommended to the Secretary of Defense that the tanker lease proceed
    and signed the lease decision memorandum on May 23, 2003.

        3. Senator McCain. Secretary Wynne, aside from the Boeing 767
    tanker lease, what other leases have been or are being considered by
    the LRP? Please include for the record, the names of the lease
    programs, the projected costs, and the conclusions reached by the LRP.
        Secretary Wynne. The current lease of four Air Force C-40 (B737)
    aircraft was approved by the Leasing Review Panel on June 20, 2002. The
    total projected cost of the program was $378.5 million. The panel
    determined that a lease would be more cost-effective than a purchase.

        4. Senator McCain. Secretary Wynne, I assume the LRP was
    established to ensure a competitive process and make sure the taxpayer
    received a good deal in the spirit of open and fair competition. Please
    respond to the following: Did the LRP suggest competing engines between
    Pratt & Whitney and General Electric? Did the LRP suggest competing the
    contractor logistics support (CLS) function? Did the LRP suggest
    competing the modification of the tankers?
        Secretary Wynne. Consistent with its charter, the LRP evaluated the
    wisdom of leasing, rather than purchasing, tanker aircraft. The LRP did
    not make specific recommendations regarding subsystem acquisition.

        5. Senator McCain. Secretary Wynne, every report on the tanker
    lease has shown that the government did not get a good deal and the
    taxpayer was ripped off in the order of about $5 billion. Is that
    correct, or can all of these independent, studies, investigations, and
    reports be wrong?
        Secretary Wynne. The suspension the program is currently under
    serves the purpose of allowing the Department to review the studies
    that have been and are currently being conducted, such as the Analysis
    of Alternatives and the Mobility Capabilities Study. When the analysis
    of all of the studies has been completed, the Department will choose
    the best course for both the warfighter and the American taxpayer.

        6. Senator McCain. Secretary Wynne, by what directive was the
    Leasing Review Panel established?
        Secretary Wynne. The memorandum that established the Leasing Review
    Panel was signed on November 1, 2001, by the former Under Secretary of
    Defense (Acquisition, Technology, and Logistics) and Under Secretary of
    Defense (Comptroller). The purpose of the panel was to evaluate
    proposals for multiyear leases under major automated information
    systems programs and major defense acquisition programs, as well as
    proposals for multiyear leases projected to cost a total of $250
    million or more.

        7. Senator McCain. Secretary Wynne, why did you not recommend
    convening a Defense Acquisition Board instead of a Lease Review Panel?
        Secretary Wynne. The Under Secretary of Defense (Acquisition,
    Technology, and Logistics) at the time, Pete Aldridge, used the Leasing
    Review Panel to inform his decision, prior to signing the lease
    decision memorandum on May 23, 2003.

        8. Senator McCain. Secretary Wynne, is it possible that if you had
    recommended a Defense Acquisition Board (DAB), and followed, instead of
    bypassed, the established acquisition process, alternatives to the
    Boeing 767 lease could have been assessed, a more transparent
    acquisition strategy could have been approved, and acquisition
    regulations could have been followed?
        Secretary Wynne. In his role as the Defense Acquisition Executive,
    the Under Secretary of Defense (Acquisition, Technology, and
    Logistics), Pete Aldridge, used the Leasing Review Panel to inform his
    decision to proceed with the 767 tanker program prior to signing the
    lease decision memorandum on May 23, 2003. The acquisition process
    allows considerable flexibility in providing the best value to the
    warfighter and the taxpayer. On occasion, we waive traditional
    requirements in order to achieve that objective. In light of legitimate
    questions regarding the proposed lease of 767 tanker aircraft, however,
    the Department has undertaken numerous studies, including an analysis
    of alternatives. The Secretary of Defense has suspended the program
    until we have had an opportunity to evaluate the results of those
    studies. Upon completing our evaluation, we will be in a better
    position to determine whether we should meet the Air Force's aerial-
    refueling requirements through innovative or traditional means.

        9. Senator McCain. Secretary Wynne, in light of all that has
    happened with the Boeing Tanker 767 program, what DOD guidance, policy
    directives, changes to the FAR/DFAR, or drafting assistance for
    legislation have you instituted or proposed over the last 2 years to
    prevent this kind of taxpayer ripoff from ever happening again?
        Secretary Wynne. As part of the review of this program, I
    recommended, and the Deputy Secretary of Defense subsequently directed,
    that the Industrial College of the Armed Forces (ICAF) be tasked to
    conduct a study of lessons learned regarding the proposed lease of 767
    tanker aircraft. This study was intended to provide the Department with
    valuable insight into areas in which we can improve our processes with
    regard to leasing and the procurement of commercial items. ICAF
    delivered its report on April 20, 2004. Additionally, I have asked the
    Defense Acquisition University to form a task force to review lessons
    learned from the Defense Science Board study, the DOD Inspector
    General's Report, and the ICAF study, to determine whether changes or
    additions should be made in the form of policy, guidance, or training.
    I have requested the task force's report by September 1, 2004.

