[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


                     U.S. GOVERNMENT PRINTING OFFICE
93-573 PDF                 WASHINGTON DC:  2005
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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.
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    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)
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    \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.
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         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)
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    \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.
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         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.
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    \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.
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    \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).
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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.
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    \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.
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    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.
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    \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).
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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\
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    \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)).
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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.
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    \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).
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    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
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    \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.
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    \16\ Department of Defense, Transforming Department of Defense 
Financial Management: A Strategy for Change, (Washington, DC: Apr. 13, 
2001).
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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.
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    \17\ U.S. General Accounting Office, Major Management Challenges 
and Program Risks: Department of Defense, GAO-01-244 (Washington, DC: 
Jan.1, 2001).
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    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,
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    \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\
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    \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).
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         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).
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            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).
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    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.
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    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.
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    \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 [email protected], Randolph Hite at 
(202) 512-3439 or [email protected], 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 [email protected].
---------------------------------------------------------------------------
    \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 [email protected].

    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.]

                                 
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