[Senate Hearing 109-22]
[From the U.S. Government Publishing Office]
S. Hrg. 109-22, Pt. 4
DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
2006
=======================================================================
HEARINGS
before the
COMMITTEE ON ARMED SERVICES
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
ON
S. 1042
TO AUTHORIZE APPROPRIATIONS FOR FISCAL YEAR 2006 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 4
AIRLAND
__________
MARCH 16, APRIL 6, 14, 2005
Printed for the use of the Committee on Armed Services
----------
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COMMITTEE ON ARMED SERVICES
JOHN WARNER, Virginia, Chairman
JOHN McCAIN, Arizona CARL LEVIN, Michigan
JAMES M. INHOFE, Oklahoma EDWARD M. KENNEDY, Massachusetts
PAT ROBERTS, Kansas ROBERT C. BYRD, West Virginia
JEFF SESSIONS, Alabama JOSEPH I. LIEBERMAN, Connecticut
SUSAN M. COLLINS, Maine JACK REED, Rhode Island
JOHN ENSIGN, Nevada DANIEL K. AKAKA, Hawaii
JAMES M. TALENT, Missouri BILL NELSON, Florida
SAXBY CHAMBLISS, Georgia E. BENJAMIN NELSON, Nebraska
LINDSEY O. GRAHAM, South Carolina MARK DAYTON, Minnesota
ELIZABETH DOLE, North Carolina EVAN BAYH, Indiana
JOHN CORNYN, Texas HILLARY RODHAM CLINTON, New York
JOHN THUNE, South Dakota
Judith A. Ansley, Staff Director
Richard D. DeBobes, Democratic Staff Director
______
Subcommittee on Airland
JOHN McCAIN, Arizona, Chairman
JAMES M. INHOFE, Oklahoma JOSEPH I. LIEBERMAN, Connecticut
JEFF SESSIONS, Alabama JACK REED, Rhode Island
JOHN ENSIGN, Nevada DANIEL K. AKAKA, Hawaii
JAMES M. TALENT, Missouri BILL NELSON, Florida
SAXBY CHAMBLISS, Georgia MARK DAYTON, Minnesota
LINDSEY O. GRAHAM, South Carolina EVAN BAYH, Indiana
ELIZABETH DOLE, North Carolina HILLARY RODHAM CLINTON, New York
(ii)
C O N T E N T S
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CHRONOLOGICAL LIST OF WITNESSES
Army Transformation and the Future Combat System
march 16, 2005
Page
Cody, GEN Richard A., USA, Vice Chief of Staff, United States
Army........................................................... 353
Bolton, Hon. Claude M., Jr., Assistant Secretary of the Army for
Acquisition, Logistics, and Technology......................... 358
Francis, Paul L., Director, Acquisition and Sourcing Management,
Government Accountability Office............................... 368
Graham, Dr. David R., Deputy Director, Strategy Forces and
Resources Division, Institute for Defense Analyses............. 382
Boehm, Kenneth F., Chairman, National Legal and Policy Center.... 388
Tactical Aviation Programs
april 6, 2005
Sullivan, Michael J., Acquisition and Sourcing Management,
Government Accountability Office............................... 583
Schmitz, Hon. Joseph E., Inspector General, Department of Defense 596
Bolkcom, Christopher, Specialist in National Defense,
Congressional Research Service, Library of Congress............ 641
Wynne, Hon. Michael W., Under Secretary of Defense for
Acquisition, Technology, and Logistics......................... 657
Young, Hon. John J., Jr., Assistant Secretary of the Navy for
Research, Development, and Acquisition......................... 658
Sestak, VADM Joseph A., Jr., USN, Deputy Chief of Naval
Operations for Warfare, Requirements, and Programs............. 670
Gorenc, Maj. Gen. Stanley, USAF, Director, Operational
Capabilities and Requirements.................................. 670
Post, Brig. Gen. Martin, USMC, Assistant Deputy Commandant for
Aviation....................................................... 670
Air Force Acquisition Oversight
april 14, 2005
McNulty, Hon. Paul J., United States Attorney for the Eastern
District of Virginia........................................... 703
Schmitz, Hon. Joseph E., Inspector General, Department of Defense 708
Dominguez, Hon. Michael L., Acting Secretary of the Air Force.... 715
Gordon, Daniel I., Managing Associate General Counsel for
Procurement Law, Government Accountability Office.............. 719
Flavin, Sallie H., Deputy Director, Defense Contract Management
Agency......................................................... 758
(iii)
DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
2006
----------
WEDNESDAY, MARCH 16, 2005
U.S. Senate,
Subcommittee on Airland,
Committee on Armed Services,
Washington, DC.
ARMY TRANSFORMATION AND THE FUTURE COMBAT SYSTEM
The subcommittee met, pursuant to notice, at 9:30 a.m., in
room SR-232A, Russell Senate Office Building, Senator John
McCain (chairman of the subcommittee) presiding.
Committee members present: Senators McCain, Sessions,
Talent, and Lieberman.
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 Elaine A. McCusker,
professional staff member.
Minority staff members present: Daniel J. Cox, Jr.,
professional staff member; Peter K. Levine, minority counsel;
and Arun A. Seraphin, professional staff member.
Staff assistants present: Alison E. Brill and Pendred K.
Wilson.
Committee members' assistants present: Cord Sterling,
assistant to Senator Warner; Christopher J. Paul, assistant to
Senator McCain; Arch Galloway II, assistant to Senator
Sessions; Lindsey R. Neas, assistant to Senator Talent;
Frederick M. Downey, assistant to Senator Lieberman; and
William K. Sutey, assistant to Senator Bill Nelson.
OPENING STATEMENT OF SENATOR JOHN McCAIN, CHAIRMAN
Senator McCain. Good morning. The Airland Subcommittee
meets today to receive testimony on Army transformation and the
Future Combat System (FCS). We divided the hearing into two
panels. The first panel will testify on the budgetary aspects
of Army transformation and will specifically discuss Army
aviation modularity and FCS.
Secretary Bolton and General Cody, welcome. Thank you for
coming today.
As we meet today, the Army has over 650,000 soldiers on
Active-Duty who are deployed, stationed overseas, or securing
the homeland. We must ensure that our Armed Forces have the
necessary personnel, training, and equipment to successfully
accomplish their missions.
The fiscal year 2006 Army budget requests $98.6 billion. It
has not significantly changed from the 2005 appropriated
levels. However, the 2005 appropriated levels include the $57
billion for the Army in the fiscal year 2005 supplemental
request.
Additionally, the Army did not include all modularity costs
in the 2006 budget request. Of the $57 billion requested for
the Army in the bridge supplemental, $12.8 billion is in the
procurement account and funds modularity force protection,
recapitalization and equipment combat losses.
This committee has jurisdiction over all of these areas,
but, by funding these areas through supplementals, has little
oversight. It is a concern to me. We would like to hear your
views as to why you believe these costs should not have been
budgeted in the fiscal year 2006 request.
Over the past 2 years, the Army terminated two major
programs, the Crusader field artillery system and the Comanche
helicopter program. These programs were terminated to protect
funding for the FCS and that is why we have to get the FCS
program right.
We will focus on the programmatic aspects of FCS in the
first panel. We would be interested in hearing your views on
the cost schedule and contractor performance of the FCS program
and the rationale to restructure the program.
Monday a Bloomberg News report indicated that the FCS
program costs have increased to $133 billion, a 45-percent
increase from its earlier estimate of $92 billion and the
system will not be ready for combat until 2016, 4 years later
than previously reported. I hope that our witnesses will be
able to discuss that.
FCS is of particular concern to me, especially the use of
the Other Transaction Authority (OTA) as a contracting vehicle.
That is why the FCS contract is the topic of the second panel.
Secretary Bolton, thank you for sitting on the second panel.
You will be joined by Paul Francis, Director, Acquisition and
Sourcing Management of the Government Accountability Office
(GAO); Dr. David Graham, Deputy Director of Strategy Forces and
Resources Division for the Institute of Defense Analyses; and
Ken Boehm, Chairman of the National Legal and Policy Center.
In 1989, Congress recognized that traditional Government
contracts were not an effective mechanism for managing Defense
Advanced Research Projects Agency (DARPA) research projects.
For this reason, we created a new type of agreement known as
``other transactions'' that would not be subject to the
standard contracting requirements. At first limited to DARPA,
section 845 of the National Defense Authorization Act (NDAA)
for 1994 extended other transaction authority to prototype
projects.
Since the 1994 act, the Department of Defense (DOD)
officials and industry have repeatedly requested that we extend
``other transaction authority'' to production contracts.
Congress has consistently refused to do so because we have
taken the view that with hundreds of millions of dollars or
even billions of dollars at stake, the taxpayer needs the
protections built into the traditional procurement system. I
would be glad to hear from the witnesses if they think there is
something wrong with the traditional procurement system and if
it needs to be modernized or updated.
While we recognize that there may be need for continuing
doing business with nontraditional contractors in the
production phase of a program, we have preferred to address
this issue through targeted waivers that are limited to those
companies who need them.
Now the Army has put forward a program that uses other
transaction authority for a $20 billion contract, a figure much
greater than Congress intended and unprecedented. We look
forward to your testimony and the testimony of the witnesses on
the second panel regarding the appropriateness of using other
transaction authority for a contract this size and whether the
Army has included clauses that protect the Government's
interest. I look forward to your testimony.
I want to thank Senator Lieberman for his leadership on
this subcommittee and I know we will continue our
bipartisanship that this subcommittee has enjoyed over the last
6 years.
[The prepared statement of Senator McCain follows:]
Prepared Statement by Senator John McCain
The Airland Subcommittee meets today to receive testimony on Army
Transformation and the Future Combat System (FCS). We've divided the
hearing into two panels. The first panel will testify on the budgetary
aspects of Army Transformation and we will specifically discuss Army
aviation, modularity, and the Future Combat System. Secretary Bolton,
General Cody, welcome. We thank you for coming.
As we meet today, the Army has over 650,000 soldiers on Active-Duty
who are deployed, stationed overseas, or securing the homeland. We must
ensure that our Armed Forces have the necessary personnel, training,
and equipment to successfully accomplish their missions. That's what we
are here for today.
The fiscal year 2006 Army budget request of $98.6 billion has not
significantly changed from fiscal year 2005 appropriated levels.
However, the fiscal year 2005 appropriated levels include the $57.0
billion for the Army in the fiscal year 2005 supplemental request.
Additionally, the Army did not include all modularity costs in the
fiscal year 2006 budget request.
Of the $57.0 billion requested for the Army in the bridge
supplemental, $12.8 billion is in the procurement account and funds
modularity, force protection, recapitalization, and equipment combat
loses. This committee has jurisdiction over all of these areas but, by
funding these areas through supplementals, has little oversight. This
is a concern to me. We would like to hear your views as to why you
believe these costs should not have been budgeted in the fiscal year
2006 request.
Over the past 2 years, the Army terminated two major programs, the
Crusader field artillery system and the Comanche helicopter program.
These programs were terminated to protect funding for the Future Combat
System. That is why we have to get the FCS program right.
We will focus on the programmatic aspects of FCS in the first
panel. We would be interested in hearing your views on the cost,
schedule and contractor performance of the FCS program and the
rationale to restructure the program. Monday, a Bloomberg news report
indicated that FCS program costs have increased to $133 billion--a 45-
percent increase from its earlier estimate of $92 billion--and that the
system won't be ready for combat until 2016--4 years later than
previously reported. I'm not sure the Army can afford the FCS program
as it is currently structured.
FCS is of particular concern to me, especially the use of Other
Transaction Authority (OTA) as the contracting vehicle. That is why the
FCS contract is the topic of the second panel. Secretary Bolton, thank
you for sitting on the second panel. You will be joined by Paul
Frances, Director, Acquisition and Sourcing Management, Government
Accountability Office; Dr. David Graham, Deputy Director, Strategy,
Forces and Resources Division, Institute for Defense Analyses; and
Kenneth Boehm, Chairman, National Legal and Policy Center.
In 1989, Congress recognized that traditional government contracts
were not an effective mechanism for managing Defense Advanced Research
Projects Agency (DARPA) research projects. For this reason, we created
a new type of agreement, known as ``Other Transactions,'' that would
not be subject to the standard contracting requirements. At first
limited to DARPA, section 845 of the National Defense Authorization Act
for 1994 extended ``Other Transaction Authority'' to prototype
projects.
Since the 1994 Act, Department of Defense (DOD) officials and
industry have repeatedly requested that we extend ``Other Transaction
Authority'' to production contracts. Congress has consistently refused
to do so, because we have taken the view that with hundreds of millions
or even billions of dollars at stake, the taxpayer needs the
protections built into the traditional procurement system. While we
recognize that there may be need to continue doing business with
nontraditional contractors in the production phase of a program, we
have preferred to address this issue through targeted waivers that are
limited to those companies who need them.
Now, the Army has put forward a program that uses ``Other
Transaction Authority'' for a $20 billion contract, a figure much
greater than Congress intended and unprecedented. We look forward to
your testimony and the testimony of the witnesses on the second panel
regarding the appropriateness of using ``Other Transaction Authority''
for a contract this size and whether the Army has included clauses that
protect the Government's interest.
I look forward to your testimony.
Before I turn this over to Senator Lieberman, I want to thank
Senator Lieberman for his leadership on this subcommittee and hope to
continue the bipartisanship this subcommittee has enjoyed over the past
6 years.
[Additional information inserted for the record by Senator
McCain follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator McCain. Senator Lieberman.
STATEMENT OF SENATOR JOSEPH I. LIEBERMAN
Senator Lieberman. Thank you, Mr. Chairman. It has been my
honor to be either the chairman or ranking member of this
Airland Subcommittee now for the past 6 years, more often,
unfortunately, the ranking member, but that is a longer story
that we can get to at another time.
Needless to say, the Senator from Arizona is one of my
dearest friends and closest colleagues in the Senate, and I am
thrilled that he has assumed the chairmanship of this
subcommittee and look forward to working with him on the
problems and challenges facing the Army and the Air Force. I am
sure he will bring to this task his normal clear sense of
national interest, his demanding intellect, and his truly
terrible sense of humor. [Laughter.]
The Army, followed closely by the Marine Corps, is clearly
pulling the heaviest load among the Services in the operations
that we are involved in now in Iraq and Afghanistan.
Prior to September 11, 2001, in some ways the Army might
have been described as the Rodney Dangerfield among its peer
Services, not getting quite the respect or the sense of
priority that it deserved. Well, what a difference 3 years
makes.
The Army has been, in my opinion, severely underfunded and
struggling to maintain its two major modernization programs,
the Comanche and the FCSs. In doing so, as it struggled, it
terminated well over 100 programs, including the Crusader
artillery system. The current force was, in many ways,
neglected in an attempt to keep its transformation to the
future force on track.
After September 11, it was clear that the strategic pause
the Army was depending on to effect its transformation no
longer existed. The Army is now heavily engaged in combat
operations at the same time it is transforming, reorganizing,
and increasing the capability of its current force. There is
now more of a balance between the current and future forces
than had been the case prior to September 11.
However, to a great extent, the Army is still being forced
to pay for its transformation out of its own hide. The Army
canceled the Comanche to pay for urgent requirements in the
rest of its aviation battlefield operating system and it has
delayed the FCS program to pay for improvements in the current
force.
The Army is obviously very busy, engaging in combat
operations in Iraq and Afghanistan, resetting the force as
units rotate out of the combat zones and prepare for
redeployment in as little as a year's time, reorganizing the
ground force into modular brigade combat teams and the aviation
force into multi-functional aviation brigades, and pursuing
programs to field the FCS and to spiral promising technologies
from the future force program to the current force after
testing and experimentation by a soon-to-be-created
experimental unit. That is a lot happening at once.
We as a subcommittee must thoroughly understand the Army's
vision for the first half of this new century, what missions
across the spectrum of conflict the Army expects to get, how
the Army intends to fight, and how it intends to organize and
equip itself for that fight, and particularly to understand
what the Army will look like in size and organization at the
completion of its conversion to a modular brigade combat team
system and at the completion of its transition to the future
force.
It is our responsibility to ensure that the Army has the
right number of personnel and the right kind of equipment and
enough of it to prevail in its missions, and of course,
adequate resources to effect those transformations while
conducting ongoing combat operations. This is a very tall order
and a very large challenge.
I begin this process and the series of hearings that
Senator McCain will chair and I will be privileged to
participate in, with a belief that our Army needs to be bigger
and the recipient of considerably more resources, to meet the
challenges our Nation is giving it.
Mr. Chairman, thanks for your leadership and I look forward
to working with you to make our Army and Air Force even better
than the best they are today. Thank you.
Senator McCain. Thank you very much, Senator Lieberman.
Secretary Bolton, welcome and please proceed.
Mr. Bolton. With the chairman's indulgence, in order to set
the stage, I would like to have the Vice Chief of Staff of the
Army, General Cody lead off and set the stage and then I will
follow.
Senator McCain. That will be fine. General Cody.
STATEMENT OF GEN RICHARD A. CODY, USA, VICE CHIEF OF STAFF,
UNITED STATES ARMY
General Cody. Thank you, Secretary Bolton.
Chairman McCain, Senator Lieberman, the Army has submitted
written testimony and we request for the record that you accept
it. I have a slight recap of that testimony.
First, I would like to express our appreciation for the
opportunity to appear before you to discuss your Army's
transformation and particularly the modular Army and the FCS
Army. Because of the complexity of these subjects, I have
brought some charts that I may ask your permission to reference
as we proceed in your questions. We have also provided paper
copies of those charts.
Sir, I have two of your soldiers here with me today: 1st
Lieutenant Rob McChrystal and Staff Sergeant Benjamin Hanner,
both from our Stryker brigade, 5th Battalion, 20th Infantry.
They just returned from Iraq. During their tour, their unit
conducted a 2-day, 270-mile movement from Mosul to An Najaf to
fight the Mahdi Army, involving enemy engagements and
navigating around blown bridges and fighting the terrorists.
This effort highlights the increased maneuverability, combat
effectiveness, and combat situational awareness that our
Stryker Brigade Combat Team has but also gives us a glimpse to
where we want to go with the modular Army and the FCS.
Senator McCain. Welcome to both of you and thank you for
your service.
General Cody. Both of these soldiers have been decorated
for their actions during the successful recovery of a downed
Kiowa helicopter where they saved two of the pilots in a fierce
fire fight.
Lieutenant McChrystal was decorated for his actions during
ambushes elsewhere in Iraq.
Staff Sergeant Hanner also was the staff sergeant that did
about 8,000 worth of truck convoys where he only lost 4 trucks
during his tour. He was also awarded the Purple Heart when his
Stryker vehicle was hit by a roadside daisy chain bomb where
five of his other Stryker fellows were also wounded. They all
survived that improvised explosive device (IED) because of the
advanced survivability of the Stryker.
Your Stryker units have exhibited superior performance and
operational capabilities to meet the combatant commanders'
requirements in Iraq and successfully fight the fight. Again,
as I said, they give us an insight, especially with their
embedded battle command systems, of where we want to go with
our FCS.
The Nation expects this Army to operate over the full
spectrum of conflict and the Army, with your assistance, is
doing so now and looks forward to be able to do it with the
FCS. The Army modularity that we are going to brief you on
today helps us set up moving toward the FCS.
Change anytime while a nation is fighting a war requires
dealing concurrently with both the current force and the future
force capability gaps. The Army Modular Force addresses the
immediate, urgent current force capability gaps using
organizational changes and systems and technologies available
immediately off the shelf to reset the force but also meet the
combatant commanders' requirements. The Army Modular Force
reflects a continuing cycle of innovation, experimentation,
experience, and change. Development of our Stryker Brigade
Combat Team informed the FCS-equipped Unit of Action
organizational design that we are working, which in turn really
underpin the modular Brigade Combat Team organizational designs
that we are moving to.
The Army Modular Force, taken together with the FCS-based
Brigade Combat Team, will give the combatant commanders of the
future a required versatile set of responsive capabilities for
the future battlefield where we want to see first, understand
first, act first, and then win decisively. The Army Modular
Force will have relevancy in the foreseeable future, but severe
anti-access environments and daunting anti-armor systems will
pose a future force capability gap unless we take action now.
The FCS will address those future force gaps.
The Army is applying lessons learned from today's fight,
like Sergeant Hanner and Lieutenant McChrystal, to help us
reshape our future force programs, even if that means adjusting
some of the directions and timing of those systems. This
strategy really underpins our efforts of accelerating the FCS
technology to the entire force by spiraling out selected FCS
capabilities such as our unmanned guided vehicles, sensors,
unattended munitions, and elements of the battle command
network.
The Army Modular Force will also set several conditions for
the FCS' success involving our doctrinal, organizational,
training, and leader development. As we continue to build the
modular force and spiral in our FCS capabilities, our FCS and
non-FCS units will be able to fight together through an
integrated, compatible command and control system, thus our
emphasis up front of spiraling into battle command systems.
I thank the members of this committee for their continued
outstanding support to all of the men and women in uniform who
make up your great Army. As the Army moves forward, the soldier
will continue to remain the centerpiece of our combat systems
and formation and is really the indispensable part of the joint
team. They are adaptive, they are competent, and infused with
the Army values and warrior culture that fight wars and win the
peace. We appreciate your wisdom, your guidance, and strong
support as we work to ensure that we have what they need to
successfully accomplish their missions and return home safely
today and tomorrow.
Sir, I look forward to your questions.
[The joint prepared statement of General Cody and Mr.
Bolton follows:]
Joint Prepared Statement by GEN Richard A. Cody, USA, and Hon. Claude
M. Bolton, Jr.
Chairman McCain, Senator Lieberman, and distinguished members of
the Senate Armed Services Committee, I would like to express our
appreciation at the opportunity to appear before you to discuss your
Army's Transformation, in particular the Army Modular Force and the
Future Combat Systems (FCS). 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.
Our Army is the dominant land campaign force for our combatant
commanders in fighting the global war on terror, transforming to meet
present and future threats, resetting to sustain a high operational
tempo, and leading the most radical change of its institutional and
training base since World War II.
Today, our All-Volunteer Army, with 650,000 soldiers on Active-
Duty, is providing forces and capabilities for Operation Iraqi Freedom,
Operation Enduring Freedom, and other global requirements beyond global
war on terror. The Army continues to deter aggression and keep peace on
the Korean Peninsula, the Sinai Peninsula, the Horn of Africa, Kosovo,
Bosnia, and elsewhere around the world. Army soldiers are supporting
homeland security and providing military support to civil authorities
for many different missions within the United States. In addition, the
Army supports numerous humanitarian assistance missions and supports
organizations such as Joint Task Force Bravo in Central America in its
effort to counter illicit narcotics trafficking.
As the Army fights the global war on terror and meets other global
commitments, it remains committed to transforming. We are moving
forward while focused on two core competencies: (1) training and
equipping soldiers and growing leaders; and (2) providing relevant and
ready land power to combatant commanders as part of the joint team.
The Army developed the Army Campaign Plan (ACP) to synchronize the
training, providing, transforming and resetting of forces to both
sustain the current operations tempo and be relevant to future threats.
Also, the ACP monitors the overhaul of our training base and
institutional Army. The ACP's objective is to continue our
transformation toward increasing joint interdependent capability,
furthering our expeditionary qualities, and providing the Nation with a
campaign quality force.
One of the primary objectives of Army Transformation is
restructuring from a division-based to a brigade-based force. These
brigades are designed as modules or self-sufficient and standardized
brigade combat teams, that can be more readily deployed and combined
with other Army and Joint Forces to meet the precise needs of combatant
commanders. The results of this transformational initiative will be an
operational Army that is larger and more powerful, flexible, and
deployable.
This program, which we call modularity, will increase the combat
power of the active component by 30 percent, as well as the size of the
Army's overall pool of available forces by over 50 percent. The total
number of combat brigades will increase with 10 active brigades (three-
and-a-third divisions in our old terms) being added by the end of 2006.
Our goal for this larger pool of available forces is to enable the Army
to generate forces in a rotational manner that will support 2 years at
home following each deployed year for Active Forces, 4 years at home
following each deployed year for the Army Reserve and 5 years at home
following each deployed year for National Guard Forces. During units'
operational cycles, soldiers can expect to complete an operational
deployment rotation between 6 to 12 months. We will only reduce the
amount of time units stay on home station if we have no other options
in supporting the National Security Strategy. Implementing this program
will provide more time to train, predictable deployment schedules, and
the continuous supply of land power required by the combatant
commanders and civil authorities.