        10. Senator McCain. Secretary Wynne, when is this committee going
    to receive the documents from the DOD that have been requested
    regarding the Tanker Lease?
        Secretary Wynne. I understand that the DOD Office of the General
    Counsel delivered the first set of documents regarding the program to
    the Senate Committee on Armed Services on July 13, 2004. This matter
    remains the subject of active discussions between representatives of
    the Committee on Armed Services, the Department, and the White House.

                          CORROSION CONTROL INITIATIVE

        11. Senator McCain. Secretary Wynne, you mentioned the corrosion
    control initiative that you are applying to systems like the C-130, EA-
    6B, and helicopter programs in your statement. Why did you not include
    KC-135s in that group as well?
        Secretary Wynne. With regard to the KC-135 specifically, there is
    an extensive program in place to manage corrosion control. The program
    includes a field-level maintenance and inspection program and a 60-
    month programmed depot maintenance cycle (shorter for aircraft
    permanently stationed in corrosive environments).

                                   TANKER ORD

        12. Senator McCain. Secretary Wynne, it would be commendable if--as
    you mentioned in your statement--your office really did pursue
    acquisition excellence by ensuring cost estimates encompassed total
    ownership, affordability, and joint warfighting requirements. Why does
    the tanker lease provide almost no cost transparency, a $5.4 billion
    overcharge to the taxpayer, and manipulation of the operational
    requirements document?
        Secretary Wynne. The Department is dedicated to acquisition
    excellence, and will seek the best value for the taxpayer and
    capability for the warfighter in any procurement. The merits of the
    tanker lease program, which is currently under a DOD-imposed suspension
    in order gather additional information that will be useful in
    evaluating the proposal, are being examined. Any decision regarding the
    future of the program will reflect these values.

        13. Senator McCain. Secretary Wynne, do you accept the fact that
    the Operational Requirements Document (ORD) was tailored specifically
    for the Boeing 767, or do you require more investigations to point that
    out to you?
        Secretary Wynne. The Operational Requirements Document is part of
    the Joint Capabilities Integration and Development System, It is a
    warfighter document, overseen and issued by the Joint Requirements
    Oversight Council (JROC), I am not a member of the JROC, and therefore
    cannot comment on the integrity of that process, However, I do rely on
    requirements validated by the JROC in coming to an acquisition
    decision.

                                DEFENSE BASE ACT

        14. Senator McCain. Secretary Wynne, the DBA requires defense
    contractors to provide necessary workers' compensation insurance to
    overseas employees. Today, employees receive this insurance through a
    variety of free-market means, including insurance policies purchased by
    contractors and subcontractors from a broad range of insurance
    carriers, as well as self-insurance by certain larger contractors.
        It has come to my attention that DOD is moving forward with a
    proposal for a contract to provide for a centrally-managed source of
    Workers' Compensation Insurance. This program would in effect eliminate
    competition for DBA insurance rates, effectively giving one company a
    monopoly in the marketplace. This program would replace the current
    workers compensation insurance system with a mandatory one-size-fits-
    all insurance program for all contractors and subcontractors, provided
    by a single insurance company.
        While I understand DOD's concern over the expense of the war effort
    in Iraq, I do not think that DBA insurance is an overwhelming or
    unreasonable contributor to the overall cost of civilian contractors
    employee compensation packages. I also do not think DOD's anxiety over
    their requests for funding from Congress, should result in their
    imprudently resorting to a monopoly.
        I understand that in last week's Readiness and Management Support
    Subcommittee hearing, you indicated that the DOD could achieve a
    savings of 5 to 1 with a sole source program. Please explain how you
    arrive at such a cost savings and provide me with a detailed analysis
    supporting your assertions. Please include in this analysis your study
    of the progress of DBA rates since May 2002 and compare that to the
    current DBA rates with comparable, less hazardous exposure in the
    United States.
        Secretary Wynne. We have encouraged the U.S. Army Corps of
    Engineers (USACE) to pursue a DBA workers' compensation insurance pilot
    program because we received complaints last year from companies doing
    business in Iraq (and from the Professional Services Association) that:
    (1) the rates for this mandatory insurance had increased precipitously
    going from $4 to over $20 per $100 of labor costs (an alarming 5 to 1
    increase), and (2) in some cases, they could not get DBA insurance at
    all. This difficult DBA insurance market hit small businesses
    particularly hard because there is often a minimum premium of $15,000,
    regardless of how few contractor employees are overseas or how short a
    time period they will be there.
        The USACE pilot program we envision is based on two similar,
    successful programs at the Agency for International Development (AID)
    and the Department of State (DOS). AID has been awarding its
    competitive requirements contracts for DBA insurance since the late
    1970s, while the DOS program began in 1992--with regular recompetitions
    for these contracts every 5 years. The DBA insurance rates under both
    the AID and DOS programs have been very reasonable, with no minimum
    premium requirements.
        As I stated in the Readiness and Management Support Subcommittee
    hearing, it is incorrect to categorize the planned USACE pilot program
    as a monopoly or sole source procurement. As with the DBA programs at
    AID and DOS, the USACE pilot program contract will be competed. After
    award, all requirements for DBA insurance on USACE contracts will be
    placed with the winning contractor for an initial period of 2 years.
    This is no different from what DOD does on other competitive
    requirements-type contracts. If the USACE pilot program proves
    successful, it will be periodically recompeted thereafter. We also want
    to emphasize that this is not a DOD-wide program; it will be limited to
    the DBA insurance requirements of USACE contractors only.
        At this time, I cannot estimate the savings. USACE currently plans
    to issue a draft request for proposals (RFP) for its DBA insurance
    pilot program and then to carefully consider any industry comments
    before issuing a final RFP and evaluating proposals. After analysis if
    the proposals submitted for the pilot program are not advantageous to
    the government based on comparison with open market DBA rates and
    availability, USACE will not award a contract. However, in view of the
    longstanding, successful programs at AID and DOS, we expect that the
    USACE pilot program will also prove successful.