To efficiently modularize the force, the ACP will leverage our
current efforts to reset units redeploying from combat. Reset requires
intensive resource allocation, repair, and overhaul of our ground
equipment and aircraft, and prioritization and streamlining of our
facilities and personnel to support these efforts. The Army will reset
redeploying units into their new modular configurations in a manner in
which a unit's component is completely transparent.
The active component's 3rd Infantry Division and the New York
National Guard's 42nd Infantry Division Headquarters are providing the
Army's first test of our modular concept. Today in Iraq, two modular
brigades of the 3rd Infantry Division are serving under the 42nd
Division along with two National Guard brigades, one from Tennessee and
one from Idaho. Likewise in Iraq, one National Guard brigade from
Louisiana currently serves as part of the 3rd Infantry Division. When
all units redeploy, the National Guard brigades will be set into a
standard modular configuration in the same manner as active component
brigades.
As the Army continues to transform more of its units into this new
configuration, all components will increasingly realize the
efficiencies and benefits of modularity. Beyond the primary purpose of
providing more lethal and agile units, our modular design facilitates a
more streamlined logistical support structure across the Army. This
characteristic of modularity will particularly benefit the Army
Reserve, as it processes the bulk of the Army's theater-level support.
This is because our Combat Support and Combat Service Support units,
instead of collectively having to support nine different types of
brigade configurations, will only have to support three different types
of brigade configurations once the force is transformed.
The force, above the brigade-level, will be supported by similarly
modular supporting brigades such as Multi Functional Aviation Brigades.
By design, these brigades will possess the bulk of the Army's aviation
combat power and comprise attack, reconnaissance, assault, and general
support capabilities. This design efficiently provides tailored
aviation formations to effectively meet the combat brigade's
requirements. Additional above brigade-level modular supporting
brigades will provide fires, logistics, and other support.
Modularity also allows our above brigade headquarters structure to
become far more versatile and efficient as we eliminate an entire
echelon of command--moving from three to two levels. Concurrently, the
Army Reserve, Expeditionary Force packages are being structurally
tailored to rapidly deploy in support of modular combat formations.
Similar innovations will occur in the logistics and intelligence
organizations that support our forces and other Services.
FCS is the core of our Future Force's combat brigade, consisting of
18 systems, plus the continued expansion of the network and
capabilities to the soldier--all designed to function as a single,
integrated system. FCS is the Army's primary materiel program for
achieving future force capabilities. It will integrate existing
systems, systems already under development, and systems to be
developed. Fielding FCS is essential to providing the kind of lethal,
agile forces required for full spectrum operations in the future. FCS
will connect units through enhancements to the current and evolving
network architecture that leverages inter-Service capabilities and
provides greater situational awareness. This, in turn, leads to
synchronized operations heretofore unachievable.
In May 2003, FCS moved on schedule into the Systems Development and
Demonstration phase. In July 2004, the Army identified and announced
FCS Program adjustments that strengthened the FCS Program and improved
the Current Force through early delivery, or spiral insertion, of
selected FCS capabilities. The adjustments maintain the Army focus on
FCS-equipped brigade development.
The FCS program continues Department of Defense program reviews
with a Milestone B update in May 2005 and a System Functional Review in
August 2005. FCS Milestone C decision (to begin initial production) is
in 2012. This will lead to an Initial Operational Capability in 2014
and a Full Operational Capability FCS-equipped Brigade Combat Team in
2016.
The FCS approach to evolutionary acquisition includes iterative
insertion of technology into FCS during the life cycle of the program.
As a minimum, required threshold capability will be achieved by the
initial production of FCS-equipped units in 2014. The FCS embraces
evolutionary acquisition through iterative development for FCS
components and systems that will be adequately mature to produce as
spiral insertions to the Current Force.
The evolutionary development approach to the FCS program
acquisition strategy falls into four primary categories: first, the
priority of development will be on the network, unattended munitions,
unmanned systems, and finally manned ground vehicles (MGV).
Consequently, MGV development will be extended. Non-line of sight
cannon (NLOS-C) will lead MGV development and deliver prototype NLOS-C
systems in 2008 with pre-production systems starting in 2010. Second,
all core deferred FCS systems will now be funded and fielded with the
first equipped brigade, allowing FCS-equipped brigade combat team
fielding to begin in 2014. Third, more robust assessment,
experimentation, and evaluation are included in the program to prove
revolutionary concepts, mature the architecture and components, and
assist in technology development. Finally, a series of Spiral-Out
packages of technology insertion, beginning in 2008 will successively
insert FCS capabilities into an Evaluation Brigade Combat Team (E-BCT)
for test, evaluation, and experimentation. Validated Spiral Out systems
will be fielded to Current Force modular combat brigades for
integration onto host platforms, i.e., Stryker, Heavy, and Infantry.
The FCS program will spiral installments of FCS Battle Command
capability to the Current Force beginning in fiscal year 2009 with the
fielding of the Joint Tactical Radio System (JTRS) and Warfighter
Information Network--Tactical (WIN-T), envisioned as the backbone of
the Future Force network. The recent restructuring of the JTRS Cluster
1 program resulted in the need to re-synchronize this effort. The
Program Manager for unit of action has implemented plans that include
pre-Engineering Development Models (EDMs) as well as surrogate systems
in early integration and experiment efforts. By 2014, the network
complementary programs will be synchronized to support the replacement
of Army Battle Command and Control Systems with an integrated FCS
Battle Command system that provides on the move capability down to the
platoon level.
Risk associated with the maturation of technologies contributed to
the Army's decision to restructure the FCS program and extend it by 4
years. The restructured plan significantly reduces risk through both
the spiral plan and the increased development time between Milestone B
and Milestone C. The program has accepted the advice of several review
panels that suggested that FCS mature and field technologies over time
to the forces. FCS remains at the heart of the Army's strategy to
mitigate risk using the Current to Future Force construct. At the same
time, the Army is accelerating selected technologies to reduce
operational risk by improving the Current Force's survivability,
intelligence, surveillance and reconnaissance, and joint
interdependence. Just as emerging FCS capabilities enhance the Current
Force, the Current Force's operational experience informs the FCS
program, further mitigating future challenges and risk.
To execute spiral insertions of FCS technology to the Current
Force, the Army will lead overall program management and development
efforts while using the Lead Systems Integrator (LSI) to assist the
Army in managing the system of systems integration. The LSI is the
program integrator from industry partnered with the Army. The LSI is
responsible for providing direct support to the Army in requirements
development and analysis, and operational, systems, and technical
architectures development. In order to solicit participation in the
bidding process by the best of industry, no company was excluded from
competition for the systems and subsystems contracts. To address the
LSI's ability to operate in a dual role as both integrator and
contractor, it was recognized that a potential conflict of interest
might arise from a company acting as both the LSI and a potential
bidder. The Army is ensuring stringent oversight and has built
appropriate firewalls as reviewed and certified by the Institute for
Defense Analysis.
The Army's commitment to the future is certain. We will continue to
provide our Nation, the President, the Secretary of Defense, and the
combatant commanders with a unique set of core competencies and
capabilities. We remain dedicated to training and equipping our
soldiers and growing leaders. We will continue to deliver relevant and
ready land power to the combatant commanders and the Joint Force.
Our soldiers continue to perform magnificently around the globe.
Simultaneously executing the global war on terror, implementing our
modularity and transformation initiatives, and setting the force will
be a challenge. However, it is also an opportunity to reshape ourselves
for the future that we cannot pass up. As we move forward, the soldier
remains the centerpiece of our combat systems and formations and is
indispensable to the joint team. Adaptive, confident, and competent
soldiers, infused with the Army's values and warrior culture, fight
wars and win the peace.
American soldiers display unrelenting tenacity, steadfast purpose,
quiet confidence, and selfless heroism. We appreciate your wisdom,
guidance, and strong support as we work to ensure that they have what
they need to successfully accomplish their missions and return home
safely--not only today's force but tomorrow's force as well.
Senator McCain. Thank you very much, General.
Secretary Bolton.
STATEMENT OF HON. CLAUDE M. BOLTON, JR., ASSISTANT SECRETARY OF
THE ARMY FOR ACQUISITION, LOGISTICS, AND TECHNOLOGY
Mr. Bolton. Mr. Chairman and Senator Lieberman and other
distinguished members of the subcommittee who may join us, I
too want to thank you for this opportunity to discuss the
authorization request for 2006 and the Army transformation. I
too want to foot-stomp what General Cody has just mentioned,
and that is your wisdom, your guidance, and your steadfast
support that we have enjoyed over these many years.
General Cody spoke about our efforts to reorganize the Army
from a division-centric organization to one where brigades are
the best basic fighting units. As he mentioned, the 3rd
Infantry Division (ID) is now back in Iraq as a restructured
modular force. Each brigade is now a self-sustaining Brigade
Combat Team that can operate outside the full division.
Now, my job was to equip those brigades with everything
from increased intelligence, surveillance, reconnaissance, to
increased battle command for the Force 21 battle command
brigade and below, or as we call it, the FBCB2, the joint
network node, the tactical operations center to maneuver and
support, in other words, trucks. That has been done, and now we
are about to see how well that will work in the 3rd ID.
I had the great opportunity to meet with the 3rd ID within
48 hours of their deployment to talk to the commander, and to
look him in the eye and ask if there was anything else that we
needed to do in terms of my part of this, and that is to make
sure he had all the supplies. He said he had everything that he
needed. The troops were trained and they were ready to go. I
said we will be watching very closely to see what, if anything,
we needed to provide over the next year to increase their
capabilities.
Now let me turn to the Army's Future Combat Systems, also
known as the FCS, the Army's primary materiel program for our
future force combat brigades.
FCS will provide our future force with unprecedented
military capability, rapid deployability, lethality,
survivability, well into the 21st century. The FCS will be a
network systems of systems, 18 systems plus the continued
expansion of the network all centered around the soldier. With
such a complex undertaking, it is important for us to
understand the requirements, resources, which of course you
provide, and integrated processes, which is why in order to
succeed we need the right people from the Government and the
right people from industry working as a team to make this work.
We have a lead systems integrator, or LSI, to assist the
Army in managing this system of systems integration. All 18
separate systems and the network, as I said before, are
centered on the soldier. In order to meet the time and funding
constraints, we require not only an LSI but also a team
approach overall.
When the Defense Advanced Research Projects Agency (DARPA)
served as the lead to develop and define an FCS design concept,
they used the OTA to effectively accomplish this task, build
the FCS team, and protect the public interests. Currently in
the system design and development, or SDD, phase production OTA
allows us to attract the best and brightest of our Nation's
industry and their subcontractors in this endeavor.
Now, to measure the value and appropriateness of the LSI
and OTA, which is done on a regular basis, we use the earned
value management system, which basically tells me that the LSI
is tracking the program to costs, schedule, and performance as
planned at the beginning of this agreement or contract.
After nearly 22 months on the OTA, the Future Combat System
today is on schedule, on cost, and on performance.
Senator McCain. May I interrupt, Mr. Secretary?
Mr. Bolton. Yes.
Senator McCain. Then that Bloomberg News report is
incorrect.
Mr. Bolton. As far as I am concerned, it is. It talked
about the total program, and we can get into that, obviously,
in great detail, how we have changed the program over the last
several months to allow this technology that we are developing
for the FCS to get into the current force quicker rather than
waiting for a full-up unit sometime out in the future.
It was the desire of this Chief of Staff, General Peter
Schoomaker, that rather than waiting, we needed to put
technology in the current force as quickly as possible. We have
been doing that over the last 3 years. The blue force tracking
that I just mentioned, the FBCB2, the improvements to
connectivity on the battlefield are all things that we have
taken from the current technology base and put into that force.
He wanted to see the same thing from this FCS.
So we have taken four spirals out, the first one to start
in 2008. We have costed that out. We have stretched out the
basic program and added back things that we took out last year,
whether that is unmanned aerial vehicles (UAV), also putting
back two auxiliary power units (APS), on each one of the
vehicles and so forth.
That has increased the costs, and it has taken more time in
terms of the basic program. However, the technology will be
going to the current force a lot faster.
So the Bloomberg report is correct in that we stretched the
program. It is also correct that we have increased the costs,
and that is allowing us to put it into the field quicker and to
put back things that allow the FCS, when it is finally
deployed, to fight better. I can go into that, sir, at greater
detail. If I may just finish up these comments, sir.
But as I said, we are on schedule and that is the schedule
in the agreement. There are a lot of schedules floating around,
but what is on contract we are holding pretty fast to that.
Senator McCain. In all due respect, Mr. Secretary, we do
not want a lot of schedules floating around.
Mr. Bolton. You are absolutely right.
Senator McCain. We need one that we can plan with.
Mr. Bolton. Yes, sir. We will hit this later on. I cannot
tell you how many times I have spent over the last 30 years
trying to track down who has what schedule and where it came
from.
The earned value management system that I talked to earlier
is what I use to measure this contractor, and in fact, all the
contractors because it goes through all the subcontractors.
What I put on that agreement tells me how long it is supposed
to take, how much money it is supposed to take, and that is
what I track people to.
Senator McCain. That is what we would like to have too, Mr.
Secretary.
Mr. Bolton. As a matter of fact, I come up here about once
a quarter to talk to the four staffs that we do business with,
and we bring that earned value data in. That is ground truth.
That is what the taxpayers pay, not someone else's schedule. If
we get all balled up with all these other things, which are
great for planning--and we do that all the time and people get
confused, and in the past we have made some rather expensive
mistakes.
We have also looked outside the Department of Defense,
obviously, outside the Army, on a regular basis, for me about
every 6 months, about the concept of the LSI and the OTA, as
well as other aspects of the program. Those outside independent
reviews have further validated the appropriateness of the LSI
and the OTA. By the way, I am getting ready to go out on my
next 6-month. We will identify a completely different,
independent source and take another look at the LSI, the OTA,
and some other things that I would like to take a look on this.
The bottom line is that we need to acquire the best
capabilities that we can afford within time constraints given
to us by the warfighter. I believe that the LSI and the OTA are
both vitally important to the success of this program. I will
continue to challenge the management tools, as we continue to
look for better ways to get to the warfighter what they need,
when they need it, and where they need it, better, faster, and
cheaper.
Sir, that concludes my opening comments. Again, I want to
thank this committee for its continuing wisdom, guidance, and
support, and I too look forward to your questions.
Senator McCain. Thank you very much.
Senator Inhofe could not be here today because the
Environment and Public Works Committee is marking up the
highway bill. He has asked his statement be entered in the
record. If there is no objection, so ordered.
[The prepared statement of Senator Inhofe follows:]
Prepared Statement by Senator James M. Inhofe
I remember, General Shinseki sat where you currently are seated in
March 2000 and stated the following about Army Transformation:
``This is the most significant effort to change the Army in 100
years. Our aim is not a single platform swap out, but a
systemic change and full integration of multidimensional
capabilities--space, air, sea, and land. Not since the
beginning of the last century has such a comprehensive
transformation been attempted. Then, the new weaponry--
aircraft, machine guns, rapid-fire artillery, motorized
vehicles--were all being developed and tested in relative
isolation. The Army is building support for this
Transformation. We have been talking to the defense industry.
We know that this Vision entails risk, but it promises great
reward for our national security. We need to continue our long
tradition of partnership between the Army and Industry. . . For
years, Members of Congress have counseled the Army to change--
we're changing. Now, we need your help, but more than that we
need your ideas, your criticism, your energy, and your
enthusiasm. We need your approval and fiscal support.''
We, Congress, gave him our approval and fiscal support. I believe
Senators Santorum and Lieberman were strong advocates for the program
when they each chaired this subcommittee. With our help the Army moved
forward and began to change. I recall having private discussions with
General Shinseki referencing the Army's role in Bosnia and the problems
with TF Hawk. The talk around town back then was the Army's challenge
to remain relevant. The Army needed to ``think out of the box.'' Not
just organizationally, but also in terms of the acquisition process.
Here we are today more than 4 years later. Now let me ask my
distinguished colleagues around this table who have been to Iraq and
Afghanistan: is there any doubt how relevant our Army is today? On
behalf of a grateful Nation, how fortunate we are that the Army
embarked on this transformation. If the call to ``think out of the
box'' would not have been sent out at the beginning of this decade, we
would NOT have the Stryker, which is performing so well in Iraq, and
FCS would still be bogged down in protests. More importantly we would
be denying a capability to our brave soldiers. In the final analysis,
that's what we are talking about, putting capability into the hands of
our soldiers, sooner rather than later. FCS is not about 18 plus
systems; it's about capability.
I don't know what path this committee is going down regarding what
``t's'' were crossed and which ``I's'' were dotted in terms of the
contracting method the Army used to jump start its transformation. I
for one will be watching very closely to ensure whatever this committee
does do, it does not deny capabilities that our soldiers need today and
in the future.
Senator McCain. Senator Lieberman, I know that you may have
to leave, so why do you not lead off with your questions.
Senator Lieberman. I think I am all right. You go ahead.
Senator McCain. No, go ahead.
Senator Lieberman. Thank you, Mr. Chairman.
Thanks, Secretary and General. I want to talk to you,
first, about the first generation force size and organizational
structure. I know that the Army analysis and gaming have
identified a need for up to 20 Brigade Combat Teams to be
deployed at any one time as a steady state requirement, plus an
ability to surge to 40 to 43 to effectively support the 2004
national defense strategy and national military strategy.
I note that the recent force level committed to Iraq is 20
brigades. I am just curious whether that is a coincidence that
the numbers worked out that way or did something else happen.
General Cody. No, sir, it is not a coincidence. In fact, it
was done separately. I think you know that in the Center of
Army Analysis, in concert with the Joint Staff, we run several
operational availabilities studies to take a look at the
national military strategy. I think you know it is a 1-4-2-1: 1
being homeland defense; 4 being four critical areas of
engagement; 2 being swiftly defeat the efforts of which one of
them becomes a win-decisive. When you lay all that down and
take a look at the contemporary operating environment, we
looked at what will it take on any given day to have ready for
deployment for this Nation--how many Brigade Combat Teams
active and National Guard based upon a rotational basis.
The reason why we did that is because when they did the
force sizing constructs on the old Quadrennial Defense Review
(QDR) back in 2001 or so, no one took into account that if you
go to a swiftly defeat like Iraq and it becomes rotational, you
do not have the base and the accessibility to be able to
sustain it. We are now in the third year of Afghanistan and
Iraq. Yet the force sizing construct that drove the Army to 10
divisions, and then sometimes there were discussions of 8
divisions, left us with this structure.
That is why we are growing to 43 active brigades, as well
as taking all the National Guard brigades and making them the
same as the active brigades, and then moving into this force
generation model that deals with the accessibility of the
National Guard brigades in concert with the accessibility on
any given day of the active component.
That is what that had to do with. The 20 just happened to
correspond to the 19-some-odd brigades that are now in Iraq,
but it was done separately.
Senator Lieberman. I appreciate the answer.
So is it fair to say that you would say that the Army plan
for size and structure of the force is appropriate for the
types of operations it has been performing and may be called on
to perform in the near term?
General Cody. Yes, sir. If I could show one chart, I think
it would be kind of interesting. I will go right to this. You
all have the chart.
What we did is we looked back at where the Army had been. I
do not want to belabor this, but this is the spectrum of
conflict. This is high-end conflict. You see Korea, Vietnam,
Just Cause, Grenada. This is down here in the domestic support/
disaster relief. In the 1950's and 1989 before the wall came
down and during the Cold War, we deployed an Army. It had 40
divisions during Vietnam, 28 divisions before the wall came
down. We deployed that Army across this spectrum about 10
times. It was sized for this. It was sized for the plains of
Europe. It was sized for the fights in the Sinyang Gap in North
Korea, as well as our experience in Vietnam.
If you take a look at what happened to the Army after the
wall came down, we went to 10 divisions active, 8 divisions
National Guard, 44 percent reduction in force across the three
components. But here is where we have been since the wall came
down in 1989, 43 deployments and counting, but you take a look,
it is full spectrum. Yet, we had a Cold War structure.
So that is what drove the former Chief and now our new
Chief and myself to say how do we make this Army more modular
that can meet the full spectrum requirements that we know we
are going to face in the future and be able to be agile and
modular, as well as be able to not have to transform it again
in 2010 to 2014 when we bring on the Future Combat System. So
that is what we used as we looked at this.
Senator Lieberman. Those are very graphic. You have a
clause at the bottom of the second one: ``more missions, fewer
soldiers.'' Those graphs make that clear.
Senator McCain. Could I follow up with that?
Senator Lieberman. Please.
Senator McCain. General, you are aware that the sentiment
on the Armed Services Committee and in the Senate and the House
is that we need more people in the Army?
General Cody. I concur, sir.
Senator McCain. You concur with that.
General Cody. I have been on testimony since--well, 1999 I
testified that the Army was stretched after the Kosovo
experience, and I believe I testified last year that we needed
30,000 right now so that we could do those things that you and
Senator Lieberman laid out that the Army is doing: reorganizing
in a rotational, swiftly defeat the efforts right now with
Afghanistan and Iraq, resetting this force that we have used in
the harshest environment, resetting our training, as well as
setting ourselves up for the future environment that we know we
are going to fight in. In order to do that, we have to grow
this active component force by at least 30,000 right now until
we can get our reorganization going at the level of commitment
we are in Iraq and Afghanistan, as well as relieve the pressure
on the National Guard and Reserves who we have used now since
Operation Noble Eagle after September 11. So that is all in the
balance.
Senator McCain. Thank you.
Senator Lieberman. Mr. Secretary.
Mr. Bolton. Let me add to that. My background is in the Air
Force. I spent 33 years there. Last weekend I had an
opportunity to go to a function, and up front we do the normal
things of introducing folks. Someone stood up to acknowledge
the Air Force participation in our current global war on
terrorism and happened to mention that there are about 30,000
airmen stationed worldwide on duty that particular night. I
thought to myself I have over 300,000 soldiers in 120 countries
tonight.
When I came to the Army just 3 years ago, the thing that
impressed me most and certainly over the last 3 years is how
busy this Army is and the need for personnel. Going to the
modularity, we did that in the Air Force in the mid-1990s, had
to do it for the same reasons. We were double-banging, triple-
banging folks way too much, and you had to get some
predictability into that. This Army is very, very, very busy.
To get to Senator Lieberman's point earlier on, we took a
respite for a decade, maybe a decade and a half, with the Army.
Now it is an opportunity for the country to really see what the
Army is doing to make up its mind as to what it wants it to do
in the future and then to resource that.
Senator Lieberman. Thanks, Mr. Secretary. Mr. Chairman, let
me just ask one more question and it builds on General Cody's
direct answer about your question about personnel, which I
appreciate.
Obviously, it is critical to have a rotation base that
allows sustained commitments without overstressing the force or
understaffing the critical training base, which is exactly what
you talked about.
I have been reading that there are independent analysts now
who are questioning whether a 3-to-1 rotation base in the
Active Force is adequate, with some saying 4-to-1 or even 5-to-
1 is necessary. If the 20 brigade assumption should prove
incorrect--for instance, you were asked to carry out a mission,
which we hope will not happen but realistically is a possible
contingency, in a place like Pakistan or even Iran, or if the
Army needs to surge as a result of those kinds of missions to a
larger number, then the current force generation may prove
inadequate. It will prove inadequate if that happens.
So I want to ask you whether you believe that the temporary
addition of 30,000, which we have now done in end strength, and
an additional 10 brigades will allow the Army to maintain that
three-to-one rotation base for a contingency requiring 20-plus
brigades for 4 or 5 years.
General Cody. Mr. Senator, thank you for that question
because it is one we grapple with every day. Let me start by
saying what keeps me awake at night is what will this All-
Volunteer Force look like in 2007.
Senator Lieberman. Right.
General Cody. We mentioned the 3rd ID going back. You may
not know. I have two sons that are captains in the Army. My
oldest son is getting ready to deploy on his third combat tour
since he graduated from flight school, Afghanistan, Iraq, now
Afghanistan in 4 years. My youngest son is getting ready to go
back with him for his second tour. Just like young Rob
McChrystal and Sergeant Hanner, we have thousands of those
types of stories. We are going out and we are trying to
understand, because this is the first time we have taken this
All-Volunteer Force into this type of fight rotational. Twelve
months is a long time.
The Army during the 1990s was doing 6-month tours in
Implementation Forces (IFOR), then Stabilization Forces (SFOR),
then Kosovo Forces (KFOR), and we had some concerns about that.
Our really only short tour was in Korea.
When this fight started, we had 29,000 to 30,000 soldiers
on a short tour in Korea and 166,000 in short tours in combat.
That is what we had to manage.
So when we looked at this in particular, we said, okay, if
we have to do this, 30,000 is what we need right now, and then
we want to make a decision in 2006. After we get the 10th new
brigade built, that will bring the active Army up to 43
brigades, which also allows us to restructure the combat
service support. We have gone from nine types of brigades in
the Army to three. That allows us to restructure our combat
service support. We think there are probably 6,000 or 7,000
spaces by restructuring there that we can gain to reinforce our
tooth versus tail.
In 2006, we will take a look at what end strength should be
after we complete the first year of modulatiry. But what really
will drive the number you talked about is the 20 Brigades if we
have to do two swifty-defeats simultaneously. Is it one in
five? Is it one in six? If it is one in five and one in six, we
think that the structure that we are going to come in 2006 will
be about right.
Senator Sessions. What do you mean one in five or----
General Cody. If you can only go to a National Guard unit
under partial mobilization--I think it is title 10, section
12203--you can only use them for 24 months consecutive by law.
It was written in 1953. If by policy we cannot go back to a
National Guard unit after they have served a cumulative of 24
months for 7 years, that will drive what your Active Force is
going to look like.
Senator McCain. Well, General, in all due respect, the
Guard was never designed to have those kinds of deployments,
and we are not meeting Guard recruiting goals. The Guard are
fighting magnificently and with great patriotism. They are
wonderful, but it is a tremendous strain on their families. So
it seems to me to require the Guard to serve more often, which
I think could probably have an effect on recruitment and
retention, why do we not increase the size of the Army? This is
a subject probably more for the Personnel Subcommittee, but it
seems to me that the right direction to go if we are going to
be in Iraq for a long period of time, as has been stated by
several of your colleagues in uniform, then we should have an
Army sized to meet that. It is called the National Guard for a
reason, General.
General Cody. Sir, you and I are in agreement. Let me
explain it because I absolutely agree with you.
One in five means a unit like the 81st out of Washington
State that served the tour in Iraq. Then for 5 years, we would
not go back to that unit. But the 20 Brigade Combat Teams that
we think this Nation needs on any given day to be ready to
deploy--not used, but ready to deploy--is 20. As you look at
that chart, five or four--I cannot remember the number--will be
National Guard units not being used, but the first 3 to 4 years
they would be doing their title 32 with the Governor and
homeland security, and then we would ramp up their training. So
they would be ready to deploy so that if this Nation called--it
does not mean we would use them, but we would get them in a
cycle, so that if we had another Operation Iraqi Freedom-type
of conflict, we had readily available C-1 type Guard units that
we could bring in. It is not that we want to have them on
Active-Duty every 5 years. That is not the case. But the case
is to have them in a cycle of training so that we do have
access to them if we have to fight this size of a war.
Senator Lieberman. I will just wind up by saying--and my
time is up. I thank you, Mr. Chairman--that part of what we
are, obviously, looking for here is your estimate of what the
permanent Active-Duty Army end strength should be to carry out
your vision of a restructured Army. Part of that is the balance
between the Guard and Reserve on the one hand and the active
Army on the other. I think there is a concern certainly that
the two of us share that reliance on the Guard and the Reserve
may be more than we can sustain over the long term. So we have
to make some tough decisions about active Army end strength.
I presume that what I am hearing you say is that I am not
going to hear you give us a number today, but you are going to
work on that until 2006 and then you are going to come in with
a number, which I presume will be for the next budget cycle.
General Cody. Mr. Senator, we believe that the 30,000 that
Congress has authorized us in NDAA 2005 is probably the right
number, fully recognizing that we also have the ability to
continue to grow that while we are still fighting this war
based upon things like other measures we can take.
I think the number, at the end of the day, if this is a
plateau and not a spike, is going to be higher than 30,000 that
it is going so that we can retain the National Guard in the
right rotation readiness, not deployable, but ready to deploy,
and the reservists, as well as give this Nation the footprint
that we need as a rotational Army. I think it is going to be
more than 30,000. We will be able to come up with that number
here as we go through this.
I have seen all kinds of numbers and I have been doing this
for 3 years. I have seen them higher and lower, but I think it
is going to be higher than 30,000 in 2006. I think we are going
to come to that realization.
Senator Lieberman. I agree with you and I look forward to
working with you on it. Thanks, Mr. Chairman.
Senator McCain. Thank you.
Senator Sessions.
Senator Sessions. Thank you, Mr. Chairman. I am delighted
to have you chair this subcommittee. Nobody could do it better
or has more insight, history, and concern for the issues coming
before the subcommittee than you. I am delighted to have you
there.
General Cody, the whole thing is very significant in terms
of numbers. What do we do? The Army Reserve unit I was in was
mobilized in 1991 in the Gulf War. It was mobilized again. I
visited them over there. I was not in it when we were
mobilized. I had gotten out before 1991, but I was in it for 10
years. A lot of those people are personal friends of mine.
That is a pretty stressful thing every 10 years. Probably
only about 20 percent of the people in that unit were in it the
first time they went.
I understand we are only using 40 percent of the Guard and
Reserve.
The only thing I would say is a little bit different than
my colleagues. They are prepared to go to war. The Guard and
Reserve--we have combat units. If they are not going to be
called up, then they need to be told right away. We need to
reevaluate that. But they cannot be called up too often. They
are prepared to go and serve.
They serve with so few complaints it is just incredible. I
visited in Fallujah a young marine. He told me his trucking
business was hurt by being there. He thought he may lose it. He
said that in an open meeting. He came up to me later and said,
but I want you to know, Senator, 2 hours from now I am signing
up again. I am going to recommit and do another 6 years.
So they are really remarkable. They want to serve, but we
cannot overuse them. We have to use them very smartly, and some
people are getting called up too much because of their skills
and some are not. I know you are working on that and we are
going to have to have more numbers. I have become convinced
that you are correct. I do think the rain barrel analogy is a
good one.
With regard to the Future Combat System, General Cody or
Secretary Bolton, you said that we want to put in the force as
quickly as possible. I think I understand what that means.
General Cody, I guess I will ask you since the Secretary has
already discussed it, exactly what do we mean by that? As I
understand it, there are certain things that are part of our
vision for a Future Combat System that can be brought on
quickly that can help us right now and that you have made a
decision not to wait until the entire perfect architecture is
here but to, at least, bring those on early and become familiar
with them and utilize them. Would you discuss with me--have I
gotten that right, and what are the pitfalls and advantages of
doing that?
General Cody. Thank you, Mr. Senator. First off, I agree
with you about the unbelievable service of our National Guard
and reservists. I just came back from Iraq. I know you all have
visited there several times. Also, let me say they enjoy seeing
our elected officials over there because it reconnects them and
reminds them of how important their service to the Nation is.
We do not have a finer National Guard or Reserve than we
have today. We are all very proud of them. We could not be
closer to be a one Army today than we are because of
Afghanistan and Iraq. The comraderie and the esprit de corps is
just unbelievable and we have to be careful about the usage of
the National Guard. We know that and we are concerned about it.
When General Schoomaker, myself, the Secretary of the Army,
and Secretary Bolton looked at all the things that we were
being confronted with in this fight in Iraq and the fight in
Afghanistan, all what I would call off-the-shelf robotics,
sensor systems, battle command systems. We looked at where we
were with the 18 plus 1 complex, integrated Future Combat
Systems that we had. We looked at where they were in technology
and asked the question, as we have this force in motion and as
we are structuring it based upon the combatant commander's
desires--and he wanted more sensors to look for IEDs. He wanted
more robotics. He wanted to be able to have battle command
across all his units so it would be seamless in terms of
command, control, communications, computers, intelligence,
surveillance, and reconnaissance (C\4\ISR). So we looked and we
said, okay, there is no longer a strategic pause here to be
able to wait until 2012 to put all 18 plus 1 systems onto a
formation. We have to do two things.
One is we have to set up the Army for what the combatant
commander needs and closely get it aligned to what the
formation will be for the Future Combat System-equipped
formation.
Second, we need to have, on any given day, a battle command
system that, as we move forward, and start fielding the Future
Combat System, whether it is a Stryker brigade or a new modular
brigade or an FCS-equipped brigade, they can all communicate
and still see first, understand first, act first. The fight
will be just a little bit different because of the systems. So
understanding that, we went and said, okay, we have some
unattended ground sensors we can spiral forward now as we build
our new modular brigade. We have the non-line-of-sight cannon
that we can bring forward because we know we need that to help
shape the fight in the future. There is the intelligent
munitions systems, and then there is the systems of systems
common operating environment which really sets up the
operational network for battle command. We knew we could bring
that into spiral one a little quicker once we brought in
warfighter information network-terrestrial (WIN-T) and these
joint network nodes. So we made that decision in restructuring.
We also looked at some of the other capabilities for spiral
two. Our plan is rather than spiral all this stuff in on a new
experimental unit in 2014 when everything is ready is to take 6
to 9 to maybe even 10 of these systems and put the into the
force now in 2008, 2010 and populate them across them so that
we are not having to change the whole Army all at once and we
are also able to bring enhanced technology to the fight today.
That is really our strategy.
Senator McCain. Thank you very much. General Cody, thank
you. We will move to our next panel then. Thank you for being
here. Secretary Bolton, stay where you are.
Mr. Bolton. Yes, sir. [Laughter.]
Senator McCain. Mr. Paul Francis, the Director of
Acquisition and Sourcing Management of the Government
Accountability Office; Dr. David Graham, Deputy Director of
Strategy Forces and Resources Division, the Institute of
Defense Analyses; and Mr. Kenneth Boehm, who is the Chairman of
the National Legal and Policy Center. Secretary Bolton, do you
have an additional opening statement that you would like to
make?
Mr. Bolton. No, sir, I do not.
Senator McCain. Okay. Thank you again, Mr. Bolton.
Mr. Francis, welcome and thank you for appearing before
this subcommittee today. Please proceed.
STATEMENT OF PAUL L. FRANCIS, DIRECTOR, ACQUISITION AND
SOURCING MANAGEMENT, GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Francis. Thank you, Mr. Chairman. Good morning. Good
morning, Mr. Lieberman. I appreciate the opportunity to appear
before the subcommittee this morning. I do have a written
statement which I would like to submit for the record.
I also had an oral statement that I was going to read
through, but I thought in lieu of that, I would just try to hit
some points that I think are relevant to the discussion that we
just had. I might not be as smooth, but I think I will be a
little bit more on point, if that is okay.
Senator McCain. Thank you.
Mr. Francis. I would say that lead system integrators and
other transactions are mechanisms the Government uses to try to
get better outcomes than it could using traditional
instruments. I think these come with inherent risks that
generally involve protecting the Government's interests.
I think in the case of the FCS, there are some additional
risks, and they would have to do with the lead system
integrator being also a prime item contractor on the program.
The solution that we are trying to buy is not well defined yet,
and the technical task is really monumental. So I think these
are additional risks that the program faces.
The Army has taken a number of steps both in the
contracting mechanism and in its management oversight to try to
mitigate these risks. We are just beginning to look at how they
are working now. I do not have a bottom line on how well the
Army is doing, and we are working with your staff on that, Mr.
Chairman.
I think that the Army could make a good case that using the
LSI and the OTA to get to an acquirable solution is not a bad
approach given the size of the task.
Senator McCain. Does that mean to you that we should look
at the rules of procurement?
Mr. Francis. My thought is that now that we are into
acquisition, we need to be looking at this as an acquisition
program. So I think that if we were looking at it as a science
and technology or experimental effort to see what we can do, I
think there could be an argument made that was a good approach
to get to that point.
But now we are past that point. We are about 2 years into
the acquisition process, and at this point the program is not
mature. As is included in my testimony, the technologies are
not mature. We have not firmed requirements. I would say the
cost estimate at this point would be tentative. I think no
matter what contracting instrument we used up to this point,
the program would still be at this relative state of
immaturity.
I think the concern I would like to get across is being 2
years into the acquisition program, we are now going down the
chute of acquisition, which means we are going to be designing
a system. We are going to build prototypes. We are going to
test, and we are going to buy. In reality for the next few
years, the program is going to be at a point of discovery to
see what it can and cannot do. So we may be faced with
questions over the next few years, such as, what if the cost
does double, would we still do FCS then? It is a hypothetical
question. What if we can only get an 80-percent solution, would
that be okay? What if we come out with F-22-like outcomes which
say we get the solution we want, but it is so expensive we
cannot buy many of them, would that be okay? I think we are
going to see these types of issues come up over the next few
years in the program.
So what I would like to say is as we go through that and we
discuss the contracting mechanisms and the arrangement with the
contractor, I think it is really important that the Government
preserve its options to change course based on the discovery of
these facts that we will be going through over the next few
years.
[The prepared statement of Mr. Francis follows:]
Prepared Statement by Paul L. Francis
Mr. Chairman and members of the subcommittee: I am pleased to be
here today to discuss the Department of the Army's Future Combat
Systems (FCS), a networked family of weapons and other systems. FCS is
the centerpiece of the Army's plan to transform to a lighter, more
agile, and more capable force. It consists of an information network
linking a new generation of 18 manned and unmanned ground vehicles, air
vehicles, sensors, and munitions. FCS began system development and
demonstration in May 2003. In July 2004, the Army announced a major
restructuring of the program, including plans for transitioning FCS
capabilities to current forces. Total costs of the restructured program
have not yet been estimated but will be at least $108 billion, in
fiscal year 2005 dollars. The fiscal year 2005 budget provides $2.8
billion in research and development funds for FCS; the fiscal year 2006
budget requests an increase to $3.4 billion.
Today, I would like to discuss (1) the technical and managerial
challenges of the FCS program; (2) the prospects for delivering FCS
capabilities within cost and scheduled objectives; and (3)
considerations on how to proceed.
summary
The FCS program faces significant challenges in setting
requirements, developing systems, financing development, and managing
the effort. The Army has set the bar for requirements very high. FCS
vehicles are to be a fraction of the weight of current vehicles, yet
are to be as lethal and survivable. Their light weight and small size
are critical to meeting the other Army goals: more mobile forces that
are easier to sustain in combat. For FCS-equipped units to see and hit
the enemy first, rather than to rely on heavy armor to survive, the
Army must develop (1) a network to collect, process, and deliver vast
amounts of intelligence and communications information and (2)
individual systems, such as manned ground vehicles, that have been
likened in complexity to fighter aircraft. FCS is a development of
unprecedented complexity for the Army. From a financial standpoint, the
first increment of FCS--enough to equip about 1/3 of the force--will
cost at least $108 billion. Funding requests will run from over $3
billion per year to about $9 billion per year at a time when the Army
faces the competing demands of sustaining current operations,
recapitalizing the current force, and paying for modularization.
Finally, because of the management challenge the program's pace and
complexity pose, the Army has turned to a Lead System Integrator to
manage the entire effort and is making use of a contracting instrument
known as Other Transaction Agreement, which allows the parties to
negotiate contract terms based on the program requirements and their
needs.
As restructured, the FCS strategy includes 4 additional years to
reduce risk, increase the demonstration of FCS capabilities, and
harvest successes for the current force. Even with these improvements,
the FCS is still at significant risk for not delivering planned
capability within budgeted resources. This risk stems from the scope of
the program's technical challenges and the low level of knowledge
demonstrated at this point. The current schedule allows about 9\1/2\
years from development start to the production decision. FCS is
developing multiple systems and a network within a period of time that
the Department of Defense (DOD) typically needs to develop a single
advanced system. The FCS has demonstrated a level of knowledge far
below that suggested by best practices or DOD policy. Nearly 2 years
after program launch and about $4.6 billion invested to date,
requirements are not firm and only 1 of over 50 technologies are
mature--activities that should have been done before the start of
system development and demonstration. If everything goes as planned,
the program will attain the level of knowledge in 2008 that it should
have had before it started in 2003. But things are not going as
planned. Progress in critical areas, such as the network, software, and
requirements has been slower than planned. Proceeding with such low
levels of knowledge makes it likely that FCS will encounter problems
late in development, when they are costly to correct. The relatively
immature state of program knowledge at this point provides an
insufficient basis for making a good cost estimate. Independent
estimates should provide more information but are not yet completed. If
the cost estimate for FCS is no more accurate than traditional
estimates, the impact of cost growth could be substantial, given the
program's magnitude.
At this point, the FCS provides a concept that has been laid out in
some detail, an architecture or framework for integrating individual
capabilities, and an investment strategy for how to acquire those
capabilities. It is not yet a good fit as an acquisition program. If
FCS-like capabilities are to be made acquirable--for which the Army has
made a compelling case--then different approaches for FCS warrant
consideration because they offer building higher levels of knowledge
and thus lower risk. One approach, in keeping with DOD acquisition
policy and best practices, would be to set the first spiral as the
program of record for system development and demonstration. To make
such a spiral executable, it should meet the standards of providing a
worthwhile military capability, having mature technology, and having
firm requirements. Other capabilities currently in the FCS program
could be taken out of system development and demonstration and instead
be bundled into advanced technology demonstrations that could develop
and experiment with advanced technologies in the more conducive
environment of science and technology until they are ready to be put
into a future spiral. Advancing technologies in this way will enable
knowledge to guide decisions on requirements, lower the cost of
development, and make for more reasonable cost and schedule estimates
for future spirals.
background
Army Transformation and the FCS Concept
A decade after the cold war ended, the Army recognized that its
combat force was not well suited to perform the operations it faces
today and is likely to face in the future. The Army's heavy forces had
the necessary firepower but required extensive support and too much
time to deploy. Its light forces could deploy rapidly but lacked
firepower. To address this mismatch, the Army decided to radically
transform itself into a new ``Future Force.''
The Army expects the Future Force to be organized, manned,
equipped, and trained for prompt and sustained land combat. This
translates into a force that is responsive, technologically advanced,
and versatile. These qualities are intended to ensure the Future
Force's long-term dominance over evolving, sophisticated threats. The
Future Force is to be offensively oriented and will employ
revolutionary operational concepts, enabled by new technology. This
force is to fight very differently than the Army has in the past, using
easily transportable lightweight vehicles, rather than traditional
heavily armored vehicles. The Army envisions a new way of fighting that
depends on networking the force, which involves linking people,
platforms, weapons, and sensors seamlessly together.
The Army has determined that it needs more agile forces. Agile
forces would possess the ability to seamlessly and quickly transition
among various types of operations from support operations to
warfighting and back again. They would adapt faster than the enemy
thereby denying it the initiative. Agile forces would allow commanders
of small units the authority and high quality information to act
quickly to respond to dynamic situations.
To be successful, therefore, the transformation must include more
than new weapons. It must be extensive, encompassing tactics and
doctrine as well as the very culture and organization of the Army.
The FCS Solution
FCS will provide the majority of weapons and sensor platforms that
comprise the new brigade-like modular units of the Future Force known
as units of action. Each unit is to be a rapidly deployable fighting
organization about the size of a current Army brigade but with the
combat power and lethality of the current larger division. The Army
also expects FCS-equipped units of action to provide significant
warfighting capabilities to the overall joint force. The Army is
reorganizing its current forces into modular, brigade-based units akin
to units of action.
FCS is a family of 18 manned and unmanned ground vehicles, air
vehicles, sensors, and munitions that will be linked by an information
network. These include, among other things, eight new ground vehicles
to replace current vehicles such as tanks, infantry carriers and self-
propelled howitzers, four different unmanned aerial vehicles, several
unmanned ground vehicles, and attack missiles that can be positioned in
a box-like structure.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The manned ground vehicles are to be a fraction of the weight of
current weapons such as the Abrams tank and Bradley fighting vehicle,
yet are to be as lethal and survivable. At a fundamental level, the FCS
concept is replacing mass with superior information; that is, to see
and hit the enemy first, rather than to rely on heavy armor to
withstand a hit.
The essence of the FCS concept itself--to provide the lethality and
survivability of the current heavy force with the sustainability and
responsiveness of a force that weighs a fraction as much--has the
intrinsic attraction of doing more with less. The FCS concept has a
number of progressive features, which demonstrate the Army's desire to
be proactive in its approach to preparing for potential future
conflicts and its willingness to break with tradition in developing an
appropriate response to the changing scope of modern warfare. If
successful, the program will leverage individual capabilities of
weapons and platforms and will facilitate interoperability and open
system designs. This is a significant improvement over the traditional
approach of building superior individual weapons that must be netted
together after the fact. Also, the system-of-systems network and
weapons could give managers the flexibility to make best value
tradeoffs across traditional program lines. This transformation of the
Army, both in terms of operations and equipment, is underway with the
full cooperation of the Army warfighter community. In fact, the
development and acquisition of FCS is being accomplished using a
collaborative relationship between the developer (program manager), the
contractor, and the warfighter community.
FCS Program Has Been Restructured During the Last Year
The FCS program was approved to start system development and
demonstration in May 2003. On July 21, 2004, the Army announced its
plans to restructure the program. The restructuring responded to
direction from the Army Chief of Staff and addresses risks and other
issues identified by external analyses. Its objectives include:
Spinning off ripe FCS capabilities to current force
units;
Meeting congressional language for fielding the non-
line of sight cannon;
Retaining the system-of-systems focus and fielding all
18 systems;
Increasing the overall schedule by 4 years; and
Developing a dedicated evaluation unit to demonstrate
FCS capabilities
The program restructuring contained several features that reduce
risk--adding 4 additional years to develop and mature the manned ground
vehicles; adding demonstrations and experimentation; and establishing
an evaluation unit to demonstrate FCS capabilities. The program
restructuring also adds scope to the program by reintroducing four
deferred systems, adding four discrete spirals of FCS capabilities to
the current force, and accelerating the development of the network.
About $6.1 billion was added to the system development and
demonstration contract and the Army has recently announced that the
detailed revision of the contract has been completed.
objectives, scope, and methodology
To develop the information on whether the FCS program was following
a knowledge-based acquisition strategy and the current status of that
strategy, we interviewed officials of the Office of the Under Secretary
of Defense (Acquisition, Technology, and Logistics); the Secretary of
Defense's Cost Analysis Improvement Group; the Assistant Secretary of
the Army (Acquisition, Logistics, and Technology); the Army's Training
and Doctrine Command; Surface Deployment and Distribution Command; the
Program Manager for the Unit of Action (previously known as Future
Combat Systems); the Future Combat Systems Lead Systems Integrator
(LSI); and LSI One Team contractors. We reviewed, among other
documents, the Future Combat Systems' Operational Requirements
Document, the Acquisition Strategy Report, the Baseline Cost Report,
the Critical Technology Assessment and Technology Risk Mitigation
Plans, and the Integrated Master Schedule. We attended the FCS
Management Quarterly Reviews, In-Process Reviews, and Board of
Directors Reviews.
In our assessment of the FCS, we used the knowledge-based
acquisition practices drawn from our large body of past work as well as
DOD's acquisition policy and the experiences of other programs. We
discussed the issues presented in this statement with officials from
the Army and the Secretary of Defense, and made several changes as a
result. We performed our review from May 2004 to March 2005 in
accordance with generally accepted auditing standards.
the fcs program is an unprecedented challenge
The FCS program faces significant challenges in setting
requirements, developing systems, financing development, and managing
the effort. It is the largest and most complex acquisition ever
attempted by the Army.
The Requirements Challenge
The Army wants the FCS-equipped unit of action to be as lethal and
survivable as the current heavy force, but to be significantly more
responsive and sustainable. For the unit of action to be lethal, it
must have the capability to address the combat situation, set
conditions, maneuver to positions of advantage, and to engage enemy
formations at longer ranges and with greater precision than the current
force. To provide this level of lethality and reduce the risk of
detection, FCS must provide high, single-shot, weapon effectiveness. To
be as survivable as the current heavy force, the unit of action must
find and kill the enemy before being seen and identified. The
individual FCS systems will also rely on a layered system of protection
involving several technologies that lowers the chances of a vehicle or
other system being seen and hit by the enemy. To be responsive, the
unit of action must be able to rapidly deploy anywhere in the world and
be rapidly transportable by various means--particularly by the C-130
aircraft--and ready to fight upon arrival. To facilitate rapid
transportability on the battlefield, FCS vehicles are to match the
weight and size constraints of the C-130 aircraft. The unit of action
is to be capable of sustaining itself for periods of 3 to 7 days
depending on the level of conflict--necessitating a small logistics
footprint. This requires subsystems with high reliability and low
maintenance, reduced demand for fuel and water, highly effective
weapons, and a fuel-efficient engine.