                    IRAQI CONTRACTS--FIRST RESPONDER NETWORK

        15. Senator McCain. Secretary Wynne, recent media reports in the
    Los Angeles Times on April 29, 2004, the Anchorage Daily News on May 1,
    2004, the Sunday Times of London on May 2, 2004, and the Washington
    Times on May 9, 2004, allege that the Deputy Under Secretary of Defense
    for International Technology Security engaged in conduct, that, if
    true, would raise serious concerns that Federal procurement integrity
    and ethics laws and regulations have been violated. Please provide, for
    the record, answers to each of the following questions, based on a
    review and analysis of all communications between Mr. Shaw and anyone
    (a) within the Department of Defense or the DOD Secretariat, (b) the
    Coalition Provisional Authority and/or the Iraqi Ministry of
    Communications, or any other Iraqi Ministry, (c) anyone associated
    with, acting on behalf of or representing those entities known for
    International Technology Security have responsibility to establish,
    define or dictate ``requirements'' for the Iraqi Ministry of
    Communications' ``First Responder Network'' FRN or have authority to
    communicate, demand, or otherwise attempt to or participate in the
    determination of any requirement including the scope of work for the
    FRN?
        Secretary Wynne. I did not provide specific direction or authority
    to the Office of the Deputy Under Secretary for International
    Technology Security regarding Iraqi Telecommunications matters and to
    my knowledge he had no responsibilities to establish, define or dictate
    requirements for Iraqi Ministry of Communications' First Responder
    Network. In August 2003, I signed a Memorandum of Understanding (MOU)
    with the DOD Inspector General (DODIG), pursuant to which Dr. John A.
    Shaw carried out duties in the investigation of Iraqi
    telecommunications matters. Dr. Shaw's report came out May 11, 2004.
    Attempts to discredit Dr. Shaw and his report on Iraqi
    telecommunications contracting matters were brought to the attention of
    the DODIG. Based on the Office of the Inspector General's working
    relationship with Dr. Shaw, the DODIG appropriately referred the entire
    matter to the Federal Bureau of Investigations (FBI) for any action the
    FBI deemed appropriate. Any questions concerning FBI activities in
    response to the referral should be directed to the FBI.

        16. Senator McCain. Secretary Wynne, did Deputy Under Secretary
    Shaw communicate, demand, or otherwise attempt to or actually
    participate in the determination of any requirement including the scope
    of work for the First Responder Network?
        Secretary Wynne. In August 2003, I signed a MOU with the DODIG,
    pursuant to which Dr. John A. Shaw carried out duties in the
    investigation of Iraqi telecommunications matters. Dr. Shaw's report
    came out May 11, 2004. Attempts to discredit Dr. Shaw and his report on
    Iraqi telecommunications contracting matters were brought to the
    attention of the DODIG. Based on the Office of the Inspector General's
    working relationship with Dr. Shaw, the DODIG appropriately referred
    the entire matter to the Federal Bureau of Investigations (FBI) for any
    action the FBI deemed appropriate. Any questions concerning FBI
    activities should be directed to the FBI.

        17. Senator McCain. Secretary Wynne, was an attempt made by the
    consortium consisting of NANA Pacific, Guardian Net, Qualcomm, and
    Lucent, to surreptitiously insert into the scope of the Iraqi First
    Responder NetWork FRN, without CPA request or approval, language that
    would have effectively given the Guardian Net consortium the
    requirement to provide Iraqi nationwide commercial mobile phone
    capacity even though such requirement was never and is not now a
    requirement of the FRN?
        Secretary Wynne. In August 2003, I signed a MOU with the DODIG,
    pursuant to which Dr. John A. Shaw carried out duties in the
    investigation of Iraqi telecommunications matters. Dr. Shaw's report
    came out May 11, 2004. Attempts to discredit Dr. Shaw and his report on
    Iraqi telecommunications contracting matters were brought to the
    attention of the DODIG. Based on the Office of the Inspector General's
    working relationship with Dr. Shaw, the DODIG appropriately referred
    the entire matter to the FBI for any action the FBI deemed appropriate.
    Any questions concerning FBI activities should be directed to the FBI.