Meeting all these requirements is unprecedented not only because of
the difficulty each represents individually, but because the solution
for one requirement may work against another requirement. For example,
solutions for lethality could increase vehicle weight and size.
Solutions for survivability could increase complexity and lower
reliability. It is the performance of the information network that is
the linchpin for meeting the other requirements. It is the quality and
speed of the information that will enable the lethality and
survivability of smaller vehicles. It is smaller vehicles that enable
responsiveness and sustainability.
The Development Challenge
In the Army's own words, the FCS is ``the greatest technology and
integration challenge the Army has ever undertaken.'' It intends to
concurrently develop a complex, system-of-systems--an extensive
information network and 18 major weapon systems. The sheer scope of the
technological leap required for the FCS involves many elements. For
example:
First-of-a-kind network will have to be developed that
will entail development of unprecedented capabilities--on-the-
move communications, high-speed data transmission, dramatically
increased bandwidth, and simultaneous voice, data and video;
The design and integration of 18 major weapon systems
or platforms has to be done simultaneously and within strict
size and weight limitations;
At least 53 technologies that are considered critical
to achieving FCS' critical performance capabilities will need
to be matured and integrated into the system-of-systems;
Synchronizing the development, demonstration, and
production of as many as 157 complementary systems with the FCS
content and schedule. This will also involve developing about
100 network interfaces so the FCS can be interoperable with
other Army and joint forces; and
At least an estimated 34 million lines of software
code will need to be generated (about double that of the Joint
Strike Fighter, which had been the largest defense undertaking
in terms of software to be developed).
The Financial Challenge
Based on the restructured program, the FCS program office initially
estimated that FCS will require $28.0 billion for research and
development and around $79.9 billion for the procurement of 15 units of
action. The total program cost is expected to be at least $107.9
billion. These are fiscal year 2005 dollars. Since this estimate, the
Army has released an updated research and development cost estimate of
$30.3 billion in then-year dollars. An updated procurement estimate is
not yet available. The Army is continuing to refine these cost
estimates. As estimated, the FCS will command a significant share of
the Army's acquisition budget, particularly that of ground combat
vehicles, for the foreseeable future. In fiscal year 2006, the FCS
budget request of $3.4 billion accounts for 65 percent of the Army's
proposed spending on programs in system development and demonstration
and 35 percent of that expected for all research, development, test,
and evaluation activities.
As the FCS begins to command large budgets, it will compete with
other major financial demands. Current military operations, such as in
Afghanistan and Iraq, require continued funding. Since September 2001,
DOD has needed over $240 billion in supplemental appropriations to
support the global war on terrorism. Current operations are also
causing faster wear on existing weapons, which will need refurbishment
or replacement sooner than planned. The equipment used by the current
force, such as Abrams tanks and Bradley Fighting Vehicles, is expected
to remain in the active inventory until at least 2030. The cost to
upgrade and maintain this equipment over that length of time has not
been estimated but could be substantial. Also, the cost of converting
current forces to new modular, brigade-based units is expected to be at
least $48 billion. Further, FCS is part of a significant surge in the
demand for new weapons. Just 4 years ago, the top 5 weapon systems cost
about $280 billion; today, in the same base year dollars, the top 5
weapon systems cost about $521 billion. If megasystems like FCS are
estimated and managed with traditional margins of error, the financial
consequences are huge, especially in light of a constrained
discretionary budget.
The Management Challenge
The Army has employed a management approach that centers on a Lead
System Integrator (LSI) and a non-standard contracting instrument,
known as an other transaction agreement (OTA). The Army advised us that
it did not believe it had the resources or flexibility to use its
traditional acquisition process to field a program as complex as FCS
under the aggressive timeline established by the then-Army Chief of
Staff.
Although there is no complete consensus on the definition of LSI,
those we are aware of appear to be prime contractors with increased
program management responsibilities. These responsibilities have
included greater involvement in requirements development, design and
source selection of major system and subsystem subcontractors. The
government also has used the LSI approach on programs that require
system-of-systems integration.
The Army selected Boeing as the LSI for the FCS system development
and demonstration in May 2003. The Army and Boeing established a One-
Team management approach with several first tier subcontractors to
execute the program. According to the Army, Boeing has awarded 20 of 24
first tier subcontracts, to 17 different subcontractors. The One-Team
members and their responsibilities are depicted in table 1.
TABLE 1: ONE-TEAM MEMBERS
------------------------------------------------------------------------
One-Team Member Responsibility
------------------------------------------------------------------------
Army...................................... Program Oversight and
Insight
Boeing/SAIC............................... Program Management
(including source
selection), Development of
System-of-Systems Common
Operating Environment,
System Integration
General Dynamics Land Systems............. Manned Ground Vehicles
General Dynamics C4 Systems............... Planning and Preparation
Services, Sensor Data
Management
General Dynamics Robotics Systems......... Autonomous Navigation System
General Dynamics Advanced Information Integrated Computers
Systems.
United Defense, LP........................ Manned Ground Vehicles,
Armed Robotic Vehicle
iRobot Corporation........................ Small Unmanned Ground
Vehicle
Lockheed Martin Missiles and Fire Control. Multifunction Utility/
Logistics and Equipment
Vehicle
Lockheed Martin, Orincon.................. Intelligence, Surveillance
and Reconnaissance Sensor
Fusion
Austin Information Systems................ Situational Understanding
BAE Systems CNI........................... Ground Platform
Communication
BAE Systems IESI.......................... Air Platform Communication
Computer Sciences Corporation............. Training Support
Dynamics Research Corporation............. Training Support
Honeywell Defense and Space Electronic Platform Soldier Mission
Systems. Readiness System
Northrop Grumman.......................... Air Sensor Integrator, Class
IV Unmanned Aerial Vehicle,
Logistics Decision Support
Systems, Network
Management, Training
Support
Raytheon Network Centric Systems.......... Battle Command and Mission
Execution, Ground Sensor
Integrator
Textron Systems........................... Unattended Ground Sensors,
Tactical and Urban Sensors
------------------------------------------------------------------------
Source: U.S. Army
Boeing was awarded the LSI role under an OTA which is not subject
to the Federal Acquisition Regulation (FAR). Consequently, when using
an OTA, DOD contracting officials have considerable flexibility to
negotiate the agreement terms and conditions. This flexibility requires
DOD to use good business sense and to incorporate appropriate
safeguards to protect the government's interests. The OTA used for FCS
includes several FAR or Defense FAR Supplement clauses, many of which
flow down to subcontracts. The value of the agreement between the Army
and Boeing is approximately $21 billion. It is a cost reimbursement
contract.
Congress has incrementally expanded the use and scope of other
transaction authority since first authorizing its use more than a
decade ago. In 1989, Congress gave DOD, acting through the Defense
Advanced Research Projects Agency (DARPA), authority to temporarily use
other transactions for basic, applied, and advanced research projects.
In 1991, Congress made this authority permanent and extended it to the
military departments. In 1993, Congress enacted Section 845 of the
National Defense Authorization Act for Fiscal Year 1994, which provided
DARPA with authority to use, for a 3-year period, other transactions to
carry out prototype projects directly relevant to weapons or weapon
systems proposed to be acquired or developed by DOD. Subsequent
amendments have extended this authority to the military departments and
other defense agencies. Most recently, the National Defense
Authorization Act for Fiscal Year 2004 extended the prototype project
authority until 2008 and provided for a pilot program to transition
some other transaction prototype projects to follow-on production
contracting.
According to program officials, under the LSI and OTA arrangement
on FCS, the Army primarily participates in the program through
Integrated Product Teams that are used to make coordinated management
decisions in the program about issues related to requirements, design,
horizontal integration and source selection.
fcs remains at risk of not delivering planned capability within
estimated resources
During the past year, the FCS underwent a significant
restructuring, which added 4 years to the schedule for reducing risk,
increasing the demonstration of FCS capabilities, and harvesting
successes for the current force. Yet, even with these improvements, the
FCS is still at significant risk for not delivering planned capability
within budgeted resources. This risk stems from the scope of the
program's technical challenges and the low level of knowledge
demonstrated thus far.
High Levels of Demonstrated Knowledge Are Key to Getting Desired
Outcomes
Our previous work has shown that program managers can improve their
chances of successfully delivering a product if they employ a
knowledge-based decision-making process. We have found for a program to
deliver a successful product within available resources, managers
should build high levels of demonstrated knowledge before significant
commitments are made.\1\ In essence, knowledge supplants risk over
time. This building of knowledge can be described in three levels that
should be attained over the course of a program:
---------------------------------------------------------------------------
\1\ GAO, Best Practices: Capturing Design and Manufacturing
Knowledge Early Improves Acquisition Outcomes. GAO-02-701. (Washington,
DC: July 15, 2002); Best Practices: Better Management of Technology
Development Can Improve Weapon System Outcomes. GAO/NSIAD-99-162.
(Washington, DC: July 30, 1999); Best Practices: Successful Application
to Weapon Acquisition Requires Changes in DOD's Environment. GAO/NSIAD-
98-56. (Washington, DC: February 24, 1998).
First, at program start, the customer's needs should
match the developer's available resources--mature technologies,
time, and funding. An indication of this match is the
demonstrated maturity of the technologies needed to meet
customer needs.\2\
---------------------------------------------------------------------------
\2\ Technology readiness levels are a way to measure the maturity
of technology. According to best practices, technology is considered
sufficiently mature to start a program when it reaches a readiness
level of 7. This involves a system or prototype demonstration in an
operational environment. The prototype is near or at the planned
operational system.
---------------------------------------------------------------------------
Second, about midway through development, the
product's design should be stable and demonstrate that it is
capable of meeting performance requirements. The critical
design review is the vehicle for making this determination and
generally signifies the point at which the program is ready to
start building production-representative prototypes.
Third, by the time of the production decision, the
product must be shown to be producible within cost, schedule,
and quality targets and have demonstrated its reliability. It
is also the point at which the design must demonstrate that it
performs as needed through realistic system level testing.
The three levels of knowledge are related, in that a delay in
attaining one delays those that follow. Thus, if the technologies
needed to meet requirements are not mature, design and production
maturity will be delayed. On the successful commercial and defense
programs we have reviewed, managers were careful to conduct development
of technology separately from and ahead of the development of the
product. For this reason, the first knowledge level is the most
important for improving the chances of developing a weapon system
within cost and schedule estimates. DOD's acquisition policy has
adopted the knowledge-based approach to acquisitions. DOD policy
requires program managers to provide knowledge about key aspects of a
system at key points in the acquisition process. Program managers are
also required to reduce integration risk and demonstrate product design
prior to the design readiness review and to reduce manufacturing risk
and demonstrate producibility prior to full-rate production.
DOD programs that have not attained these levels of knowledge have
experienced cost increases and schedule delays. We have recently
reported on such experiences with the F/A-22, the Joint Strike Fighter,
the Airborne Laser, and the Space Based Infrared System High. For
example, the $245 billion Joint Strike Fighter's acquisition strategy
does not embrace evolutionary, knowledge-based techniques intended to
reduce risks. Key decisions, such as its planned 2007 production
decision, are expected to occur before critical knowledge is captured.
If time were taken now to gain knowledge it could avoid placing sizable
investments in production capabilities at risk of expensive changes.
FCS Strategy Will Not Demonstrate High Levels of Knowledge Consistent
With DOD Policy or Best Practices
The FCS program has proceeded with low levels of knowledge. In
fact, most of the activities that have taken place during its first 2
years should have been completed before starting system development and
demonstration. It may be several years before the program reaches the
level of knowledge it should have had at program start. Consequently,
the Army is depending on a strategy that must concurrently define
requirements, develop technology, design products, and test products.
Progress in executing the program thus far does not inspire confidence:
the requirements process is taking longer that planned, technology
maturity may actually have regressed, and a program that is critical
for the FCS network has recently run into problems and has been
delayed. Figure 2 depicts how the FCS strategy compares with the best
practices described above.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The white space in figure 2 suggests the knowledge between best
practices and the FCS program. Clearly, the program has a tremendous
amount of ground to cover to close its knowledge gaps to the point that
it can hold the design reviews as scheduled and make decisions on
building prototypes, testing, and beginning production with confidence.
Several other observations can be made from the figure:
A match between mature technologies and firm
requirements was not made at program start.
The preliminary design review, which ideally is
conducted near the program start decision to identify
disconnects between the design and the requirements, will be
held 5 years into the program.
The critical design review, normally held midway
through development, is scheduled to take place in the seventh
year of a 9-year program.
The first test of all FCS elements will take place
after the production decision.
Requirements and Resources Gap
The FCS program entered system development and demonstration
without demonstrating a match between resources and requirements, and
will not be in a position to do so for a number of years. The Army now
expects to have a reasonably well defined set of requirements by the
October 2006 interim preliminary design review. The Army has been
working diligently to define these requirements, but the task is very
difficult given that there are over 10,000 specific system-of-systems
requirements that must collectively deliver the needed lethality,
survivability, responsiveness, and sustainability. For example, the
Army is conducting at least 120 studies to identify the design
tradeoffs necessary before firming up requirements. As of December
2004, 69 remain to be completed. Those to be completed will guide key
decisions on the FCS, such as the weight and lethality required of the
manned ground vehicles.
On the resources side, last year we reported that 75 percent of FCS
technologies were immature when the program started in 2003; a
September 2004 independent assessment has since shown that only one of
the more than 50 FCS critical technologies is fully mature. The Army
employed lower standards than recommended by best practices or DOD
policy in determining technologies acceptable for the FCS program.\3\
As a result, it will have to develop numerous technologies on a tight
schedule and in an environment that is designed for product
development. If all goes as planned, the Army estimates that most of
the critical technologies will reach a basic level of maturity by the
2010 Critical Design Review and full maturity by the production
decision. This type of technical knowledge is critical to the process
of setting realistic requirements, which are needed now. In addition, a
program critical to the FCS network and a key element of FCS' first
spiral, the Joint Tactical Radio System, recently encountered technical
problems and may be delayed 2 years. We provide more detail on this
program later.
---------------------------------------------------------------------------
\3\ To achieve full maturity at TRL 7, the technology should be in
the form, fit, and function needed for the intended product and should
be demonstrated in a realistic environment. For a basic level of
maturity at TRL 6, the technology is not necessarily in the form, fit,
and function for the intended product.
---------------------------------------------------------------------------
Late Demonstrations of FCS Performance Could Prove Costly
The FCS strategy will result in much demonstration of actual
performance late in development and early in production, as
technologies mature, prototypes are tested, and the network and systems
are brought together as a system-of-systems. A good deal of the
demonstration of the FCS design will take place over a 3-year period,
starting with the critical design review in 2010 through the first
system level demonstration of all 18 FCS components and the network in
2013. This compression is due to the desired fielding date of 2014,
coupled with the late maturation of technologies and requirements
previously discussed.
Ideally, a critical design review should be held midway through
development--around 2008 for FCS--to confirm the design is stable
enough to build production representative prototypes for testing. DOD
policy refers to the work up to the critical design review as system
integration, during which individual components of a system are brought
together. The policy refers to the work after the critical design
review as system demonstration, during which the system as a whole
demonstrates its reliability as well as its ability to work in the
intended environment. The building of production representative
prototypes also provides the basis to confirm the maturity of the
production processes. For the FCS, the critical design review will be
held just 2 years before the production decision. The FCS program is
planning to have prototypes available for testing prior to production
but they will not be production-representative prototypes. The Army
does not expect to have even a preliminary demonstration of all
elements of the FCS system-of-systems until sometime in 2013, the year
after the production decision.
This makes the program susceptible to ``late cycle churn,'' a
condition that we reported on in 2000.\4\ Late-cycle churn is a phrase
private industry has used to describe the efforts to fix a significant
problem that is discovered late in a product's development. Often, it
is a test that reveals the problem. The ``churn'' refers to the
additional--and unanticipated--time, money, and effort that must be
invested to overcome the problem. Problems are most serious when they
delay product delivery, increase product cost, or ``escape'' to the
customer. The discovery of problems in testing conducted late in
development is a fairly common occurrence on DOD programs, as is the
attendant late-cycle churn. Often, tests of a full system, such as
launching a missile or flying an aircraft, become the vehicles for
discovering problems that could have been found out earlier and
corrected less expensively. When significant problems are revealed late
in a weapon system's development, the reaction--or churn--can take
several forms: extending schedules to increase the investment in more
prototypes and testing, terminating the program, or redesigning and
modifying weapons that have already made it to the field. While DOD has
found it acceptable to accommodate such problems over the years, this
will be a difficult proposition for the FCS given the magnitude of its
cost in an increasingly competitive environment for investment funds.
---------------------------------------------------------------------------
\4\ GAO, Best Practices: A More Constructive Approach is Key to
Better Weapon System Outcomes, GAO/NSIAD-00-199 (Washington, DC, July
31, 2000).
---------------------------------------------------------------------------
The Army has made some concrete progress in building some of the
foundation of the program that will be essential to demonstrating
capabilities. For example, the System-of-Systems Integration Lab--where
the components and systems will be first tested--has been completed.
Initial versions of the System-of-Systems Common Operating Environment,
the middleware that will provide the operating system for FCS software,
have been released. Several demonstrations have taken place, including
the precision attack munition, the non-line of sight cannon, and
several unmanned aerial vehicles.
The Army has embarked on an impressive plan to mitigate risk using
modeling, simulation, emulation, hardware in the loop, and system
integration laboratories throughout FCS development. This is a credible
approach designed to reduce the dependence on late testing to gain
valuable information about design progress. However, on a first-of-a-
kind system like the FCS that represents a radical departure from
current systems, actual testing of all the components integrated
together is the final proof that the system works both as predicted and
as needed.
Examples of Execution Challenges for Two Key FCS Elements
The risks the FCS program faces in executing the acquisition
strategy can be seen in the information network and the manned ground
vehicles. These two elements perhaps represent the long poles in the
program and upon which the program's success depends.
Network
The Joint Tactical Radio System (JTRS) and Warfighter Information
Network-Tactical (WIN-T) are central pillars of the FCS network. If
they do not work as intended, battlefield information will not be
sufficient for the Future Force to operate effectively. They are
separate programs from the FCS, and their costs are not included in the
costs of the FCS. Both JTRS and WIN-T face significant technical
challenges and aggressive schedules, which threaten the schedule for
fielding Future Force capabilities and make their ultimate ability to
perform uncertain.
JTRS is a family of radios that is to provide the high capacity,
high-speed information link to vehicles, weapons, aircraft, and
soldiers. Because they are software-based, they can also be
reprogrammed to communicate with the variety of radios currently in
use. JTRS is to provide the warfighter with the capability to access
maps and other visual data, communicate on-the-move via voice and video
with other units and levels of command, and obtain information directly
from battlefield sensors. JTRS can be thought of as the information
link or network to support FCS units of action and the combat units on
the scene that are engaged directly in an operation. In particular, its
wideband networking waveform provides the ``pipe'' that will enable the
FCS vehicles to see and strike first and avoid being hit. The WIN-T
program is to provide the information network for higher military
echelons. WIN-T will consist of ground, airborne, and space-based
assets within a theater of operations for Army, joint, and allied
commanders and provide those commanders with access to intelligence,
logistics, and other data critical to making battlefield decisions and
supporting battlefield operations. This is information the combat units
can access through WIN-T developed equipment and JTRS.
The JTRS program to develop radios for ground vehicles and
helicopters--referred to as Cluster 1--began system development in June
2002 with an aggressive schedule, immature technologies, and lack of
clearly defined and stable requirements. These factors have contributed
to significant cost, schedule, and performance problems from which the
program has not yet recovered. The Army has not been able to mature the
technologies needed to provide radios that both generate sufficient
power as well as meeting platform size and weight constraints. Changes
in the design are expected to continue after the critical design
review, and unit costs may make the radios unaffordable in the
quantities desired. Given these challenges, the Army has proposed
delaying the program 24 months and adding $458 million to the
development effort. However, before approving the restructure, the
Office of the Secretary of Defense directed a partial work stoppage,
and the program is now focusing its efforts on a scheduled operational
assessment of the radio's functionality to determine the future of the
program. Consequently, the radio is not likely to be available for the
first spiral of the FCS network, slated for fiscal year 2008, and
surrogate radios may be needed to fill the gap.
A second JTRS program, to develop small radios including those that
soldiers will carry (referred to as Cluster 5), also entered system
development with immature technologies, lack of well-defined
requirements, and faces even greater technical challenges due to the
smaller size, weight, power, and large data processing requirements for
the radios. For example, the Cluster 5 program has a requirement for a
wideband networking waveform despite its demanding size and power
constraints. In addition, the program was delayed in starting system
development last year because of a contract bid protest. Consequently,
the Cluster 5 radios are not likely to be available for the first FCS
spiral either. The Army has acknowledged that surrogate radios and
waveforms may be needed for the first spiral of FCS.
The WIN-T program also began with an aggressive acquisition
schedule and immature technologies that are not scheduled to mature
until after production begins. Backup technologies have been
identified, but they offer less capability and most are immature as
well. In addition, the schedule leaves little room for error correction
and rework that may hinder successful cost, schedule and performance
outcomes. More recently, the program strategy was altered to identify a
single architecture as soon as possible and to deliver networking and
communications capabilities sooner to meet near term warfighting needs.
Specifically, the Army dropped its competitive strategy and is now
having the two contractors work together to develop the initial network
architecture. A plan for how to develop and field capabilities sooner
is still to be determined.
Manned Ground Vehicles
FCS includes eight manned ground vehicles, which require critical
individual and common technologies to meet required capabilities. For
example, the Mounted Combat System will require, among other new
technologies, a newly developed lightweight weapon for lethality; a
hybrid electric drive system and a high-density engine for mobility;
advanced armors, an active protection system, and advanced signature
management systems for survivability; a Joint Tactical Radio System
with the wideband waveform for communications and network connection; a
computer-generated force system for training; and a water generation
system for sustainability. At the same time, concepts for the manned
ground vehicles have not been decided and are awaiting the results of
trade studies that will decide critical design points such as weight
and the type of drive system to be used. Under other circumstances,
each of the eight manned ground systems would be a major defense
acquisition program on par with the Army's past major ground systems
such as the Abrams tank, the Bradley Fighting Vehicle, and the Crusader
Artillery System. As such, each requires a major effort to develop,
design, and demonstrate the individual vehicles.
Developing these technologies and integrating them into vehicles is
made vastly more difficult by the Army's requirement that the vehicles
be transportable by the C-130 cargo aircraft. However, the C-130 can
carry the FCS vehicles' projected weight of 19 tons only 5 percent of
the time. In 2004, GAO reported a similar situation with the Stryker
vehicles. The 19-ton weight of these vehicles significantly limits the
C-130's range and the size of the force that can be deployed.\5\
Currently, FCS vehicle designs are estimated at over 25 tons. To meet
even this weight, the advanced technologies required put the
sophistication of the vehicles on a par with fighter aircraft,
according to some Army officials. This is proving an extremely
difficult requirement to meet without sacrificing lethality,
survivability, and sustainability. Currently, program officials are
considering other ways to meet the C-130 weight requirement, such as
transporting the vehicles with minimal armor and with only a minimal
amount of ammunition. As a result, vehicles would have to be armored
and loaded upon arrival to be combat ready.
---------------------------------------------------------------------------
\5\ GAO, Military Transformation: Fielding of Army's Stryker
Vehicles Is Well Under Way, but Expectations for Their Transportability
by C-130 Aircraft Need to Be Clarified, GAO-04-925 (Washington, DC,
August 12, 2004).
---------------------------------------------------------------------------
FCS Cost and Affordability Still to Be Determined
The low levels of knowledge in the FCS program provide an
insufficient basis for making cost estimates. The program's immaturity
at the time system development and demonstration began resulted in a
relatively low-fidelity cost estimate and open questions about the
program's long-term affordability. Although the program restructuring
provides more time to resolve risk and to demonstrate progress, the
knowledge base for making a confident estimate is still low. If the FCS
cost estimate is not better than past estimates, the likelihood for
cost growth will be high while the prospects for finding more money for
the program will be dim.
The estimates for the original FCS program and the restructured
program are shown in table 2 below.
TABLE 2: INCREASED COST FROM ORIGINAL TO RESTRUCTURED FCS PROGRAM
------------------------------------------------------------------------
Research and
2005 BY$ (millions) Development Procurement Total
------------------------------------------------------------------------
Original...................... 18,574 60,647 a 79,836
Restructured.................. b 28,007 79,960 107,967
Dollar increase............... 9,433 19,313 28,131
Percent increase.............. 50.79 31.84 35.24
------------------------------------------------------------------------
Sources: GAO.
a Both the original and the restructured figures are for about 15 Units
of Action (i.e., 1/3 of the current active force).
b Includes four originally deferred systems, a lengthened schedule,
additional tests, and the addition of the four spirals.
At this point, the FCS cost estimate represents the position of the
program office. The Army and the Office of the Secretary of Defense's
Cost Analysis Improvement Group will provide their independent
estimates for the May 2005 Milestone B update review. It is important
to keep in mind that the FCS program cost estimate does not reflect all
of the costs needed to field FCS capabilities. The costs of the
complementary programs are separate and will be substantial. For
example, the research and development and procurement costs for the
JTRS (Clusters 1 and 5) and the WIN-T programs are expected to be about
$34.6 billion (fiscal year 2005 dollars).
In addition, by April 2005, the Army has been tasked to provide an
analysis of FCS affordability considering other Army resource
priorities, such as modularity. This will be an important analysis
given that estimates of modularity costs have been put at about $48
billion, and costs of current operations and recapitalizing current
equipment have been covered by supplemental funding.
As can be seen in table 3, substantial investments will be made
before key knowledge is gained on how well the system can perform. For
example, by the time of the critical design review in 2010, over $20
billion of research and development funds will have been spent.
TABLE 3: ANNUAL AND CUMULATIVE FCS FUNDING AND PLANNED EVENTS AND ACHIEVEMENTS
[In millions of dollars]
----------------------------------------------------------------------------------------------------------------
Cumulative
Annual Research Research and
Fiscal year and Development Development Planned Events/Achievements
Funding Funding
----------------------------------------------------------------------------------------------------------------
2003 158.9 158.9 Systems development and
demonstration Start
----------------------------------------------------------------------------------------------------------------
2004 1,637.3 1,796.2 Program restructured
----------------------------------------------------------------------------------------------------------------
2005 Contract redefinitized
Milestone B Update
2,800.8 4,597.0 Updated cost estimate
----------------------------------------------------------------------------------------------------------------
2006 Requirements firmed up
3,404.8 8,001.8 Interim preliminary design
review
----------------------------------------------------------------------------------------------------------------
2007 3,742.0 11,743.8 .............................
----------------------------------------------------------------------------------------------------------------
2008 System preliminary design
review
3,682.3 15,426.1 Interim critical design
review
----------------------------------------------------------------------------------------------------------------
2009 3,460.0 18,886.1 .............................
----------------------------------------------------------------------------------------------------------------
2010 3,181.5 22,067.6 Technologies reach basic
maturity; system critical
design review
----------------------------------------------------------------------------------------------------------------
2011 2,690.7 24,758.3 Design readiness review
----------------------------------------------------------------------------------------------------------------
2012 Technologies reach full
maturity
1,949.6 26,707.9 Production decision
----------------------------------------------------------------------------------------------------------------
2013 1,412.0 28,119.9 Initial System-of-Systems
demonstration
----------------------------------------------------------------------------------------------------------------
2014 1,169.0 29,288.9 Initial Operational
Capability
----------------------------------------------------------------------------------------------------------------
2015 901.0 30,189.9 .............................
----------------------------------------------------------------------------------------------------------------
2016 111.0 30,300.9 Full Operational Capability
----------------------------------------------------------------------------------------------------------------
Source: U.S. Army.
The consequences of even modest cost increases and schedule delays
for the FCS would be dramatic. For example, a 1-year delay late in FCS
development, not an uncommon occurrence for other DOD programs, could
cost over $3 billion. Given the size of the program, financial
consequences of following historical patterns of cost and schedule
growth could be dire.
alternatives to current fcs acquisition strategy still warrant
consideration
For any acquisition program, two basic questions can be asked.
First, is it worth doing? Second, is it being done the right way? On
the first question, the Army makes a compelling case that something
must be done to equip its future forces and that such equipment should
be more responsive but as effective as current equipment. The answer to
the second question is problematic. At this point, the FCS presents a
concept that has been laid out in some detail, an architecture or
framework for integrating individual capabilities, and an investment
strategy for how to acquire those capabilities. There is not enough
knowledge to say whether the FCS is doable, much less doable within a
predictable frame of time and money. Yet making confident predictions
is a reasonable standard for a major acquisition program given the
resource commitments and opportunity costs they entail. Against this
standard, the FCS is not yet a good fit as an acquisition program.
That having been said, another important question that needs to be
answered is: if the Army needs FCS-like capabilities, what is the best
way to advance them to the point to which they can be acquired? Efforts
that fall in this area--the transition between the laboratory and the
acquisition program--do not yet have a place that has right
organizations, resources, and responsibilities to advance them
properly.
At this point, alternatives to the current FCS strategy warrant
consideration. For example, one possible alternative for advancing the
maturity of FCS capabilities could entail setting the first spiral or
block as the program of record for system development and
demonstration. Such a spiral should meet the standards of providing a
worthwhile military capability, having mature technology, and having
firm requirements. Other capabilities currently in the FCS program
could be moved out of system development and demonstration and instead
be bundled into advanced technology demonstrations that could develop
and experiment with advanced technologies in the more conducive
environment of ``pre-acquisition'' until they are ready to be put into
a future spiral. Advancing technologies in this way will enable
knowledge to guide decisions on requirements, lower the cost of
development, and make for more reasonable cost and schedule estimates
for future spirals.
Mr. Chairman, this concludes my prepared statement. I would be
happy to answer any questions that you or members of the subcommittee
may have.
contacts and staff acknowledgements
For future questions about this statement, please contact me at
(202) 512-4841. Individuals making key contributions to this statement
include Lily J. Chin, Marcus C. Ferguson, Lawrence D. Gaston, Jr.,
William R. Graveline, John P. Swain, Robert S. Swierczek, and Carrie R.
Wilson.(120352)
Senator McCain. Thank you very much.
Dr. Graham, welcome.
STATEMENT OF DR. DAVID R. GRAHAM, DEPUTY DIRECTOR, STRATEGY
FORCES AND RESOURCES DIVISION, INSTITUTE FOR DEFENSE ANALYSES
Dr. Graham. Yes. Thank you. I am with the Institute for
Defense Analyses (IDA).
IDA performed an independent review of the FCS management
last year at the request of the Office of the Secretary of
Defense (OSD) and also Acting Secretary Les Brownley of the
Army. The use of other transaction authority was one of the
important focus areas of our study. We were asked to identify
whether there were any unique issues or challenges associated
with the use of OTA for the program. So we did a detailed
review of the agreement between the Army and Boeing and also
looked in detail at the subcontracts that Boeing had written
with the, at that time, 24 subcontractors. I will briefly
summarize the findings that are germane to the panel's
considerations today. We put together an extract of our report
for the record, if that is okay.
Let me speak first to the Army-Boeing agreement. As you
said in the introduction, Congress created OTA to establish
flexibility and what OTA does is it gives the participants in a
contract the ability to put in as much or as little flexibility
in the contract as the situation merits.
Now, when we looked at the Army-Boeing agreement, we find
that it does provide flexibility for managing the program, but
in the broader scheme of things, this agreement looks very much
like a traditional Federal Acquisition Regulation (FAR)
contract. After reviewing the details of the agreement, we
felt--and we told the Army this--that we did not think that the
agreement that they had in place and the way they were managing
it created any unusual risks for the program.
I do agree with what Mr. Francis just said. There are a lot
of technical and programmatic issues, but the use of the
agreement was not one of the major issues that we raised with
the Army.
This particular agreement is very much like a conventional
defense contract based on the defense acquisition regulations.
It incorporates numerous standard defense contracting clauses.
These include termination rights, disputes resolution clauses,
cost accounting, auditing, and these are the things that are
commonly viewed as protecting the Government's interests. There
are a large number of provisions that are taken directly from
the FAR and referenced in this agreement. There are also a lot
of other areas that would normally be covered in a FAR contract
that are addressed in this contract using different language.
We think the Army-Boeing agreement reflects the fact that
the Integrated Defense Systems Division of Boeing is, in fact,
a longstanding defense contractor, and they are used to dealing
with FAR-style contracts and felt comfortable in doing that
with the Army.
Senator McCain. Even though OTA was designed to help people
who were not familiar with contracting with the Department of
Defense?
Dr. Graham. Yes, sir.
Senator McCain. That was the original reason for OTA?
Dr. Graham. Yes, sir.
Senator McCain. But now you are saying it is a good deal
because they are familiar with defense contracting.
Dr. Graham. Well, what we concluded is there are two sides
to this. One is there is a cost of the way this has been
executed because, as you said, the primary intent of OT was to
engage nontraditional contractors in defense business. At the
time that we looked, the program was primarily comprised of
traditional defense contractors. Now, that may have changed
since we looked because there are additional rounds of sub-tier
contracting that was to be done after we took our look at the
program. But at the time we did it, it was mainly defense
contractors.
The other side of the coin is that the way they have set it
up is a benefit from the standpoint of insulating the program
from the criticism that the Army has not put in enough to
protect the Government's interests. That is our basic bottom
line on that.
Let me turn then to the question of using OTA for
production. There is no statutory authority today, so if the
Army were to desire to use OTA for production, they would have
to make a business case for why that makes sense and is in the
country's interests.
Senator McCain. Can I make a taxpayers' protection case?
Dr. Graham. Yes, sir. No, no. Right.
Senator McCain. Like gratuities are exempted from here,
anti-kickback procedures, subcontractor cost or pricing data,
price read for defective cost or pricing data, penalties for
unallowable costs. Can I make a case from the taxpayer
standpoint that there is a reason why we have these on regular
contracting? It is protection of the taxpayer, and these are
excluded in this OTA contract. I cannot get access to
subcontractor pricing data, unless I subpoena it, because this
has been exempted from FAR.
Mr. Bolton. Well, that is not true.
Senator McCain. The display of the DOD hotline poster.
You say it is not true? Well, I will be glad to----
Mr. Bolton. On contract--in fact, you will find when you
read through the agreement, there is a FAR clause for CAS,
which is the standard cost accounting system.
Senator McCain. Are there penalties for unallowable costs?
Mr. Bolton. Yes, there are.
Senator McCain. You are sure of that.
Mr. Bolton. Yes, sir.
Senator McCain. That is not the information I have, and we
will debate it. Let me let Dr. Graham finish. Okay?
Dr. Graham. You are absolutely right. Again, it comes down
to this tradeoff that we spoke about.
Senator McCain. This is an Army document, by the way, that
I am reading from, Mr. Secretary.
Mr. Bolton. I understand that, sir.
Senator McCain. Go ahead.
Dr. Graham. What case could the Army make for using OTA in
production? It basically comes down to does it give access to
nontraditional suppliers who are important for executing the
FCS program or are able to supply technologies that are useful
to support this spiral-out strategy that we were talking about.
As I said earlier, what we found is that since the Army has
taken such a conservative approach in implementing this
agreement and since the program at the time that we looked at
it was comprised mainly of traditional defense contractors who
are used to operating with the FAR, what we told the Army was
that it would be a tough case to make on a practical matter as
to why OTA would be needed for production with the FCS program.
I would say the jury really is out on that. There could be
cases that would come up where it would seem to make sense.
[The prepared statement of Dr. Graham follows:]
Prepared Statement by Dr. David R. Graham
The Institute for Defense Analyses (IDA) reviewed the management of
the Future Combat System (FCS) program at the request of the acting
Secretary of the Army and the Office of the Under Secretary of Defense
(Acquisition, Technology, and Logistics) to identify ``weaknesses in
procedures, policies, or practices that could impact Future Combat
System program development efforts.'' The review addressed a number of
specific questions posed by the Army's senior leadership. In addition,
the acting Secretary of the Army tasked IDA \1\ to identify any other
issues that might pose risks to the successful execution of the
program.
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\1\ This statement is based on the IDA study report for this task.
David R. Graham, Amy A. Alrich, Richard P. Diehl, Forrest R. Frank,
Anthony C. Hermes, Robert C. Holcomb, Dennis O. Madl, Michael S. Nash,
J. Richard Nelson, Gene Porter, David A. Sparrow, and Michael D. Spies,
IDA Review of FCS Management, (Alexandria, Virginia, Institute for
Defense Analyses, IDA P-3929), August 2004.
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The fact finding for this review was performed between February and
June 2004. IDA observed ongoing FCS management activities, including
the FCS Quarterly Management Review in March and the Design Concept
Review in June. The study team conferred frequently with government and
Lead System Integrator (LSI) officials. Boeing granted IDA access to
the FCS Advanced Collaborative Environment, which provided essentially
unlimited access to the program management information available within
that computer database. Our findings are based on the management
information developed by the program; IDA did not perform original
assessments in such areas as system performance, technology
feasibility, cost, or schedule.
As IDA performed this review of FCS management issues, the Army
undertook a separate, close-hold programmatic review of FCS, resulting
in a decision in late July to restructure the program. Although the IDA
team was provided an overview after the restructuring was formally
announced, we were not tasked to assess this action; our review of the
restructuring plan was confined to determining whether our original
findings and recommendations required any adjustment.
IDA's findings and recommendations were presented to the Army and
the Office of the Secretary of Defense (OSD) in our August 2004 report.
Presented here are IDA's findings concerning the terms and conditions
of the agreement between the Army and Boeing, and IDA's response to the
Army's request that we assess the suitability of using Other
Transactions Authority, should Congress allow it, for the production
phase of FCS.
use of other transactions authority as the basis for the army-boeing
agreement
Congress created other transactions authority (OTA) to increase the
government's flexibility to contract with firms that are not accustomed
to doing business with the Federal Government. The original goals
underlying the 1989 legislation were to:
Contribute to a broadening of the technology and
industrial base available for meeting Department of Defense
needs;
Foster within the technology and industrial base new
relationships and practices that support the national security
of the United States; and,
Encourage commercial firms to join with the government
in the advancement of dual-use technologies.\2\
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\2\ See 10 U.S.C. Sec. 2371(h)(2) and 139 Congressional Record
S11158, S11288 (daily edition, September 9, 1993).
Congress originally authorized only the Defense Advanced Research
Project Agency (DARPA) to enter into OTA agreements on a test basis for
research and development related to weapons systems. That authority was
to be used only when a contract, grant, or cooperative agreement was
not feasible or appropriate. It also required that the non-governmental
party contribute at least 50 percent of the funding.
In the 1994 Defense Authorization Act (Section 845), Congress
extended this authority to include DARPA prototyping projects that were
directly relevant to proposed weapons and weapons systems.\3\ Congress
also eliminated the cost share requirement and the limitation on its
use to cases where a ``contract, grant, or cooperative agreement was
not feasible or appropriate.'' The Defense Authorization Act of 1997
(Section 804) extended this authority to the military departments.\4\
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\3\ Section 845 of the Defense Authorization Act for Fiscal Year
1994: Public Law Number 103-160, 107 Stat. 1547 (1993). Section 845
authority initially extended only until the end of fiscal year 1998.
The National Defense Authorization Act for Fiscal Year 1999 extended
that authority through September 30, 2001.
\4\ P.L. 104-201, 110 Stat. 2422, 2605 (1996).
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Because a considerable body of Federal procurement law applies only
to contracts, grants, and cooperative agreements, Other Transactions
Authority provides a legal basis for government agencies to use
agreement (contract) forms and clauses (terms and conditions) that are
not governed by those laws and regulations. In particular, Federal
Acquisition Regulation (FAR) clauses that are not essential to a
particular situation may be excluded, replaced by locally crafted
clauses, or modified to meet the particular needs of the parties.
OTA provides the capability to create an agreement that is
carefully and closely crafted for the specific transaction, without the
inclusion of nonessential verbiage. However, it also creates the
possibility that important issues normally addressed by standard
clauses may be omitted. Critics of the OTA see risks in the flexibility
afforded by OTA and prefer the prescribed format of a FAR-regulated
contract as a strength, because this structure has been established in
law and regulation based on decades of experience.
The flexibility provided by OTA is illustrated by contrasting the
agreements that governed the concept and technology development (CTD)
and system development and demonstration (SDD) phases of FCS. Both
agreements--the first awarded by DARPA and the second by the Army--were
structured and awarded under the authority of Section 845, Public Law
104-201, as amended. Both follow the overall format established by
DARPA in its 2002 DARPA-Boeing CTD agreement. A few statistics suggest
the degree of difference:
The DARPA OTA agreement is 30 pages, with an
additional 8 pages of attachments, with a value of $130
million;\5\
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\5\ Agreement number MDA972-02-9-0005, Order numbers M995/00 and
N196/00.
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The Army-Boeing agreement is 81 pages, plus a
Statement of Work (Attachment 1) of 28 pages, and Attachments 2
through 14, which total an additional 195 pages, with a value
of $14.8 billion.\6\
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\6\ Agreement number DAAE07-03-9-F001, Modification number PZ0007.
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The Army-Boeing Agreement
The Army-Boeing agreement provides for flexibility in managing FCS,
but overall it implements a very conservative approach for employing OT
authority, and as a consequence is very much like a conventional
defense contract based on the Federal Acquisition Regulations. The top
half of Table 1 summarizes selected provisions dealing with such key
issues as cancellation, dispute resolution, cost management and
reporting, change control, and data rights.\7\ This agreement makes
extensive use of standard government contractual terms and conditions.
Some provisions are taken verbatim from the FAR; others have been
modified after negotiation between the government and Boeing. (By
contrast, the earlier CTD-phase agreement includes no FAR clauses and
incorporated none by reference.)
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\7\ The FCS agreement was shaped through Army-Boeing negotiations.
Initial Army drafts included over 120 FAR/DFARS clauses. Incorporated
by reference within the Army-Boeing agreement are 24 FAR clauses and 16
DFARS clauses. Additionally, a review of the agreement clauses
themselves shows that local clauses relate to the subject matter of 63
additional terms and conditions that would be required to be included
as clauses within a cost reimbursement research and development FAR
contract. See FCS Other Transaction Agreement, Information Briefing,
Use of FAR/DFARS Clauses in FCS Other Transaction Agreement for System
Development and Demonstration, dated 25 April 2003.
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[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The form of the Army-Boeing agreement at least in part reflects the
fact that Boeing Integrated Defense Systems is an experienced defense
contractor. Unlike the nontraditional or commercial firms that OT
authority was created to address, Boeing's defense business operations
are adapted to a FAR-based style of contracting; Boeing management, at
least in its defense business, apparently considers the FAR framework
to be a ``best practice.''
Table 1 also summarizes the flow-down provisions for the Tier 1
subcontractors. While the OTA gave Boeing the flexibility to adopt
innovative contractual forms, Boeing officials told the study team that
they followed government contracting practices because these were well-
understood by the participants predominantly large,
traditional defense contractors. The ``nontraditional'' suppliers are
iRobot from Burlington, MA ($25.2 million) and Austin Information
Systems from Austin, TX ($56.6 million). Although there eventually may
be others at the lower tiers, for now, the $14.78 billion is being
shared almost entirely by defense industry giants.
A review of the subcontracts awarded by Boeing and SAIC to Tier 1
subcontractors shows that those subcontracts largely follow the
conventions of traditional defense contracts, including format. Boeing
terms and conditions come from a standard list, are accessible through
their web site, and are generally of the same scope, complexity, and
breadth of coverage as the FAR system.\8\
---------------------------------------------------------------------------
\8\ The subcontracts follow the format of FAR 15.204-1. Moreover,
Boeing uses standard contract terms and conditions, which incorporate
by reference numerous FAR and Defense Federal Acquisition Regulation
Supplement (DFARS) clauses. The subcontracts incorporate by reference
the FAR and DFARS provisions and clauses incorporated by reference
within the OTA, and also take account of others not included (e.g., FAR
52.246-15 Certificate of Conformance, 52.247-34 F.O.B Destination,
52.245-17 Special Tooling).
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The lower half of Table 1 identifies some of the provisions that
provide flexibility for managing the FCS program. The Army-Boeing
agreement provides additional flexibility through the creation of the
Integrated Product Team (IPT) structure, the specification definition
process, and the subcontracting system employed.
Observations
The Army's conservative approach in creating the FCS agreement does
much to defuse potential criticism--often heard in the past with
respect to programs operating under an OTA agreement--that the use of
an agreement based on OTA creates special risks for the program.
Moreover, Boeing liberally used standard FAR and DFARS clauses in its
subcontracts--all of which are in standard FAR format.
potential use of other transactions authority for fcs production
The potential benefits of employing Other Transactions Authority in
the production phase of any program are expected to be:
Attracting non-traditional suppliers, thereby
broadening the technology and industrial base available for
meeting Department of Defense needs;
Fostering new relationships and practices that improve
efficiency and effectiveness;
Reducing costs by eliminating unnecessary FAR-required
cost drivers.
Language has been added to bills being drafted by various
congressional committees to extend OT authority to production phases,
but that language has not survived committee mark-ups. While Congress
has supported the employment of OTA in appropriate contexts, it does
not view OT authority as a substitute for, or as a way to circumvent,
standard contracting processes and procedures. In particular, the
committees responsible for extending the authority in the National
Defense Authorization Act for Fiscal Year 1999 were concerned that OT
authority be used in a limited manner:
``[S]ection 845 authority should only be used in exceptional
cases where it can be clearly demonstrated that a normal
contract or grant will not allow sufficient access to
affordable technologies. The Conferees are especially concerned
that such authority not be used to circumvent the appropriate
management controls in the standard acquisition and budgeting
process.'' \9\
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\9\ The Final Report of the Integrated Product Team on the
Services' Use of 10 U.S.C. Sec. 2371 ``Other Transactions'' and 845
Prototype Authorities, dated June 10, 1996. Quote extracted from
Department of Defense Other Transactions: An Analysis of Applicable
Laws, A Project of the Ad Hoc Working Group on Other Transactions
Section of Public Contract Law, American Bar Association, 2000, quoting
H.R. Conference Report Number 105-736, at 590 (1998).
The relevance and desirability of an OTA agreement for the FCS
production phase will depend on the potential availability and the
production readiness of nontraditional suppliers at various tiers.
There may be instances where ``nontraditional'' suppliers might find it
attractive to support the FCS production program if they could do so
under an OTA agreement structured to provide relief from clauses
typically considered onerous by non-traditional contractors. The Army-
Boeing agreement illustrates that there is considerable flexibility to
create an agreement that protects government interests, whether by
using traditional FAR language or by developing new language
specifically crafted to suit the transaction. Prudent use of the OTA
conceivably could make the defense marketplace more attractive to
potentially valuable suppliers. An OTA agreement also might be a viable
contracting framework to support ``spiral out'' development strategies
for FCS concepts and capabilities for use by current forces. IDA has
not discovered anything to indicate that this is the case within the
current FCS program, however. Indeed, the Army's conservative use of
OTA in establishing the current FCS OTA agreement will make it
difficult for the Army to present a fully developed business case for
expanding the current OT authority beyond the prototype development
threshold.
Future Competition for Production in the FCS Program
Whether competition for FCS production will prove to be the most
cost-effective acquisition approach will depend on a number of program
factors that remain to be determined. In general, the desirability and
feasibility of sustaining an option for future competition for FCS
production depends on three factors:
First, there has to be a viable industrial base that
is sustaining alternative suppliers. Most of the major defense
contractors are already participating in their respective areas
of expertise, which may restrict the Army to a competition for
relative program shares among the current team members, at
least in Tier 1 commodities. At the 2nd tier and below, it is
still too early to assess the potential for follow-on
competition because the source selections have not yet been
made.
Second, preserving the option for competition requires
an investment to provide adequate technical data, accompanied
by appropriate government rights.
Third, the competitive process itself requires
significant investments of time and resources.
These three factors, in combination, argue that the cost-effective
competitive strategy will depend on a number of variables that remain
to be defined. So, it is premature to commit to a particular course of
action at this early stage of the program. At the same time, preserving
the option for future competition would require the Army to act now to
ensure that it will receive, through Boeing, sufficient access to the
technical data needed to support a competition for production.