        18. Senator McCain. Secretary Wynne, throughout April 2004, did the
    First Responder Network PRN statement of work/scope of work for any
    sole-source 8a contract contemplated by CPA officials for an Iraqi
    police radio pilot program include any requirement for the inclusion of
    a commercial mobile phone capability?
        Secretary Wynne. No, the First Responder Network statement of work
    in the April 2004 ID-IQ contract did not include a requirement for
    inclusion of commercial mobile phone capability.

        19. Senator McCain. Secretary Wynne, did the scope of work/
    statement of work issued by the CPA Head of Contracting Activity and
    CPA Program Management Office, to the NANA Pacific Guardian Net
    consortium for the Iraqi police radio pilot program include any
    requirement for commercial mobile phone capability?
        Secretary Wynne. No, there was no CPA statement of work to NANA
    Pacific that included a requirement for commercial mobile phone
    capability.

        20. Senator McCain. Secretary Wynne, did NANA Pacific unilaterally
    change and/or amend the scope of work/statement of work for the Iraqi
    police radio pilot program and submit it to the CPA contracting office
    stating: ``The FRN shall be designed so that the operators of the
    network shall be able to offer nationwide commercial cellular service
    on a nationwide basis throughout Iraq?''
        Secretary Wynne. No, NANA Pacific did not unilaterally change and/
    or amend the statement of work to include a statement offering a
    nationwide cellular service.

        21. Senator McCain. Secretary Wynne, did Deputy Under Secretary
    Shaw participate in any way in the development and/or the NANA Pacific-
    Guardian Net consortium's inclusion of any such language in the Iraqi
    police radio pilot project scope of work/statement of work?
        Secretary Wynne. In August 2003, I signed a MOU with the DODIG,
    pursuant to which Dr. John A. Shaw carried out duties in the
    investigation of Iraqi telecommunications matters. Dr. Shaw's report
    came out May 11, 2004. Attempts to discredit Dr. Shaw and his report on
    Iraqi telecommunications contracting matters were brought to the
    attention of the DODIG. Based on the Office of the Inspector General's
    working relationship with Dr. Shaw, the DODIG appropriately referred
    the entire matter to the FBI for any action the FBI deemed appropriate.
    Any questions concerning FBI activities should be directed to the FBI.

        22. Senator McCain. Secretary Wynne, did Deputy Under Secretary
    Shaw communicate in any way to the Office of the CPA Senior Advisor to
    the Ministry of Communications any request or demand whatsoever that
    such language be included in the NANA Pacific-Guardian Net consortium
    sole-source Iraqi police radio pilot program contact scope of work/
    statement of work?
        Secretary Wynne. In August 2003, I signed a MOU with the DODIG,
    pursuant to which Dr. John A. Shaw carried out duties in the
    investigation of Iraqi telecommunications matters. Dr. Shaw's report
    came out May 11, 2004. Attempts to discredit Dr. Shaw and his report on
    Iraqi telecommunications contracting matters were brought to the
    attention of the DODIG. Based on the Office of the Inspector General's
    working relationship with Dr. Shaw, the DODIG appropriately referred
    the entire matter to the FBI for any action the FBI deemed appropriate.
    Any questions concerning FBI activities should be directed to the FBI.

        23. Senator McCain. Secretary Wynne, under what authority did
    Deputy Under Secretary Shaw, on behalf of the Department, communicate
    to the Office of the CPA Senior Advisor to the Ministry of
    Communications, the limited, previously-approved scope of work/
    statement of work of a sole-source acquisition of an Iraqi police radio
    pilot program under section 8a of the Small Business Act should be
    expanded into an unapproved, sole-source contract scope of work/
    statement of work for the design of the FRN ``so that the operators of
    the network shall be able to offer nationwide commercial cellular
    service on a nationwide basis throughout Iraq?''
        Secretary Wynne. In August 2003, I signed a MOU with the DODIG,
    pursuant to which Dr. John A. Shaw carried out duties in the
    investigation of Iraqi telecommunications matters. Dr. Shaw's report
    came out May 11, 2004. Attempts to discredit Dr. Shaw and his report on
    Iraqi telecommunications contracting matters were brought to the
    attention of the DODIG. Based on the Office of the Inspector General's
    working relationship with Dr. Shaw, the DODIG appropriately referred
    the entire matter to the FBI for any action the FBI deemed appropriate.
    Any questions concerning FBI activities should be directed to the FBI.

        24. Senator McCain. Secretary Wynne, did Deputy Under Secretary
    Shaw hire or contract Julian Walker, a principal in the Liberty
    Holdings, to work for the Office of the Deputy Under Secretary of
    Defense for International Technology Security and/or the Office of
    International Armament and Technology Trade and ensure that he was
    adequately supervised during the course of his employment or contracted
    service?
        Secretary Wynne. To my knowledge, Ambassador Julian Walker was not
    hired or contracted to work for the Deputy Under Secretary of Defense
    (International Technology and Security) or the Office of International
    Armament and Technology Trade.