At the LSI level, the OTA agreement lays the groundwork for Boeing
to continue as the LSI through initial production and into full-rate
production:
There are references to a subsequent production
contract with Boeing throughout.\10\
---------------------------------------------------------------------------
\10\ See Article III, paragraph B of the Agreement.
---------------------------------------------------------------------------
Boeing's incentive fee structure is predominantly
weighted (3.5 of 5 percent) toward the two initial production
decision reviews.\11\
---------------------------------------------------------------------------
\11\ See Article VII of the Agreement.
---------------------------------------------------------------------------
Research and development (R&D) incentives are geared
to production costs.\12\
---------------------------------------------------------------------------
\12\ See Paragraph 11 b(2), Article VII of the Agreement.
---------------------------------------------------------------------------
Defense Federal Acquisition Regulation Supplement
(DFARS) clauses are incorporated into the OTA agreement in
contemplation of Boeing's and its subcontractors' continuance
into production, including long-lead-item procurements
initiated during the SDD phase.\13\
---------------------------------------------------------------------------
\13\ See Article XXXII of the Agreement.
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Section 3 of the Statement of Work \14\ contains
subparagraphs related to production operations planning and
product assurance and other post-SDD requirements.
---------------------------------------------------------------------------
\14\ See Attachment 1 to the Agreement.
At the subcontractor level, the Army has taken the position that it
has secured adequate rights to access all of the necessary technical
information. But, we found some ambiguity on the status of government
rights to technical data associated with future system support as well
as future competition for FCS production. We therefore recommended that
the Army review the current provisions of the Boeing agreement to
---------------------------------------------------------------------------
confirm that it will have access to the needed technical data.
Senator McCain. Thank you, Dr. Graham. Could I express my
appreciation not only for you but IDA, which I think has done
tremendous work for all Americans, but particularly Congress,
and your interaction with DOD I think has been very important.
I thank you for all the great work that IDA has done.
Mr. Boehm.
STATEMENT OF KENNETH F. BOEHM, CHAIRMAN, NATIONAL LEGAL AND
POLICY CENTER
Mr. Boehm. Mr. Chairman, I want to thank you for this
opportunity to testify. I am Ken Boehm with the National Legal
and Policy Center. We promote accountability in public life and
in the Government, and we have been critical of Boeing in
recent months because of their role in the numerous procurement
scandals. One of our earliest entries into this was when we had
uncovered the financial conflicts of interest with Darleen
Druyun and filed a complaint with the Inspector General (IG).
It was on the front page of the Wall Street Journal, and as a
result, a month later she was fired by Boeing.
Senator McCain. I was taking credit for that, Mr. Boehm.
[Laughter.]
Mr. Boehm. Well, there is plenty of credit for you on all
this stuff. But, we had actually found Ms. Druyun's daughter's
employment, and I think she had sold her house to John Judy who
was a Boeing executive employed in the tanker deals, if I am
not mistaken. But that was a coincidence.
In any case, we looked at the Future Combat Systems
program. Our first red flag was we had trouble even getting a
copy of the other transaction agreement. I filed a Freedom of
Information Act (FOIA) and was told by the FOIA officer
something I had never heard after filing more than 1,000 FOIAs
in my 20-year career of doing this sort thing, and that was
that Boeing objected to us having a copy. But they could not
cite any particular exemption within FOIA to get it. So we did
get it, and when we looked at it, it confirmed, I would say,
our worst suspicions.
There are four factors, very briefly, to look at,
underscoring the problems with the use of this particular type
of agreement.
First, everyone acknowledges that the FCS is a high-risk
project. The GAO said so in an excellent analysis written by
Mr. Francis last April that there were significant risks. If
you read the OTA itself, which I had the joy of going through
week after week, you will see that they state in there that
there are significant risks associated with the project and, of
course, followed it up with a line that this should, in fact,
be the reason to allow maximum opportunity for the LSI to earn
fees, the LSI being Boeing in this case.
Perhaps the best single sentence describing how important
this element of risk is in FCS was made by Congressman Curt
Weldon over in the House Armed Services Committee, chairing the
Counterparts Subcommittee, when he said last year: ``If FCS
experiences the technical difficulties that every major
development program seems to experience, the cost overruns will
consume the Army budget.'' That is the risk in a sentence.
The second factor, Boeing is an exceptionally poor choice
for lead system integrator. It makes a risky or a high-risk
project even riskier for all the obvious reasons. Trust is an
important element of any LSI arrangement. A lead system
integrator has to have the trust of the Government because they
are taking over the Government's management role.
But it also has to have the trust of the other firms that
are competing, the other defense firms that are supplying,
because as lead system integrator, they have access to the
proprietary information of these companies, which in other
contexts are their competitors. If you think back, you do not
have to look too far to see that Boeing has not arguably the
worst record in terms of being sticky-fingered with its
competitors' proprietary information, but the worst record.
In a quick review, one of them in particular I would like
to stress is when Boeing was the lead system integrator in
missile defense. They improperly used some Raytheon proprietary
information. They were forced out of the competition. But if
you read the GAO report on that particular incident, you see
that the Army recommended debarment of the Boeing unit. That
did not happen. So here you have a company that abused its LSI
position in a very major way, a substantial way, in the
Raytheon case, and yet was selected by the same Army knowing
this as lead system integrator in their highest-risk project.
That shows a lapse in judgment.
Second, you look at the Lockheed case where they got a hold
of 40,000 of their competitors' documents. The Air Force said
this was ``a significant and substantial violation of Federal
law.'' They got the longest suspension of any major defense
contractor, 20 months, and they also paid fines or penalties in
terms of lost contract of something like $1 billion. So they
are breaking all kinds of records.
Of course, we know in the Airbus case Darleen Druyun, on
the day of her sentencing, it was released by Mr. McNulty that
she had admitted giving proprietary pricing information to
Boeing that belonged to Airbus.
The third factor is these OTAs were meant for
nontraditional defense contracts. You see this everywhere. You
see it in congressional statements. You see it in IG reports.
You see it in GAO. It was meant to attract nontraditional
defense contractors to work for the Defense Department because
the Defense Department needed their technology.
Here is the statement from a recent GAO report on defense
acquisitions stating this rationale. ``In an era of shrinking
defense industrial base and new threats, DOD views other
transaction prototype authority as a key to attracting
nontraditional defense contractors.''
Well, Boeing hardly fits the description, and they are the
second-largest defense contractor in the country. You look down
the list of all of the other firms, and you will find very
little. In the IDA report that was discussed, they have this
statement. ``One intended benefit of OT authority, attracting
nontraditional suppliers, has not been realized to date; the
initial round of subcontracts has gone almost exclusively to
traditional defense suppliers.''
When you look at the funding, if you look at the pie charts
for the funding, very, very little goes to anything that
remotely could be considered a nontraditional defense
contractor.
Fourth and final, in terms of most important factors, OTAs
provide less accountability and oversight. They minimize
oversight and accountability in almost every way you can
imagine. This was their purpose. It was meant as a tradeoff to
get these nontraditional firms in. It was not meant for very
large, high-risk programs. There has been criticism through the
years.
In 1999, when Congress extended OTA's authority, they said
the following, ``It should only be used in exceptional cases
where it can be clearly demonstrated that a normal grant or
contract will not allow sufficient access to affordable
technologies. The conferees are especially concerned that such
authority not be used to circumvent the appropriate management
controls in the standard acquisition and budgeting process.''
In other words, be careful.
There are approximately 20 statutes that apply to defense
contracts that are exempt, and unless they are added back in,
piecemeal or in whole, they do not exist there. I have included
a list of the statutes in exhibit B. It tracks the list found
in the Defense Department's own OTA guide that has come out
perennially, and it is also based on some research of an
excellent study, the only excellent private study, by the
American Bar Association on other transactions, where they warn
virtually, as the theme of the book, you have to be
extraordinarily carefully if you are stripping these out for
the benefit of the taxpayer, for the benefit of oversight and
accountability. In effect, you are taking something meant for a
small, high-tech project and giving it to major defense
contractors. When you consider the statutes that are stripped
out and you look at their legislative history, they were put in
there because major defense contractors abused their position
of trust. So to strip them out willy-nilly or in the quantity
they were stripped out here really raises the risk.
We went through the 81-page OTA. That is all it is, the one
that was signed in December 2003. It had exhibits, but it was
81 pages. I recall, as a lowly yeoman 30 years ago, it would
take that much paperwork to order boxed lunches for people to
fly and so forth. But it is 81 pages.
You look through it. There are some severe problems. Some
acts are not in there at all. The Procurement Integrity Act
does not apply at all to the FCS. This law sets rules for
procurement officials who are contacted by a defense contractor
for future employment, and it provides for a 1-year ban on
accepting compensation. It seems like this issue has been in
the news lately involving the LSI in this case.
Another example of a law that does not apply at all is the
Truth in Negotiations Act (TINA). It requires accurate
disclosure to the Government of a defense contractor's pricing
and costs. It has been a long problem in the defense community
and with Boeing, you can go back to the mid-1980s when they
were caught charging the Air Force $748 for a pair of pliers
you can get in any hardware store for a little over $7. It goes
as recently as the Airborne Warning and Control System (AWACS)
case where they found millions of dollars in what they called
excess profits.
On and on it goes in terms of what is stripped out, but the
bottom line is this, it is essentially a type of contracting
form that minimizes oversight and accountability. Considering
who you are dealing with here, considering it is a high-risk
project, considering how important it is to the Army's
development budget, to minimize accountability and oversight
seems to be 180 degrees away from where the public needs to be
vis-a-vis this type of arrangement.
The best recommendation I can say at this point where
Boeing is already in as LSI, we are already underway in this. I
do not see any alternative to Congress intensifying its
oversight because the oversight is lacking in the arrangement
that is in hand. It is a recipe for disaster. We are already
starting to see that.
But one of the things that needs to be done is a truly
independent legal review of the FCS OTA to identify in every
significant way how it fails to meet the standards
accountability in a standard defense procurement contract. This
should be a statute-by-statute review and it needs to propose
modifications to increase oversight and accountability.
Similarly, there ought to be a look at the financial and
fee structure of the FCS program because Boeing is being
compensated for a type of an arrangement where the fact of the
matter is a lot of the business risk of this has been stripped
away. This is not a regular defense contract. It should not
call for regular fees, and their fee arrangement is quite
generous.
Then to the degree the Government can modify in any way the
existing program, they should try to do so. Whatever objections
Boeing may have to such a modification I think pale next to the
risks the Government is taking by not asserting its right to
protect its interests. There are legitimate ways to increase
oversight. I think they need to be taken.
But in conclusion, I would just say this. The most
ethically challenged defense contractor in the country is now
in charge of the most expensive high-risk defense program using
an agreement that minimizes oversight and accountability. If
that does not call for increased oversight, what does?
Thank you, Mr. Chairman.
[The prepared statement of Mr. Boehm follows:]
Prepared Statement by Kenneth F. Boehm
Mr. Chairman and members of the subcommittee, thank you for this
opportunity to testify.
My name is Ken Boehm and I serve as Chairman of the National Legal
and Policy Center (NLPC). My legal center promotes accountability in
public life and has been critical of the actions of the Boeing Company
during the recent series of defense procurement scandals. In October
2003, NLPC filed a complaint with the Defense Department's Office of
Inspector General detailing former Air Force official Darleen Druyun's
ties to Boeing through her daughter's job with that company and the
sale of her house to a Boeing official while she was overseeing
significant acquisition matters for the Air Force involving Boeing.\1\
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\1\ See Letter to Defense Department Inspector General and Defense
Criminal Investigative Service, October 6, 2003, at www.nlpc.org.
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The complaint went on to question whether Druyun was negotiating
for future employment with Boeing while she was representing the Air
Force in multi-billion dollar business issues affecting Boeing
contracts.
The next day, the Wall Street Journal ran a front-page story on the
NLPC complaint, ``Air Force Ex-Official Had Ties to Boeing During
Contract Talks,'' and Boeing disingenuously told the media that Druyun
was not working on the tanker deal as part of her employment for
Boeing.\2\ The Air Force weighed in with an equally disingenuous
statement to the effect that Druyun had recused herself from decisions
affecting Boeing but declined to specify when Druyun had recused
herself.
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\2\ See ``Air Force Ex-Official Had Ties to Boeing During Contract
Talks,'' The Wall Street Journal, October 7, 2003, p. 1.
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The following month Boeing terminated employment for both Darleen
Druyun and its Chief Financial Officer Michael Sears, citing violation
of the company's standards in the hiring of Druyun.\3\
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\3\ See, e.g., ``Boeing Dismisses Two Exeucitve for Unethical
Conduct,'' Boeing news release. November 24, 2003, available at http://
www.boeing.com/news/releases/archive2003.html.
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Today, Darleen Druyun is in Federal prison and Michael Sears will
be entering Federal prison shortly, both in connection with their
conspiracy to violate conflict of interest laws.
NLPC turned its attention to the Army's Future Combat Systems
program because it was the largest military procurement project
involving Boeing and--much like the tanker case--featured many
anomalies which appeared to favor Boeing at the expense of the Army.
The conclusion reached was that while there appeared to be a
consensus that the Future Combat System (FCS) program was high risk
because of its ambitious plan to coordinate so many as yet undeveloped
technologies into a coordinated weapons program of the future, these
risks were compounded by the decision to use Boeing as the Lead System
Integrator and to structure the legal agreement for FCS through a
wholly inappropriate Other Transaction Agreement (OTA) in a way that
minimized oversight and accountability.
The OTA exempted Boeing from most of the standard statutes which
apply to major military procurement contracts to deter waste, fraud and
abuse. Moreover, the use of an OTA in the FCS program was unprecedented
insofar as OTAs were intended by Congress to attract nontraditional
suppliers to deal with the Defense Department without the cost of the
bureaucratic procedures associated with major defense contracts. Even a
cursory examination of the FCS program shows that the highest amount of
funding by far goes to Boeing with very little to any nontraditional
suppliers and the $20 billion cost of the FCS development phase dwarfs
any previous use of an OTA for prototype development purposes.
fcs: a high risk project
``FCS is at significant risk for not delivering required
capability within budgeted resources. Three-fourths of FCS'
needed technologies were still immature when the project
started.''
Paul Francis, Director, Acquisition and Sourcing
Management, GAO \4\
---------------------------------------------------------------------------
\4\ See Defense Acquisitions: The Army's Future Combat System's
Features, Risks, and Alternatives, by Paul Francis, Director,
Acquisition and Sourcing Management, April 1, 2004, GAO-04-635T.
There is a consensus that the FCS is an ambitious project which
faces significant risks. This view has been expressed in both
legislative hearings and within the defense community.
Even the FCS Other Transaction Agreement signed on December 10,
2003, acknowledged:
``The complexities and risk associated with the FCS system
development and demonstration (SDD) Increment I Program are
significant.'' \5\
---------------------------------------------------------------------------
\5\ See Agreement Between the Boeing Company and U.S. Army Tank-
Automotive and Armaments Command Concerning Future Combat Systems
System Development and Demonstration Phase, Agreement No. DAAE07-03-9-
F001, at page 14.
Among the risk factors cited by the GAO's acquisition expert, Mr.
Paul Francis, in testimony to the House of Representatives'
Subcommittee on Tactical Air and Land Forces of the Committee on Armed
---------------------------------------------------------------------------
Services on April 1, 2004, were the following:
The first FCS prototypes will not be delivered until
just before the production decision.
Full demonstration of FCS' ability to work as an
overarching system will not occur until after production has
begun. This demonstration assumes complete success--including
delivery and integration of numerous complementary systems that
are not inherently a part of FCS but are essential for FCS to
work as a whole. When taking into account the lessons learned
from commercial best practices and the experiences of past
programs, the FCS strategy is likely to result in cost and
schedule consequences if problems are discovered late in
development.
Because the cost already dominates its investment
budget, the Army may find it difficult to find other programs
to cut in order to further fund FCS.\6\
---------------------------------------------------------------------------
\6\ See Defense Acquisitions: The Army's Future Combat System's
Features, Risks, and Alternatives, by Paul Francis, Director,
Acquisition and Sourcing Management, April 1, 2004, GAO-04-635T.
These conclusions were explicitly understood by the Chairman of the
House Armed Services Subcommittee on Tactical Air and Land Forces when
the GAO presented its findings at a hearing on April 1, 2004. Chairman
Curt Weldon (R-PA) summed up the problem succinctly when he stated,
``If FCS experiences the technical difficulties that every major
development program seems to experience, the cost overruns will consume
the Army budget.'' \7\
---------------------------------------------------------------------------
\7\ See ``GAO hoists red flag over costly Boeing Army project,'' by
Darrell Hassler and Tony Capaccio, Bloomberg News, The Seattle Times,
April 2, 2004, p. E1.
---------------------------------------------------------------------------
Representative John Spratt (D-SC) accepted this assessment as well
when he told Army Lt. Gen. Joseph Yakovac, who testified about the
program as deputy to the Army acquisition secretary, ``I can't think in
the 23 years I've sat here of a system more fraught with risk. It's
going to be a Herculean task to bring it together on the ambitious
schedule you've set.'' \8\
---------------------------------------------------------------------------
\8\ See Id.
---------------------------------------------------------------------------
The technological challenges were summed up by Chairman Weldon at
the hearing when he stated:
``Unfortunately, however, the Future Combat Systems program
also carries high risk. The Army has never managed any program
the size and complexity of FCS. Eighteen systems, 32 critical
technology areas, 34 million lines of code, 129 trade studies,
157 programs being developed independent of FCS, and all in
5\1/2\ years.'' \9\
---------------------------------------------------------------------------
\9\ See Hearing of the Tactical Air Land Forces Subcommittee of the
House Armed Services Committee on Future Combat Systems and Force
protection Initiatives, April 1, 2004, Federal News Service transcript,
p.3.
While the testimony of GAO Acquisition and Sourcing Management
Director Paul Francis has already been cited, his analysis of the
underlying management judgment associated with the FCS program was
---------------------------------------------------------------------------
especially harsh:
``In our more than 30 years of analyzing weapons systems, we
have not found concurrent strategies to work, particularly when
advanced technologies are involved. Delaying the demonstration
of knowledge results in problems being discovered late in
development. FCS is susceptible to such problems as a
demonstration of multiple technologies, individual systems, the
network and the system of systems will all culminate late in
development and early production.'' \10\
---------------------------------------------------------------------------
\10\ See Hearing of the Tactical Air Land Forces Subcommittee of
the House Armed Services Committee on Future Combat Systems and Force
Protection Initiatives, April 1, 2004, Federal News Service transcript,
p. 8.
Mr. Francis further concluded that even modest delays and cost
increases could end up costing the government billions of dollars and
that such funds would be very difficult to find since the FCS was
already consuming such a considerable portion of Army funding.\11\
---------------------------------------------------------------------------
\11\ See Id.
---------------------------------------------------------------------------
boeing: a high risk lead system integrator for fcs
The FCS program--which the Army has called its ``greatest
technological and integration challenge ever undertaken''--is a system
of manned and unmanned ground vehicles, air vehicles, and munitions all
connected with a cutting-edge communications and information system.
Boeing became the Lead System Integrator on the SDD phase of FCS when
it received, along with partner Science Applications International
Corp. (SAIC), $14.8 billion to oversee the 8-year effort in December
2003.\12\ In August 2004, a modification to FCS added $6.4 billion to
the cost of the program.\13\
---------------------------------------------------------------------------
\12\ See, e.g., ``U.S. Army Signs Milestone FCS Contract,''
December 10, 2003, www.boeing.com/defensespace/ic/fcs/bia/031212--nr--
armyannounce.html.
\13\ See ``Army Boosts Boeing's Future Combat Program Value By Up
to $6.4 Billion,'' August 17, 2004, http://www.spacedaily.com/news/
milspace-04x.html.
---------------------------------------------------------------------------
Boeing's initial selection as Lead System Integrator (LSI) for FCS
``shocked defense observers'' \14\ and raised serious questions. As
LSI, Boeing functions very much like a general contractor in overseeing
other key suppliers and contractors to ensure that program objectives
are met. That aspect of the LSI role has caused controversy for reasons
touched upon in a Financial Times article:
---------------------------------------------------------------------------
\14\ See, e.g., ``Boeing Plays Defense: Beset by Airbus and rocked
by scandal, the aircraft maker turns to a new CEO--and the Pentagon--
for help,'' Fortune, April 19, 2004.
``Boeing's ability to defend its reputation will be critical.
It has positioned itself as a `systems integrator' for many of
the big defence contracts it has secured--such as missile
defence and the Future Combat Systems project--acting as the
middleman, piecing together often complex technology from
rivals, and treading a fine line about managing access to
proprietary information from rivals.'' \15\ (emphasis added)
---------------------------------------------------------------------------
\15\ See ``Condit focuses on domestic problems,'' by Caroline
Daniel, Financial Times, June 19, 2003, p. 29.
Boeing's reputation for illegally obtaining proprietary information
from its rivals is arguably the worst of any in the defense community.
Since January 2003, Boeing has been implicated in three major cases
involving improper access to competitors' proprietary information.
Raytheon Case
A report by the Government Accountability Office (GAO) concluded
that Boeing had obtained and misused Raytheon proprietary information
in the course of a competition to provide a ``kill vehicle'' for the
missile defense system. Boeing's actions violated Pentagon regulations
for a project that was described as ``the core of the missile defense
system.'' \16\ When the misuse of Raytheon proprietary documents by
Boeing came to light, Boeing was forced to withdraw from the
competition. Boeing's actions hurt the government because the default
award of the contract resulted in a design said by experts to be flawed
in that the kill vehicle could not adequately distinguish between
warheads and decoys. Also at issue was whether the government took
appropriate steps to punish Boeing and recoup some of the $800 million
invested by the Pentagon in the design competition.
---------------------------------------------------------------------------
\16\ See ``Antimissile Contract Won on Technicality, GAO Report
Finds; Award Made After Boeing Spy Case,'' by Bradley Graham, The
Washington Post, January 30, 2003, p. A21.
---------------------------------------------------------------------------
Especially important in considering Boeing's role in the Raytheon
case is the fact that when Boeing illegally used Raytheon's proprietary
documents in an attempt to win a major contract, Boeing was the LSI of
the National Missile Defense Program.\17\ The GAO report also stated
that the Army had recommended debarment against the Boeing employees
involved in the wrongdoing and against Boeing's Electronic Systems and
Missile Defense Group.
---------------------------------------------------------------------------
\17\ See ``Missile Defense: Events Related to Contractor Selection
for the Exoatmospheric Kill Vehicle,'' General Accounting Office-03-
324R Missile Defense, January 27, 2003.
---------------------------------------------------------------------------
Ultimately, the Ballistic Missile Defense Organization ``abandoned
recovery efforts because of litigation risks associated with proving
damages, as well as anticipated litigation costs, and the belief that
litigation was inconsistent with its partnership with Boeing as the LSI
contractor.'' \18\
---------------------------------------------------------------------------
\18\ See ``Missile Defense: Events Related to Contractor Selection
for the Exoatmospheric Kill Vehicle,'' General Accounting Office-03-
324R Missile Defense, January 27, 2003, p. 11.
---------------------------------------------------------------------------
It is difficult to imagine a more clear-cut example of a defense
contractor abusing its Lead System Integrator role in a major project.
Yet, in the end, Boeing received a mere slap on the wrist. There was no
debarment of the company, no lawsuit to recoup the $800 million lost on
the tainted competition and no criminal prosecution.
Boeing's selection by the Army as LSI for its largest procurement
project ever, the high risk FCS program, is especially difficult to
understand in that the Army was not only aware of Boeing's intentional
misconduct in the case involving Raytheon's proprietary information but
had recommended far more appropriate sanctions against Boeing than was
finally meted out. The following excerpt from the GAO letter regarding
the matter underscores this point:
``Concurrently, the Army recommended debarment proceedings
against the Boeing employees involved in the wrongdoing, and
against Boeing's Electronics Systems and Missile Defense Group.
The Army also considered the alternative recommendation on a
monetary settlement commensurate with the damages suffered by
the government.
The Army's assessment of damages focused on: the loss of the
Integrity of a planned competition that had been carefully
maintained for 8 years at great administrative expense; the
loss of the benefit of a head-to-head ``best value'' comparison
of two technical approaches developed at the cost of
approximately $400 million each; and the loss of the potential
savings that might have been achieved by the abandoned
competition, which the Army suggested should be valued at
approximately 25 percent of the cost of Raytheon's EKV.'' \19\
---------------------------------------------------------------------------
\19\ See ``Missile Defense: Events Related to Contractor Selection
for the Exoatmospheric Kill Vehicle,'' General Accounting Office-03-
324R Missile Defense, January 27, 2003, p. 11.
---------------------------------------------------------------------------
Lockheed-Martin Case
Boeing's ethical problems with proprietary documents belonging to
its competitors also figured prominently when Boeing was discovered to
have some 25,000 proprietary documents belonging to Lockheed Martin
Corp. while the two companies competed for a major Pentagon rocket
launch contract.
The Air Force stripped Boeing of approximately $1 billion in
potential revenue as a penalty in the case and also suspended three
Boeing subsidiaries for an unspecified period. The Air Force stated
that the suspension was appropriate for the ``serious and substantial
violations of Federal law'' involving the illegal acquisition of the
Lockheed documents. The fallout continued with a civil racketeering
case filed against Boeing by Lockheed, a Justice Department
investigation and the indictment of two former Boeing employees.
Speaking of the case, Air Force Undersecretary Peter B. Teets stated,
``I have never heard of a case of this scale.'' \20\
---------------------------------------------------------------------------
\20\ See ``U.S. Strips Boeing of Launches; $1 Billion Sanction Over
Data Stolen From Rival,'' by Renae Merle, The Washington Post, July 25,
2003, p. 1.
---------------------------------------------------------------------------
The suspension was not lifted until March 4, 2005, making it the
longest suspension of a major defense contractor ever.\21\
---------------------------------------------------------------------------
\21\ See ``Air Force Lifts Boeing Suspension,'' Reuters, Los
Angeles Times, March 5, 2005, Part C, p. 3
---------------------------------------------------------------------------
Coming just months after the discovery of Boeing's misdeeds in the
Raytheon case, the Lockheed Martin case represented one of the largest
penalties ever assessed against a defense contractor. But the year was
not yet over.
Airbus Case
Proprietary information involving a Boeing competitor was also an
issue in the Boeing tanker lease scandal. E-mail messages written by
Boeing executives and found by members of Congress suggested that
``Darleen Druyun, who handled acquisitions for the Air Force at the
time, might have shared confidential details of the Airbus offer with
Boeing officials--thus giving them competitive advantage in crafting
their own proposal.'' \22\
---------------------------------------------------------------------------
\22\ See ``Pentagon to probe how Airbus lost refueling tanker deal
to Boeing,'' AFX.COM, September 18, 2003.
---------------------------------------------------------------------------
The Department of Defense Inspector General's office initiated an
investigation of the allegations.\23\ An attorney for the Airbus parent
firm, European Aeronautic Defense & Space Co. (EADS), raised additional
questions with the allegation that if Druyun did pass along proprietary
information to Boeing, that could have unfairly influenced a
competition underway in Britain for the same kind of tankers.\24\
---------------------------------------------------------------------------
\23\ See ``Pentagon to probe how Airbus lost refueling tanker deal
to Boeing,'' AFX.COM, September 18, 2003.
\24\ See ``Boeing Deal on Tankers Again on Hold; Rumsfeld Orders
Review After Executives are Fired,'' by Renae Merle, The Washington
Post, November 26, 2003, p. E1.
---------------------------------------------------------------------------
All doubt as to Druyun's actions with respect to Airbus proprietary
information was removed on October 1, 2004, when Druyun was sentenced
to 9 months in Federal prison. In a document released by the U.S.
Attorney's office, it was stated that Druyun ``acknowledges providing
to Boeing during the [tanker] negotiations what she considered to be
proprietary pricing data'' from the European plane maker Airbus, which
was competing to build the planes.\25\
---------------------------------------------------------------------------
\25\ See ``Ex-Pentagon Official admits to more illegal help to
Boeing,'' by David Bowermaster, Seattle Times, October 2, 2004, p. A1
---------------------------------------------------------------------------
The cases involving Raytheon, Lockheed and Airbus all involve
allegations of misconduct by Boeing in connection with proprietary
information belonging to Boeing's competitors. All cases arose during
major defense procurement competitions and all stories broke in 2003.
But the ethical problems associated with Boeing's conduct as a defense
contractor were not limited to proprietary information issues. A recent
study by the Project on Government Oversight, a well-respected watchdog
group, determined that Boeing ``committed 50 acts of misconduct and
paid $378.9 million in fines and penalties between 1990 and 2003.''
\26\
---------------------------------------------------------------------------
\26\ See ``U.S. Strips Boeing of Launches; $1 Billion Sanction Over
Data Stolen From Rival,'' by Renae Merle, The Washington Post, July 25,
2003, p. A01.
---------------------------------------------------------------------------
An excerpt from the Project on Government Oversight Federal
Contractor Misconduct Database detailing Boeing misconduct in defense
cases from 1990 through 2003 is appended at Exhibit A. It is all the
more striking in that it leaves out many of the billions of dollars in
tainted procurement contracts involving Boeing which have been
disclosed in the past 18 months. When former Air Force official and
former Boeing executive Druyun was sentenced on October 1, 2004, U.S.
Attorney Paul McNulty revealed that Druyun, after failing a polygraph,
had confessed to:
providing Boeing with proprietary information about a
competitor as a parting gift to Boeing
negotiating an excessive $100 million payment to
Boeing from the North Atlantic Treaty Organization (NATO)
awarding Boeing a $4 billion contract in 2001 to
modernize more than 500 C-130 aircraft built by Lockheed-
Martin, disclosing that ``an objective selection authority may
not have selected Boeing.''
negotiating a $412 million payment to Boeing in 2000
tied to its production of C-17 transports because a senior
Boeing executive at the time was helping secure a job for her
future son-in-law, Michael McKee \27\
---------------------------------------------------------------------------
\27\ See ``Ex-Pentagon official admits to more illegal help to
Boeing,'' by David Bowermaster, The Seattle Times, October 2, 2004, p.
A1.
As recently as February 14, 2005, the Department of Defense
revealed that it was turning over to the Inspector General for
investigation eight additional questionable contracts overseen by
Darleen Druyun worth billions of dollars. Four of the eight contracts
involved Boeing, including a $1.5 billion KC-135 Programmed Depot
maintenance contract from 2000-2001.\28\
---------------------------------------------------------------------------
\28\ See ``Department of Defense Announces Contract Reviews,'' DOD
News Release No. 157-04, February 14, 2005.
---------------------------------------------------------------------------
The Future Combat Systems project with Boeing as LSI has already
generated controversy after it was learned that Boeing executives had
gotten access to secret information of companies competing with Boeing
for FCS contracts: \29\
---------------------------------------------------------------------------
\29\ See ``Boeing's Role in Defense Project Worries Pentagon,
Competitors,'' by Anne Marie Squeo, The Wall Street Journal, June 16,
2003.
Boeing executives James Albaugh and Roger Krone were
brought inside the so-called fire-wall, causing competitors and
senior Army officials to worry that ``Boeing could get an
unfair advantage on the work it bids for.''
``Concerns about Boeing's role in the project come
against the backdrop of recent allegations that the Chicago-
based aerospace titan on at least two occasions inappropriately
obtained a rival's information while competing for military
contracts.''
The article went on to state that Army officials were ``unhappy
with the fire-wall situation'' and that ``any further controversy could
undercut the Pentagon's emerging practice of using a `lead system
integrator' from the private sector on big military programs.'' While
Boeing was quick to deny any problem with the revelations, that may be
small comfort insofar as Boeing also misrepresented the extent of the
wrongdoing in both the Raytheon and Lockheed cases.\30\
---------------------------------------------------------------------------
\30\ See ``Boeing's Misconduct is Detailed in Memo,'' by Peter Pae,
The Los Angeles Times, April 23, 2004.
---------------------------------------------------------------------------
By all accounts, an LSI for a major Pentagon project must have a
reputation beyond reproach because the LSI has access to sensitive
proprietary information from companies with which it is in competition
on a regular basis. As this is a defining feature of the LSI role, a
strong argument can be made that not only is Boeing a questionable
selection for LSI in the FCS project, but given its documented
reputation for illegally misusing proprietary information of
competitors, Boeing is the worst possible choice for the role.
boeing's fcs ota: where are the nontraditional defense contractors?
The agreement between the Army and Boeing structuring the legal
relationship for the FCS program's System Development and Demonstration
(SDD) Phase is known as an ``other transaction agreement'' or OTA. The
legal authority for the FCS OTA is derived from 10 U.S.C. Sec. 2371 and
Section 845 of the Public Law 103-160, as modified by Section 804 of
Public Law 104-201, and as modified by Section 803 of the Floyd D.
Spence National Defense Authorization Act for Fiscal Year 2001.\31\
These agreements are also sometimes referred to as Section 845
agreements. One of the distinguishing features of an OTA is that they
are not generally subject to the Federal laws and regulations which are
applicable to procurement contracts.
---------------------------------------------------------------------------
\31\ See Agreement Between the Boeing Company and U.S. Army Tank-
Automotive and Armaments Command Concerning Future Combat Systems
System Development and Demonstration Phase, Agreement No. DAAE07-03-9-
F001, at page 1.
---------------------------------------------------------------------------
One of the principal purposes of removing the legal requirements
associated with standard procurement contracts for major defense
contractors is in order to attract nontraditional defense contractors
to consider working with the Defense Department.
The rationale for this purpose was expressed in a recent GAO Report
on defense acquisitions:
``In an era of shrinking defense industrial base and new
threats, DOD views `other transaction' prototype authority as a
key to attracting nontraditional defense contractors.'' \32\
---------------------------------------------------------------------------
\32\ See Defense Acquisitions: DOD Has Implemented Section 845
Recommendations but Reporting Can Be Enhanced, Report to the Chairman
and Ranking Minority Member, Committee on Armed Services, U.S. Senate,
October 2002, GAO-03-150, p. 3
The GAO Report went on to cite as an example of a benefit to these
agreements ``attracting business entities that normally do not do
business with the government.''
Despite the intent of Congress that OTAs be used to reach out to
the newer high tech companies which might not otherwise consider
dealing with the Pentagon, all too often prototype funds associated
with OTAs do not flow to the nontraditional suppliers but to major
defense contractors.
Such is the case with the FCS OTA. Boeing is the second largest
defense contractor in the country and most of the other firms
participating in the FCS program do not fit the description of a
nontraditional defense contractor.
This fact was readily conceded in a report prepared last year for
Acting Army Secretary Brownlee on FCS management issues:
`One intended benefit of OT authority--attracting
nontraditional suppliers--has not been realized to date; the
initial round of subcontracts has gone almost exclusively to
traditional defense suppliers.'' \33\
---------------------------------------------------------------------------
\33\ See Review of FCS Management Issues, Final Report to Acting
Secretary of the Army Hon. R. L. Brownlee, Institute for Defense
Analyses, August 17, 2004, p. ES-3.
A closer look at the funding of the FCS SDD program shows that just
four large defense contractors account for most of the funding. The
cost share of the planned work shows Boeing receiving $4.9 billion,
SAIC receiving $1.3 billion, and General Dynamics and United Defense
together receiving $4.6 billion. The 21 Tier 1 competitive subcontracts
combined total $1.7 billion.\34\
---------------------------------------------------------------------------
\34\ Op cit.
---------------------------------------------------------------------------
boeing's fcs ota: less accountability and oversight for america's most
dishonest defense contractor
In recognition of potential problems with using an OTA in lieu of a
standard procurement contract, Congress was very careful in the
extension of legal authority to the Department of Defense to utilize
OTAs. The conference report accompanying the National Defense
Authorization Act for Fiscal Year 1999,\35\ which extended the OTA
authority, cautioned that any further extension would be contingent on
the congressional defense committees concluding that OTAs had been used
in a responsible and limited manner:
---------------------------------------------------------------------------
\35\ See Pub. L. 105--261, 112 Stat. 1920, 1954 (1998).
``[S]ection 845 authority should only be used in the
exceptional cases where it can be clearly demonstrated that a
normal grant or contract will not allow sufficient access to
affordable technologies. The conferees are especially concerned
that such authority not be used to circumvent the appropriate
management controls in the standard acquisition and budgeting
process.'' \36\ (emphasis added)
---------------------------------------------------------------------------
\36\ See H.R. Conf. Rep. No. 105-736, at 590 (1998).
Because the use of OTA authority can result in an agreement that is
virtually exempt from most of the statutes and regulations governing
Defense Department R&D or prototyping efforts, repeated efforts have
been made to identify and clarify exactly which legal authorities might
apply to an OTA. Paul G. Kaminski, as Undersecretary for Acquisition
and Technology in December 1996, identified 21 statutes relating to
procurement that ``are not necessarily applicable to `other
transactions.' '' \37\
---------------------------------------------------------------------------
\37\ See ``Memorandum from Undersecretary of Defense for
Acquisition and Technology Paul G. Kaminski to Secretaries of the
Military Departments and Directors of Defense Agencies,'' December 14,
1996, reprinted in full in Department of Defense Other Transactions: An
Analysis of Applicable Laws, a project of the Ad Hoc Working Group on
Other Transactions Section of Public Contract Law, American Bar
Association, 2000, Attachment 1.
---------------------------------------------------------------------------
While the objectives of cutting government red tape to empower the
Defense Department to have increased flexibility in dealing with high-
tech companies for advanced technology projects is clearly desirable,
the fact that many of the statutes inapplicable to OTAs were
specifically enacted to deter waste, fraud and abuse--a very real and
persistent problem for government contracting--calls for very careful
analysis. Simply stripping out decades of protective statutes without
protecting the government's interests in dealing with contractors is a
formula for financial disaster. Put simply, such a process would leave
the government vulnerable to almost any kind of waste, fraud and abuse
and--adding insult to injury--an unethical company could say its
actions were ``legal'' because laws restricting its unscrupulous
activities simply did not apply.
A group of contract experts assembled as an ad hoc working group
sought to analyze exactly which statutes were exempted from OTAs and
the ramifications of those exemptions, publishing an excellent treatise
on the subject in January 2000.\38\ The group concluded that
inapplicability of certain statutes and regulations ``may raise
significant questions of accountability for the public fisc and other
matters of public policy.'' \39\ Increased risks and uncertainties in
areas such as funding limitations and dispute resolution were
identified.\40\ There was a warning that, ``Confusion over OT's
statutory exemption can be costly either in litigation or in the misuse
of OTs.'' \41\
---------------------------------------------------------------------------
\38\ See Department of Defense Other Transactions: An Analysis of
Applicable Laws, a project of the Ad Hoc Working Group on Other
Transactions Section of Public Contract Law, American Bar Association,
2000.
\39\ See Id. at 2.
\40\ See Id at 2.
\41\ See Id. at 2.
---------------------------------------------------------------------------
The signal contribution made by the ad hoc working group to the
understanding of potential risks and benefits of OTAs comes from its
analysis of the question as to whether OTAs are exempt from the 21
statutes identified in the Kaminski memo \42\ as well as an additional
11 statutes identified by the working group.
---------------------------------------------------------------------------
\42\ See Id. at Attachment I
---------------------------------------------------------------------------
Among the statutes determined to not apply to OTAs are the
following:
Competition in Contracting Act
Contract Disputes Act
Extraordinary Contractual Authority and Relief Act
10 U.S.C. Sec. 2313, Examination of records of
contractor
10 U.S.C. Sec. 2403, Major Weapons Systems: Contractor
Guarantees
10 U.S.C. Sec. 2408, Prohibition on persons convicted
of defense contract related felonies and related criminal
penalty as defense contractors
10 U.S.C. Sec. 2409, Contractor employees: protection
from reprisal for disclosure of certain information
31 U.S.C. Sec. 1352, Limitation on the use of
appropriated funds to influence certain Federal contracting and
financial transactions
41 U.S.C. Sec. 423, Procurement Integrity Act
41 U.S.C. Sec. 701-707, Drug-Free Workplace Act of
1988
41 U.S.C. Sec. 10a-10d, Buy American Act
41 U.S.C. Sec. 2306a, Truth in Negotiations Act
41 U.S.C. Sec. 422, Cost Accounting Standards
10 U.S.C. Sec. 2334, Cost Principles
The statutes just listed, along with their enabling regulations,
represent a partial list of the statutory exemptions for OTAs. While an
OTA may incorporate some of the missing statutory protections and terms
by writing them into the agreement, any omissions can easily become
loopholes through which an unscrupulous contractor can extract
financial benefits not typically available to other contractors who are
subject to the standard procurement contract.
A more detailed listing is appended to this testimony as Exhibit B:
Applicability of Specific Statutes to Other Transaction Agreements.
Also of concern is the fact that the lack of major procurements
handled through OTAs has meant that there is a distinct lack of case
law interpreting possible ambiguities. This means additional
uncertainties and costs in the event of disputes that may occur between
the contractor and the government with the burden of proof being on the
government in most instances.
While there has never been an OTA as large as the FCS OTA, problems
of accountability have arisen in recent OTAs such as the Evolved
Expendable Launch Vehicle (EELV) project. A great deal of financial
information about the project is off-limits to the public and, among
other issues, the public and the media have no practical way to assess
whether claims of government savings are credible.
A recent article on the EELV raised issues directly relevant to the
FCS project:
``In its audits, the Government Accountability Office warned
the Other Transaction Agreement approach was risky for a
billion-dollar-project. It's a tool previously Reserved for far
smaller contracts. The GAO said it posed considerable
challenges because it exempted the project from normal rules
for spending tax dollars, limited Defense Department oversight
and did not give the military the authority to conduct audits,
GAO said.
`The use of Other Transaction instruments for Evolved
Expendable Launch Vehicle development will challenge (the
Defense Department) in determining how to protect the
government's interests,' GAO said.
The Defense Department inspector general also challenged
whether there was enough `visibility' into the program's
spending in its 1999 review of the EELV program, according to
the agency's congressional testimony.
`The EELV other transactions agreements included technical
safeguards but provided limited insight into the financial
aspects of the program,' assistant auditor Don Mancuso told
Congress in the spring of 2000.'' \43\
---------------------------------------------------------------------------
\43\ See ``$1 billion question--Taxpayers may never know how
companies spent Air Force rocket money,'' by John Kelly, Chris Kridler,
and Kelly Young, Florida Today, August 25, 2002, p. 1
The lack of transparency and accountability is a serious issue in
its own right but, as indicated in the EELV case above, disclosure acts
---------------------------------------------------------------------------
as an important deterrent to unscrupulous behavior by contractors:
``However, government auditors and taxpayer watchdog groups
cautioned one side effect of the new way of doing business is
far less public disclosure of what the companies and the
military are doing with public money.
`Anything that removes financial transparency is not a good
deal for the taxpayers,' said Eric Miller, a defense industry
investigator for the Project on Government Oversight, which has
spent two decades investigating deals between the Defense
Department and its contractors. `Time and again defense
contractors have shown they will sometimes take advantage of
these types of situations. When you eliminate that kind of
oversight, you have a potential disaster.' '' \44\
---------------------------------------------------------------------------
\44\ See Id.
Mr. Miller went on to state that the Other Transaction Agreement
strategy was never intended for big companies to avoid scrutiny on 9-
and 10-figure contracts. ``We don't think such large contracts should
come without financial oversight. It's a dangerous practice.'' \45\
---------------------------------------------------------------------------
\45\ See Id.
---------------------------------------------------------------------------
boeing's fcs ota: how sweet a financial deal?
By all accounts the FCS deal has been an exceptionally good one for
Boeing. The $14.8 billion initially being spent on the development
phase has already been augmented with an additional FCS modification in
August 2004 which added approximately $6 billion to the program and
will probably grow to more than $100 billion when production gets
underway.\46\ It comes at a time when Boeing has been losing market
share to Airbus, making its defense business all the more important.
The year 2003 marked the first time in decades that more than half of
Boeing's revenues came from defense.\47\
---------------------------------------------------------------------------
\46\ See ``Boeing-SAIC Team gets $14.8 billion Army pact,'' San
Diego Union-Tribune, December 11, 2003.
\47\ See ``Boeing Plays Defense; Beset by Airbus and rocked by
scandal, the aircraft maker turns to a new CEO--and the Pentagon--for
help,'' by Judy Cresswell, Fortune, April 19, 2004, p. 90.
---------------------------------------------------------------------------
Financially, the importance of FCS to Boeing has been cited by such
defense experts as Jacques Gansler, Undersecretary of Defense for
Acquisition, Technology and Logistics in the Clinton administration,
who recently stated, ``This [FCS] is a big plum, from Boeing's
perspective.'' \48\ One of the reasons such a Lead System Integrator
deal can be lucrative is that it does not require a significant amount
of new capital spending so the return on investment can be quite high.
George Muellner, president of Phantom Works, Boeing's research and
development arm, has described the LSI role as being a ``high-margin,
low-overhead area.'' \49\
---------------------------------------------------------------------------
\48\ See Id.
\49\ See Id.
---------------------------------------------------------------------------
Far and away, the most important factor to be analyzed in
determining whether the FCS program was negotiated in Boeing's interest
at the expense of the government is the OTA signed on December 10,
2003.\50\
---------------------------------------------------------------------------
\50\ See Agreement Between the Boeing Company and U.S. Army Tank-
Automotive and Armaments Command Concerning Future Combat Systems
System Development and Demonstration Phase, Agreement No. DAAE07-03-9-
F001.
---------------------------------------------------------------------------
While obtaining a copy of a government procurement document is
generally relatively easy insofar as most are public information,
Boeing has shown itself to be unusually sensitive in opposing public
scrutiny of its FCS arrangement with the Army. When the National Legal
and Policy Center filed a request under the Freedom of Information Act
for a copy of both the draft and final versions of the FCS OTA, NLPC's
counsel was informed that Boeing opposed disclosure, even to the point
of claiming the documents were ``classified.'' To their credit, the
Army's professional FOIA staff disclosed the requested materials once
it became apparent that Boeing had no legal grounds to prevent such
disclosure.
An analysis of the FCS OTA confirmed what others had already
suspected--that the FCS OTA negotiated by Boeing lacked many of the
standard legal protections that accompany major Defense Department
acquisitions. Because OTAs are not contracts and were originally
designed to streamline regulatory procedures, many legal terms and
conditions needed to deter or detect waste, fraud and abuse must be
individually incorporated into an OTA or they simply will not apply.
The first round of public controversy addressing the legal
shortcomings of the FCS OTA began when Reuters ran an article
disclosing that 2 months before the Army signed the FCS OTA with
Boeing, a private consulting firm, CommerceBasix, Inc., hired to
improve the Army acquisition process, recommended that the Army rework
the draft agreement. Among the consulting firm's findings was that a
delay of 6 months in the project under the terms of the May 31, 2003,
draft OTA could result in a $1 billion financial risk to the
government.\51\
---------------------------------------------------------------------------
\51\ See ``Boeing deal with Army criticized; Consultant cited $1
billion risk to government,'' Chicago Tribune, February 17, 2004, p. 3.
---------------------------------------------------------------------------
While Army officials were dismissive toward the October 14, 2003,
consultant's report and signed the OTA on December 10, 2003, the
subsequent analysis by the Government Accountability Office released on
April 1, 2004, before the House Armed Services Subcommittee on Tactical
Air Land Forces not only largely corroborated the consultant's claim
but even cited the possibility of a multi-billion-dollar cost
associated with a fairly modest delay.\52\
---------------------------------------------------------------------------
\52\ See Hearing of the Tactical Air Land Forces Subcommittee of
the House Armed Services Committee on Future Combat Systems and Force
protection Initiatives, April 1, 2004, Federal News Service transcript,
p. 8.
---------------------------------------------------------------------------
The Reuters article disclosed that concerns about FCS were not
limited to the consulting firm:
``The size of the agreement sparked concerns not just at
CommerceBasix but among top Future Combat Systems Program
officials and defense industry experts as well.
`This was unheard of,' said one defense industry official,
who asked not to named. `It raised a lot of alarm bells.' ''
\53\
---------------------------------------------------------------------------
\53\ See ``Boeing deal with Army criticized; Consultant cited $1
billion risk to government,'' Chicago Tribune, February 17, 2004, p. 3.