        25. Senator McCain. Secretary Wynne, as a consequence of his
    involvements with the Department of Defense in general and the Office
    of the Deputy Under Secretary of Defense for International Technology
    Security and International Armament and Technology Trade in particular,
    did Mr. Walker improperly gain access to any government and/or other
    contractor confidential and proprietary or bid or proposal information
    that may have accorded an unfair competitive advantage to any business
    with which Mr. Walker was or is in any way associated, including, but
    not limited to Liberty Mobile or Guardian Net?
        Secretary Wynne. To my knowledge, Ambassador Walker was not
    authorized to have access to any such government or any contractor
    information.

        26. Senator McCain. Secretary Wynne, it has been reported that you
    and DODIG Joseph Schmitz signed a MOU on 4 August 2003 creating the
    Directorate of International Armament and Technology Trade (IATT) to
    track arms and technology transfers and that one investigation is under
    way on telecommunications contracting improprieties.'' Please provide a
    copy of the above- referenced 4 August 2003 MOU and state whether
    Deputy Under Secretary Shaw has had any position, involvement or
    responsibilities with respect to the IATT.
        Secretary Wynne. Attached is a copy of the August 4, 2003 MOU,
    pursuant to which Dr. Jack A. Shaw carried out duties in the
    investigation of Iraqi telecommunications matters. In August 2003, I
    signed a MOU with the DODIG, pursuant to which Dr. John A. Shaw carried
    out duties in the investigation of Iraqi telecommunications matters.
    Dr. Shaw's report came out May 11, 2004. Attempts to discredit Dr. Shaw
    and his report on Iraqi telecommunications contracting matters were
    brought to the attention of the DODIG. Based on the Office of the
    Inspector General's working relationship with Dr. Shaw, the DODIG
    appropriately referred the entire matter to the FBI for any action the
    FBI deemed appropriate. Any questions concerning FBI activities should
    be directed to the FBI.

        27. Senator McCain. State what investigative authority the
    Directorate of International Armament and Technology Trade and Deputy
    Under Secretary Shaw possess to conduct the investigation discussed in
    the Washington Times article of May 9, 2004. The article states that
    ``Nadhmi Auchi, an Iraq-born British national who was involved in
    international arms trading, is being investigated for purportedly
    rigging bids with the Iraqi Communications Ministry and the Coalition
    Provisional Authority, which resulted in contracts being awarded to
    three companies tied to Europe.''
        Secretary Wynne. In August 2003, I signed a MOU with the DODIG,
    pursuant to which Dr. John A. Shaw carried out duties in the
    investigation of Iraqi telecommunications matters. Dr. Shaw's report
    came out May 11, 2004. Attempts to discredit Dr. Shaw and his report on
    Iraqi telecommunications contracting matters were brought to the
    attention of the DODIG. Based on the Office of the Inspector General's
    working relationship with Dr. Shaw, the DODIG appropriately referred
    the entire matter to the FBI for any action the FBI deemed appropriate.
    Any questions concerning FBI activities should be directed to the FBI.
                                     ______

                 Questions Submitted by Senator Saxby Chambliss
                              Federal Outsourcing

        28. Senator Chambliss. Secretary Wynne, I am concerned about the
    increasing pressures placed on the Federal civilian workforce as a
    result of the outsourcing process (including those conducted under the
    auspices of OMB Circular A-76) as well as the impending dislocations
    that will occur as a result of the fiscal year 2005 Base Realignment
    and Closure (BRAC) process. To this end, I am encouraged by the
    development of alternative methods for transitioning workers from the
    Federal civilian workforce into the private sector. These methods use
    techniques that allow for workers to continue to participate in the
    Federal retirement benefit plans and to continue accruing credit for
    time in service. I am particularly interested in techniques that allow
    for and encourage job growth and stability for displaced workers
    utilizing nonprofit organizations, universities, or State and local
    governments that act as catalysts in this effort to provide for such
    transitions. One such program is the transitional benefits corporation
    model. Please provide your assessment of the transitional benefit
    corporation model and how it might be used to provide savings and
    efficiencies within the Department of Defense.
        Secretary Wynne. Two primary factors currently prevent us from
    implementing transitional benefits corporations (TBCs). First,
    formation of the TBC itself presumes that the workforce will leave the
    government. Since Federal and DOD policies require public-private
    competition with regard to commercial activities, most government
    workers choose to participate in those competitions. To my knowledge,
    no component of the Department has received a request from its
    employees to form a TBC. Additionally, analysis by DOD counsel
    indicates that numerous amendments to existing law would be necessary
    before the Department could establish a TBC. Since no TBC candidates
    have been identified, we have not pursued the TBC model further.
        We will continue to pursue public-private competition as the
    primary driver of savings and efficiency in our service functions. The
    Department supports efforts to ease the transition of government
    workers to the private sector, whether the transition results from
    public-private competition or BRAC.

        29. Senator Chambliss. Secretary Wynne, I am pleased with the
    actions the Department of Defense has taken regarding the increased
    utilization of expert contractual personnel for specialized projects
    within the Department that require expertise not generally found at the
    installation level. Specifically, the Army has used a total performance
    warranty approach with expert contractors in dealing with longstanding
    problems associated with roofing and facilities. I believe this
    approach could be used across the Department in the future. Please
    provide your assessment of using expert contractual personnel for
    specialized projects within DOD and outline additional areas where this
    approach could add value and efficiency to the Department's operations.
        Secretary Wynne. The Department is studying and, where possible,
    undertaking a number of methods for protecting our investments in
    infrastructure. The performance warranty in roof work is an example of
    focusing attention and resources in a specific category of work to
    enhance asset performance. In addition, the Department has a number of
    programs (e.g., PAVER, ROOFER, RAILER) that are used to assess material
    conditions and make recommendations for upkeep. The Department is also
    testing a pilot program authorized by Congress that employs the
    expertise of construction contractors to perform all required
    maintenance and warranty work on new facilities for the first 5 years
    of operation. The intent is to keep new facilities operating like new
    for more years at less cost. A complete interim report on this program
    will be submitted early next year. The Department will be pleased to
    discuss this information when available.

        30. Senator Chambliss. Secretary Wynne, it has come to my attention
    that the Department may be seeking to privatize a work function at the
    Defense Finance and Accounting Service for desktop management services
    without undergoing a public-private competition. This direct conversion
    is being conducted under the auspices of a ``Pioneer Project'' and the
    Department is claiming that the related work function is ``new work.''
    I understand that this work function is not ``new work'' under the
    definition of that term in the revised Circular A-76, page D-7. Also,
    direct conversions of this nature cannot be conducted in light of
    Section 8014 of the Fiscal Year 2004 Defense Appropriations Act. Also,
    the May 2003 version of A-76 forbids such direct conversions absent the
    Office of Management and Budget's (OMB) grant of a deviation. To date,
    the Department has not requested a deviation for this work function.
    Please provide an update on the status of this specific work function
    as well as the status of any other ``pioneer projects'' or initiatives
    within the Department which will result in direct conversions of work
    performed by civilian employees without undertaking an OMB Circular A-
    76 cost comparison process. Please also include the rationales for such
    initiatives, whether or not the Department has sought the required
    deviation from OMB for these direct conversions, as well as OMB's
    response to any requests from DOD for such deviations.
        Secretary Wynne. The DFAS Desktop Management service requirement
    involves providing desktop computing services to our workforce in a
    manner similar to the acquisition of electric or telephone service.
    Instead of purchasing desktop computers, software, and peripheral
    hardware, and then managing and maintaining those assets, DFAS would
    transfer the responsibility and risk for providing, managing,
    maintaining, and updating desktop assets to the commercial sector. This
    would include help desk and application training support for desktop
    computers, software, and peripheral hardware. The contractor would
    provide desktop computing capability to the DFAS workforce as a
    performance-based service, on a per-employee ``seat'' basis. Because
    the contractor would acquire and own software and hardware, DFAS would
    no longer install, support, or maintain Government-owned desktop
    assets, nor would DFAS have a requirement to operate help desks for
    Government-owned computers. This is a new requirement that does not
    involve possible conversion of a function performed by Department of
    Defense (DOD) civilian employees. As a new requirement, this initiative
    is not subject to public-private competition under OMB Circular A-76.
    The Department has no additional Pioneer Projects which result in the
    direct conversion of functions presently being performed by Government
    employees to contract performance.
                                     ______

                   Questions Submitted by Senator Carl Levin

                               FEDERAL WORKFORCE

        31. Senator Levin. Secretary Wynne, in your prepared testimony, you
    highlight the need for a ``motivated, agile workforce'' to support your
    efforts at transformation. Congress has provided a number of
    flexibilities for the defense laboratories and technical centers to
    execute personnel demonstration programs to better attract and retain
    this type of workforce. There has been continual and growing
    frustration with the Department's efforts at aggressively using the
    demonstration programs to experiment with personnel systems and
    approaches to attract scientists and engineers to government service.
    Please provide us with an update of your efforts to expand and improve
    the ongoing laboratory personnel demonstrations and your efforts to
    increase the number of laboratories participating in demonstration
    programs.
        Secretary Wynne. The Department continues to support the testing of
    innovative personnel management practices through the laboratory
    demonstration project. Proposed changes to these demonstrations or any
    new starts will be evaluated based on sound management principles,
    mission needs and the goals of the Department.

        32. Senator Levin. Secretary Wynne, do you intend to fully utilize
    the authority granted by Congress under Section 342 of the National
    Defense Authorization Act (NDAA) for Fiscal Year 1995 and Section 1114
    of the NDAA for Fiscal Year 2001, which provided the labs with the
    needed authority and flexibility to attract and retain the best and the
    brightest scientists and engineers to support our military?
        Secretary Wynne. Yes, the Department intends to fully utilize these
    authorities granted to our defense laboratories.

               FEDERALLY-FUNDED RESEARCH AND DEVELOPMENT CENTERS

        33. Senator Levin. Secretary Wynne, your written testimony implies
    (and your May 3, 2004, letter to Congress explicitly makes) a request
    to remove the staff-year ceilings on Federally-Funded Research and
    Development Centers (FFRDC). Please provide an accurate accounting of
    how much and what type of study and analyses and systems engineering
    and integration work the FFRDCs have been forced to decline because of
    ceiling limitations.
        Secretary Wynne. DOD FFRDCs perform work that is consistent with
    their mission, purpose, and capabilities; their core competencies; and
    the strategic relationship with their sponsor; and cannot be performed
    as effectively by existing in-house, other not-for-profit, or for-
    profit contractors. The FFRDCs were unable to provide the following
    support to DOD due to ceiling limitations (see attached analysis).

        34. Senator Levin. Secretary Wynne, there are a number of non-FFRDC
    private organizations that provide similar studies and analyses and
    systems engineering and integration support to DOD. Is there a reason
    that DOD cannot make greater use of these resources to meet their need
    for high quality support on technical, analytic, and operational
    issues?
        Secretary Wynne. DOD makes extensive use of non-FFRDC private
    organizations and this use is increasing. However, DOD needs to be able
    to access its FFRDCs for high-quality support on technical, analytical
    and operational issues that cannot be performed as effectively by
    existing in-house or other contractor resources. The Department
    established its FFRDCs to have a long-term, strategic relationship with
    their DOD sponsors and users. This relationship enables the FFRDCs to
    maintain in-depth knowledge of their sponsors' programs and operations,
    maintain currency in special fields of expertise, and provide a quick
    response to emerging DOD needs. Each FFRDC is required to conduct
    business in a manner befitting its special relationship with the
    Government, to operate in the public interest with objectivity and
    independence, and to be free from organizational conflicts of
    interests. FFRDCs must avoid actual or perceived conflicts of interest
    and accept stringent restrictions on their scope, method of operations,
    customer base, and the kinds of efforts they can undertake. DOD needs
    to be able to obtain support free from any conflicts of interest. Non-
    FFRDC private organizations, both not-for-profit and for-profit, are
    not required to operate under these restrictions and therefore may not
    provide the same high-quality support free from organizational
    conflicts of interest.

        35. Senator Levin. Secretary Wynne, would the Department support
    the establishment of a system that permits the FFRDCs to compete with
    these private organizations for studies and analyses and systems
    engineering and integration support contracts once the FFRDCs have
    reached their congressionally-mandated ceilings?
        Secretary Wynne. The Department would not support any arrangement
    that would allow FFRDCs to compete with private organizations for DOD
    work. Section 35.017-1 of the Federal Acquisition Regulation (FAR)
    requires that FFRDC sponsoring agreements, or sponsoring agency
    policies and procedures, prohibit FFRDCs from competing with non-FFRDC
    organizations for other than the operation of an FFRDC. We agree with
    this policy. The primary reason for that constraint is to prevent the
    appearance that FFRDCs are using their special access to Government and
    commercial information to compete unfairly with firms that do not have
    such access. Even with this restriction on FFRDC competition, for-
    profit companies sometimes complain--inappropriately in the
    Department's view--that FFRDCs are taking business from them. If the
    FAR's ban on FFRDC competition were eliminated in full or in part, we
    would expect complaints from for-profit firms to increase
    substantially. Thus, while it might be tempting to relax the
    constraints on FFRDC competition in order to solve the current problem,
    the blurring of distinctions between FFRDC and non-FFRDC work could
    create different problems for the Department over the long term. The
    current problem arises because the Department does not have sufficient
    access to its FFRDCs due to ceilings on overall FFRDC staff-years of
    work. We believe the best solution to the problem is to eliminate the
    ceilings, not to alter the ``non-competition'' management construct for
    FFRDCs that is embodied in the FAR and in DOD's Management Plan for
    FFRDCs. We believe these operating practices for FFRDCs are sound and
    have proven to be effective.

                   COMBATING TERRORISM TECHNOLOGY TASK FORCE

        36. Senator Levin. Secretary Wynne, your written testimony
    highlights the important work of the Combating Terrorism Technology
    Task Force (CTTTF) in supplying advanced capabilities to the warfighter
    in the global war on terrorism. How much funding (including
    reprogrammings) has been used for the activities of the CTTTF since its
    inception?
        Secretary Wynne. Over $500 million has been used for CTTTF
    activities to rapidly transition advanced technology capabilities to
    the warfighter. A summary follows:

             The CTTTF was established by the Director, Defense
            Research and Engineering immediately after September 11 to
            support the acceleration of technology in support of
            operational needs for the global war on terrorism. During Phase
            I (September 2001 to February 2002), the Department was
            successful in prioritizing $181 million and $212 million
            respectively from the fiscal year 2002 and 2003 Defense
            Emergency Relief Fund (DERF). These funds were allocated to
            support over 40 high priority initiatives across the military
            Services, the Defense Threat Reduction Agency, and with the
            Technical Support Working Group.
             During Phase II operations leading up to and including
            the land conflict in Iraq, $78 million was allocated, via
            various internal reprogramming authorities, to support 9
            investment programs in the areas of: detecting and defeating
            weapons of mass destruction; ISR capabilities; humanitarian
            assistance; and improved weapons lethality for cave and
            building penetration.
             Phase III CTTTF operations were initiated in June 2003
            to assist in post-major hostilities issues in Iraq, primarily
            in the area of Force Protection. To date, approximately $62
            million (reprogramming of fiscal year 2003/2004 funds) has
            supported over 15 project investments for: detection and defeat
            of Improvised Explosive Devices; intelligence capabilities;
            surveillance and reconnaissance; information fusion and
            analysis; development of a centralized test site; and
            accelerating the active Denial System Advanced Concept
            Technology Demonstration.

        37. Senator Levin. Secretary Wynne, how much funding was requested
    for the activities of the CTTTF in the fiscal year 2005 budget request?
        Secretary Wynne. The CTTTF currently does not have a direct funding
    line. However, as noted in response to your first question on the
    amount of funds allocated to date, we have been very successful in
    reprogramming funds to address near-term, unforeseen requirements
    generated as a result of operational issues to fight the global war on
    terrorism.

        38. Senator Levin. Secretary Wynne, do you anticipate requesting
    supplemental fiscal year 2005 funding or further reprogramming of
    fiscal year 2004 or fiscal year 2005 funds for these activities in the
    future?
        Secretary Wynne. Based on our prior experience in addressing the
    near-term, quick-reaction needs to support the global war on terrorism,
    I would expect follow-on requirements to be addressed in departmental
    supplemental and reprogramming actions.

        39. Senator Levin. Secretary Wynne, what role does the operational
    test and evaluation community play in the rapid development and
    deployment of technologies by the CTTTF?
        Secretary Wynne. Every technology supported by the CTTTF is tested
    at Yuma Proving Ground (YPG) before deploying to the theater. CTTTF
    representatives, working with the Army Test and Evaluation Command and
    the Technical Support Working Group, are developing common testing
    procedures for devices used to counter or detect improvised explosive
    devices. In addition, members from the test and evaluation community
    form the core of the CTTTF testing team at the Yuma Proving Ground
    (YPG). Specifically, we have testing procedures in place that are
    designed to ensure the most promising prototypes can be rapidly fielded
    by moving prototypes from technical solutions to operational
    capabilities.

        40. Senator Levin. Secretary Wynne, how do you ensure that the
    technologies are adequately tested before they are fielded?
        Secretary Wynne. The CTTTF has established a streamlined, yet
    comprehensive testing process for assessing all technology capabilities
    at Yuma Proving Ground (YPG) before fielding. As soon as the Department
    recognized that the use of improvised explosive devices was a force
    protection issue for deployed U.S. and coalition forces, the Department
    conceived and rapidly built a very detailed test facility at the YPG
    using CTTTF funds. This facility contains different road, village and
    background environments to include a town we call ``Little Baghdad.''
    Force protection equipment can be rapidly tested with operators before
    deployment. One timely example is the testing of a system that pre-
    initiates IEDs using ground and airborne capabilities now deployed to
    the theater. This was a coordinated effort by numerous organizations.
                                     ______

                 Questions Submitted by Senator Daniel K. Akaka

                         NATIONAL DEFENSE EDUCATION ACT

        41. Senator Akaka. Secretary Wynne, in your testimony you make
    reference to the ``severe engineering shortages'' that you face and the
    difficulty in attracting talent in the so-called ``hard sciences.'' I
    have a bill, S. 589, that the Senate has passed and is now being
    considered in the House that would provide scholarships for individuals
    in a number of critical fields, including the sciences, with the
    provision that they later serve in the government. Have you had a
    chance to review my bill and do you have any comments on it?
        Secretary Wynne. I am aware of S.589 and that the DOD Office of
    Under Secretary for Personnel and Readiness has been engaged on the
    bill.

        42. Senator Akaka. Secretary Wynne, has the administration given
    any thought to reauthorizing the National Defense Education Act that
    was passed in the late 1950s and was so critical to ensuring this
    country trained the right talent in the sciences as well as other
    fields?
        Secretary Wynne. As a part of our review of things to consider we
    have re-read the act you describe and recognize it fit its time and may
    not exactly fit this period. I believe that any solutions that DOD
    might recommend in the future, whether legislative or otherwise, must
    be more finely tuned to DOD's future needs for critical skills,
    especially in emerging subdisciplines and specialties that are
    potentially transformational to our future military capabilities. I
    also believe that any such solutions must be developed in the context
    of a much more technologically competitive, diversified, and complex
    global economic environment than that of the late 20th century.

        [Whereupon, at 4:05 p.m., the subcommittee adjourned.]