The Reuters article went on to report that the decision to opt for
the less formal Other Transaction Agreement instead of a standard
Defense Department procurement contract ``also raised eyebrows, given a
spate of ethics scandals at Boeing in recent months.'' \54\
---------------------------------------------------------------------------
\54\ See Id.
---------------------------------------------------------------------------
Anyone able to obtain and review the FCS OTA would have even
greater reason for raised eyebrows.
The consultants only had the May 30, 2003, draft OTA on which to
rely for their October 2003 report. However, a review of that draft
with the final definitized version signed in December 2003 indicates
relatively minor changes in terms and conditions. Indeed, the OTA
itself indicates that the definitization process between the May and
December versions would deal more with cost issues than business terms
and conditions.\55\
---------------------------------------------------------------------------
\55\ See Agreement Between the Boeing Company and U.S. Army Tank-
Automotive and Armaments Command Concerning Future Combat Systems
System Development and Demonstration Phase, Agreement No. DAAE07-03-9-
F001, May 30, 2003, draft at pp. 13-14.
---------------------------------------------------------------------------
Perhaps out of sensitivity to the consulting firm's allegation
about the government's exposure to financial risk, the final version
did substantially augment ``Article XXXIII--Termination Liability''
from the relatively Spartan treatment of those issues in the May
version and some related terms and conditions.
Ironically, the report on FCS management by the Institute for
Defense Analyses was critical of the CommerceBasix analysis of the
legal weakness of the FCS OTA by citing the fact that they did not see
the final December 2003 agreement:
``The CommerceBasix review of a draft Army-Boeing agreement,
which was critical of the lack of clauses to protect the Army's
interests, did not address all of the clauses that are in the
final FCS agreement.'' \56\
---------------------------------------------------------------------------
\56\ See Review of FCS Management Issues, Final Report to Acting
Secretary of the Army Hon. R. L. Brownlee, Institute for Defense
Analyses, August 17, 2004, p. ES-3.
This is somewhat disingenuous since it seems to suggest there was a
major strengthening of the agreement to protect the Army's interests
before the December draft was signed. There was not, as any reading of
the two documents shows. The Army would have been better served had
there been a listing of all changes made to the May draft to better
protect the Army's legal interests. Even more helpful would have been a
complete analysis of the legal effect of the omission of every statute
which covers standard DOD procurement contracts but which are missing
from the FCS OTA.
All too many issues associated with protecting the government's
interests against waste, fraud, and abuse as well as promoting
accountability remain.
Traditionally, resolution of disputes is a critically important
part of any major agreement. In the case of a high-risk, multi-billion-
dollar project where the GAO already has assessed ``significant risk,''
the resolution of disputes is an area that requires clarity as well as
strong protection of the government's interests. The Contracts Disputes
Act does not apply to OTAs unless it has been specifically incorporated
into the agreement. The FCS OTA has no such incorporation of the
Contract Disputes Act.
The issue of dispute resolution is addressed in the FCS OTA at
Article XV--Disputes. While Boeing and the Army anticipate resolving
disputes through a set of sparsely worded dispute resolution
procedures, Boeing is also accorded the opportunity to ``bring a claim
in a court of competent jurisdiction as authorized by 28 USC 1491''
\57\ if Boeing disagrees with the outcome of the dispute resolution.
---------------------------------------------------------------------------
\57\ See Agreement Between the Boeing Company and U.S. Army Tank-
Automotive and Armaments Command Concerning Future Combat Systems
System Development and Demonstration Phase, Agreement No. DAAE07-03-9-
F001, December 10, 2003, at Article XV (B)(3), p. 53.
---------------------------------------------------------------------------
An apparent shortcoming is the failure to address exactly how the
government can bring a claim in the event it disagrees with the outcome
of a dispute resolution. Generally, there is Federal jurisdiction over
civil actions initiated by the U.S. Government as stated in 28 U.S.C.
Sec. 1345, ``Except as otherwise provided by an Act of Congress, the
district courts shall have original jurisdiction of all civil actions,
suits, or proceedings commenced by the United States, or by any agency
or officer thereof expressly allowed to sue by Act of Congress.'' The
Contract Disputes Act represents a way in which Congress has
``otherwise provided'' for jurisdiction in that it applies to any
``express or implied contract . . . entered into by an executive
agency. . .'' The Court of Federal Claims has jurisdiction over claims
brought pursuant to the Contract Disputes Act. However, since the FCS
OTA is not considered a ``contract,'' a very real issue exists as to
whether and how the Army could bring a breach of contract suit against
Boeing. Moreover, the Court of Federal Claims has never ruled on its
jurisdiction over OTAs.
Throughout the FCS OTA, problems similar to the issue of dispute
resolution appear, resulting in both uncertainty as well as legal
vulnerability for the government's position. The Army had a
professional, legal and ethical obligation to address every such issue
so as to protect the government's interest. The guidance provided to
the Army through the ``Other Transactions'' (OT) Guide for Prototype
Projects, as revised in August 2002, addresses this obligation clearly:
``. . . the Agreements Officer is not precluded from and
should consider applying the principles or provisions of any
applicable statute that provides important protections to the
government, the participants or participants' employees.'' \58\
---------------------------------------------------------------------------
\58\ See ``Other Transactions'' (OT) Guide for Prototype Projects,
Under Secretary of Defense for Acquisition, Technology and Logistics,
August 2002, C2.7--Consideration of Protections Provided in Law, p. 24.
The guide went on to advise that the Agreements Officer may also
want to consider whether whistleblower protections should be included
in the agreement, ``especially if the prime awardee is a company that
typically does business with the DOD.'' \59\
---------------------------------------------------------------------------
\59\ See Id.
---------------------------------------------------------------------------
The guide is consistent in advising the government to take all
appropriate steps to protect the government's interests in an OTA and
especially in taking steps to minimize project risk. The linkage of
risk to the terms and conditions of the OT agreement is also beyond
dispute:
``The risks inherent in the prototype project and the
capability of the sources expected to compete should be a
factor in the terms and conditions of the OT agreement.'' \60\
---------------------------------------------------------------------------
\60\ See ``Other Transactions'' (OT) Guide for Prototype Projects,
Under Secretary of Defense for Acquisition, Technology and Logistics,
August 2002, C2.1.3.1.5--Risk Assessment, at p. 15.
While the FCS OTA does incorporate a number of statutory provisions
as well as Federal Acquisition Regulations, the majority of standard
procurement laws and a good number of laws promoting accountability are
conspicuous by their absence. Without providing an exhaustive listing,
it appears that most of the statutes previously specified in Department
of Defense Other Transactions: An Analysis of Applicable Laws are not
applicable to the FCS OTA.
A review of the FCS OTA found no apparent inclusion of the
Procurement Integrity Act. This is especially noteworthy given the
allegations involved in the criminal investigation of Darleen Druyun
and Boeing. The Procurement Integrity Act \61\ imposes two types of
obligations on government employees seeking non-government employment
who have been involved in procurement. First, for government employees
who have been personally and substantially involved in a procurement
worth more than $100,000, it sets forth requirements that must be
followed if the employee inquires about or is contacted by the company
involved with the procurement. Second, there is a 1-year ban on
accepting compensation from contractors involved in the procurement.
There are civil penalties for violations by both the government
employee and the contractor.\62\
---------------------------------------------------------------------------
\61\ See 41 U.S.C. Sec. 423.
\62\ See 41 U.S.C. Sec. 423 (c),(d),(e).
---------------------------------------------------------------------------
Additionally, the FCS OTA does not include the Truth in
Negotiations Act (10 U.S.C. Sec. 2306a). Possible violation of the
Truth in Negotiations Act may be an issue in the ongoing audit of the
airborne warning and control (AWAC) contract upgrade involving Darleen
Druyun.\63\ At issue specifically is whether Boeing overcharged the Air
Force by ``a significant amount'' on a $1.3 billion contract to upgrade
NATO surveillance aircraft. The article stated:
---------------------------------------------------------------------------
\63\ See ``Pentagon auditors check Boeing charges; Review part of
probe of ex-company exec,'' by Tony Capaccio, The Seattle Times, May
12, 2004, p. E6.
``Contractors are required under the Truth in Negotiations
Act to provide accurate data, which serves as the basis for
final negotiated prices.'' \64\
---------------------------------------------------------------------------
\64\ See Id.
Boeing is no stranger to allegations that it has mischarged or
overcharged the government on Defense Department contracts. In one
instance, a Boeing subsidiary paid $3.8 million to settle claims
arising from three Navy contracts in which the subsidiary was said to
have ``mischarged numerous labor hours or provided inaccurate cost
information to the government during negotiations for all of the
contracts.'' \65\ The Justice Department media release on the case
stated:
---------------------------------------------------------------------------
\65\ See ``Boeing Subsidiary Pays U.S. $3.8 Million to Settle
Dispute Over Three Navy Contracts,'' U.S. Department of Justice U.S.
Newswire Release, Dec. 29, 1992.
``Under the Truth in Negotiations Act, companies are required
to disclose to the government pricing and cost information in
their possession when they negotiate contracts with the
government.'' \66\
---------------------------------------------------------------------------
\66\ See Id.
The failure of the FCS OTA to be covered by the Truth in
Negotiations Act represents yet another legal vulnerability for the
government in the event that Boeing or any of its partners provide
inaccurate or padded cost estimates in any negotiation associated with
the program. There is little doubt that Boeing as a defense contractor
does not like the idea of being legally required to provide the
government with accurate cost information under the Truth in
Negotiations Act. At a roundtable discussion of government contract
issues during 2001 Boeing Vice President John Judy argued that the
threshold for coverage of the Truth in Negotiations Act should be
raised significantly.\67\ Coincidentally, Mr. Judy's name surfaced
during the Darleen Druyun scandal when the National Legal and Policy
Center disclosed that he had contracted to purchase Druyun's Virginia
home while Druyun was still at the Air Force overseeing mult-billion
dollar business deals with Boeing.
---------------------------------------------------------------------------
\67\ See ``Plotting Our Defense: The Pentagon Wants Reform, but How
Will It Work?'' Legal Times, March 5, 2001, p. 30.
---------------------------------------------------------------------------
The fact is that Boeing has a long and well-documented record of
blatantly overcharging the Pentagon on defense contracts. In the 1980's
Boeing was caught charging the Air Force $748 for a pair of pliers to
be used to repair KC-135 tanker airplanes. An engineer testified before
Senator Grassley's Judiciary subcommittee on administrative practice
and procedure on the subject and stated that he found similar pliers at
a hardware store for $7.61.\68\
---------------------------------------------------------------------------
\68\ See ``Air Force Victory is Illusory in the Case of $748
Pliers; Boeing's New Charge Offsets Price Cut,'' The Washington Post,
March 22, 1985, p. A1.
---------------------------------------------------------------------------
There are no shortages of good examples of the impact that
deficient agreement language or agreement negotiations can have. A very
recent example involves--once again--Boeing and the Department of
Defense. In an April 16, 2004, Washington Post article titled, ``Audit
Criticizes Another Boeing Deal; Inspector General Says Air Force Didn't
Negotiate NATO Contract Properly,'' a $1.34 billion contract being
negotiated by Air Force official Darleen Druyun with her future
employer Boeing failed to have the proper verification of costs. As a
result, the parties must sit down and follow the correct procedures to
ensure that the costs are appropriate. The audit conducted by the
Department of Defense Office of Inspector General concluded, ``Air
Force contracting officials awarded the contract modifications without
knowing whether the $1.3 billion cost was fair and reasonable.'' \69\
Four days after this article appeared, Darleen Druyun pled guilty in
the U.S. District Court for the Eastern District of Virginia in
conjunction with a Federal felony count of conspiracy which arose from
her employment dealings with Boeing at the same time the contract in
question was being finalized.\70\
---------------------------------------------------------------------------
\69\ See ``Defense tags Boeing AWACS Deal for criticism; Report:
Contract was Mishandled,'' by David Bowermaster, The Seattle Times,
April 16, 2004, p. C1.
\70\ See ``Ex-Pentagon Official Admits Job Deal; Civilian Got
Boeing Offer While Overseeing Air-Tanker Contract,'' by Renae Merle and
Jerry Markon, The Washington Post, April 21, 2004, p. 1.
---------------------------------------------------------------------------
U.S. Attorney Paul McNulty summed up his view of the crime by
stating:
``The only interest should be the public's interest. Darleen
Druyun placed her personal interest over the interests of the
Air Force and American taxpayers. Secretly negotiating
employment with a government contractor, at the same time you
are overseeing the negotiations of a multi-billion dollar lease
from that same contractor, strikes at the heart of the
integrity of the acquisition process.'' \71\
---------------------------------------------------------------------------
\71\ See Statement of U.S. Attorney Paul McNulty, April 20, 2004,
United States of America v. Darleen Druyun, Criminal No. 04-150-A
The case just cited raises yet another series of questions
regarding the lack of integrity in the manner in which Boeing has
pursued Department of Defense business. The pattern of wrongdoing is
unmistakable, and there's more. A recent article in The Wall Street
Journal by Andy Pasztor reported on another pending procurement scandal
---------------------------------------------------------------------------
involving allegations against Boeing:
``In St. Louis, [Boeing] faces a civil investigation for
allegedly using foreign titanium in F-15 fighter jets, certain
military transport planes and various other Pentagon programs,
contrary to U.S. law. Investigators previously demanded the
company pay $20 million to resolve the claims, but Boeing
balked at a settlement. The investigation has been underway for
3 years, though it hasn't been reported until now.'' \72\
---------------------------------------------------------------------------
\72\ See ``Pentagon Probes Suppliers' Hiring,'' by Andy Pasztor,
The Wall Street Journal, January 12, 2004.
Perhaps if Boeing had the foresight to use an OTA in the case just
cited, it would not be facing a $20 million fine. The Buy American Act
(41 U.S.C. Sec. Sec. 10a-10d) does not apply to OTAs unless it has been
specifically added.
In yet another very recent (April 23, 2004) news account, the
serial nature of Boeing's misconduct with DOD procurement was
underscored:
``An internal Air Force memo suggests a broad pattern of
improprieties by Boeing Co. when it bid on Pentagon contracts,
contradicting the aerospace giant's assertions that such
problems were isolated and that it corrected them quickly.''
\73\
---------------------------------------------------------------------------
\73\ See ``Boeing's Misconduct Is Detailed in Memo,'' by Peter Pae,
The Los Angeles Times, April 23, 2004.
The FCS OTA--on its face--raises very serious questions as to
whether the government's legal and financial interests have been well
served. There is little doubt that Boeing's interests have been well
served by receiving the $20 billion plus ``plum deal.'' Even a casual
reading of the FCS OTA shows considerable financial incentives for
Boeing, including the earlier cited ``maximum possible opportunity to
earn fee.'' \74\ Also deserving scrutiny is the questionable $9.8
million incentive award received by Boeing from the Army for completing
the agreement by the end of the year.\75\ At a time when Boeing was
spending millions of dollars on lobbyists in its push for Pentagon
business, a $9.8 million incentive award for rushing through a
lucrative deal hardly seems necessary--or wise.
---------------------------------------------------------------------------
\74\ See Agreement Between the Boeing Company and U.S. Army Tank-
Automotive and Armaments Command Concerning Future Combat Systems
System Development and Demonstration Phase, Agreement No. DAAE07-03-9-
F001, at p. 14.
\75\ See ``Boeing deal with Army criticized; Consultant cited $1
billion risk to government,'' Chicago Tribune, February 17, 2004, p. 3.
---------------------------------------------------------------------------
But there is a human element that also invites scrutiny. The fact
that the senior Boeing executive involved in the FCS procurement was
Michael Sears, the Boeing Chief Financial Officer (CFO) terminated for
cause in connection with his hiring of Darleen Druyun and also--
according to Boeing--in the alleged cover-up of his actions, ought to
be considered a red flag. Indeed, Sears, prior to becoming Boeing CFO,
was the head of Boeing's Phantom Works, the Boeing research and
development (R&D) operation that played a key role in winning the FCS
deal.\76\
---------------------------------------------------------------------------
\76\ See ``Contract Gives Boeing a Lift,'' by Paul Merrion, Crain's
Chicago Business, May 13, 2002, p. 13.
---------------------------------------------------------------------------
After Boeing took an unexpected $1.1 billion charge in 2003 because
of losses in its commercial space business, media accounts listed
Michael Sears as leader of a team of experts looking to examine the
business cases associated with Boeing's biggest projects. Financial
Times interviewed Mr. Sears and reported:
``Mr. Sears hinted that the business cases made in some of
Boeing's tenders were not satisfactory, and added that the risk
management practice of the different business units might not
be adequate.'' \77\
---------------------------------------------------------------------------
\77\ See ``Boeing Team to Reassess Top Projects,'' Financial Times,
by Caroline Daniel, September 2, 2003, p. 33.
Mr. Sears went on to specifically name the Future Combat Systems
project as one of the Boeing efforts being reviewed.\78\
---------------------------------------------------------------------------
\78\ See Id.
---------------------------------------------------------------------------
Despite the Reuters account documenting concern over the FCS deal
among both FCS program officers and defense industry experts, not to
mention the consultant's report detailing the serious legal and
financial risks with the proposed OTA,\79\ Defense Daily reported:
---------------------------------------------------------------------------
\79\ See ``Boeing deal with Army Criticized; Consultant cited $1
billion risk to government,'' Chicago Tribune, February 17, 2004, p. 3.
``Originally planned to be signed Nov. 26, the Army reached
agreement on the SDD contract with the LSI [Boeing] in a
process that went `exceedingly smoothly from my vantage point,'
Claude Bolton, Assistant Secretary of the Army for Acquisition,
Logistics, and Technology, said last month.'' \80\
---------------------------------------------------------------------------
\80\ See ``Army and Boeing-SAIC LSI Sign $14.8 Billion SDD Contract
for Future Combat Systems,'' Defense Daily, December 12, 2003.
Indeed, Boeing was receiving a nice incentive award to push through
a multi-billion-dollar agreement for itself. For good measure, the
agreement had most major statutory and regulatory provisions meant to
protect against ethical misconduct and other contractor abuses stripped
out. What was not to like?
recommendations
The Army's largest procurement project has as a Lead System
Integrator, Boeing, a defense contractor with the demonstrably worst
record of procurement misconduct of any defense contractor. Boeing was
penalized for substantial violations of the law in the Lockheed
proprietary documents case with a $1 billion contract sanction and the
longest suspension of any major defense contractor. In the tanker case,
Boeing tried to mislead Congress on the need for tankers with false
information in an attempt to get funding for a program that was over-
priced by billions of dollars. Boeing executives have pleaded guilty to
felonies and Boeing is currently facing numerous criminal
investigations and civil litigation for its misconduct.
Instead of increased oversight, Boeing is managing the Army's most
important procurement project with a legal agreement which meant to
attract nontraditional suppliers and which minimizes oversight and
accountability.
This is a recipe for disaster.
The broadest recommendations are that Congress should conduct a
thorough review of the vulnerabilities to the government's position
because of the use of an OTA and that Congress should intensify its
oversight of the FCS program.
The FCS program is high risk because of its ambitious embrace of so
many new and untested technologies but the failure of the Army to have
adequate oversight and accountability through the use of an OTA
represents an even higher risk.
The best way to assess the major legal vulnerabilities of the
present FCS OTA would be an independent legal analysis of the ways in
which the agreement fails to match the legal protections found in
standard defense procurement contracts. Starting with an assessment of
the statutes listed in Exhibit B: Applicability of Specific Statutes to
Other Transaction Agreements, there should be statute by statute
analysis of the legal benefits of each statute to the government and a
thorough examination of the language in the OTA to determine what
benefits are missing and what effect that may have on the government's
ability to oversee the program and to protect its legal interests.
Similarly, there should be an independent examination of the
financial and fee structure of the FCS program. While Lead System
Integrator positions can be very lucrative for defense contractors and
this aspect should be closely scrutinized, even closer scrutiny should
be given to whether Boeing's compensation in the OTA is appropriate
given the shifting of so much of the financial and legal risk for the
program to the government as compared with a standard defense
procurement contract.
To the degree that the government can modify the existing agreement
to protect its interests and promote greater accountability, it must do
so. Whatever objections Boeing may have to such a modification pale
next to the risk the government is taking in not asserting its right to
protect its interests.
Given the poor choice of Boeing as the Lead System Integrator for
FCS, especially given Boeing's incredibly poor record with respect to
respecting competitors' proprietary information rights, there is no
alternative to increased congressional oversight of the FCS program. As
the GAO has pointed out, the cost associated with the FCS program so
dominates the Army's investment budget for years to come that any
failures in this high risk program will make it extremely difficult to
find any other funds to remedy the problem.
The most ethically-challenged defense contractor in the country is
in charge of the most expensive high risk defense program using an
agreement that minimizes oversight and accountability. If that doesn't
call for increased congressional oversight, what does?
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator McCain. Secretary Bolton, I think you deserve the
opportunity to respond.
Mr. Bolton. Yes, sir. Thank you very much. This will center
on why we use an OTA, why we have an LSI, and why we have this
particular contractor, Boeing.
Let me first respond to the basic notion of an OTA. All the
reasons that have already been stated by the other gentlemen
here are absolutely correct. We have OTAs to attract other
folks who typically would not go and do business with us, maybe
to get some new technology that perhaps we would not have
gotten from other places.
Senator McCain. But if I could just mention, I have the
same quote here that Mr. Boehm had. The law written into the
Defense Authorization Act of 1999 says: ``The conferees are
especially concerned that such authority not be used to
circumvent the appropriate management controls in the standard
acquisition and budgeting process.'' The authority should be
used in exceptional cases. Is this an exceptional case?
Mr. Bolton. I believe so.
Senator McCain. Okay. Please proceed.
Mr. Bolton. Let me set the stage and then I would like to
go point by point with Ken there.
When I arrived here and was briefed on this program, it was
clear to me this was one of the most complex, ambitious
programs I had ever seen. In fact, my initial reaction was let
us not do this because I know for a fact you are not going to
be able to do it on the time line, which, Mr. Chairman, you may
recall was 2010. It had already been drug back 2 years to 2010.
I arrive here in 2002. We have 7\1/2\ years to do a job that
normally takes 10 to 15 years. I knew that it would be a
challenge not only from the contracting aspects, but just
because of all the other things that we do in this normal
acquisition process, from requirements of resourcing to the
actual contracting, to the testing, to the fielding, and so
forth. This was going to be a very difficult task.
I have done this before, not on this scale, but one thing I
have noticed time and time again, you cannot do this without a
very strong team and a very strong team leader. We saw that on
the Manhattan Project, the Trinity Project. We saw that on the
space program during the 1960s. Every successful program that
has been challenged like this has had to have a strong team,
Government and contractor. You will fail if you try to do it
any other way.
Now, I looked at what was going on. DARPA and the Army were
teamed at the time. DARPA was in the lead. They were setting
the concept phase. They had started to build a team with four
different contractor groups. When I came aboard, as I said, the
time line had been moved to the left. DARPA was in the throes
of going through a competition to reduce this down to one, all
spelled out in their OTA as to how that was going to run. They
selected the current LSI and the LSI approach, by the way.
We had an option in the Army whether to continue that when
I picked it up in the current phase. So I went to our folks,
and I said, here is the challenge we have. We have to continue
the strong team, in fact, build it. Is it possible to use the
OTA because the OTA, aside from as Congress has intended, the
one thing I noted over and over again--and I was the lead for
the Department of Defense in 1996 to look at OTAs for the use
of the military departments.
Senator McCain. Why was the Procurement Integrity Act not
included?
Mr. Bolton. The one thing that folks have glanced over,
what you have there are the clauses that are in.
Senator McCain. The what, sir?
Mr. Bolton. The FAR clauses that are not in. TINA, for
example, is not in--The Truth in Negotiations Act. True, it is
not there.
However, let me tell you----
Senator McCain. Why not?
Mr. Bolton. Because if I put all of TINA in there, I will
pay for things that I do not need. Let me tell you what I do
have in there, sir.
Senator McCain. Because of Truth in Negotiations Act
provisions, you would be paying for things you do not need?
Mr. Bolton. Let me tell you. What I have done, I have
access to all the books for all the contractors.
Senator McCain. Does Congress?
Mr. Bolton. Yes, sir, you do.
Senator McCain. Does the public?
Mr. Bolton. Yes, they do, through the normal process as you
would with any FAR contract.
Here is what we did. We said, look, you do not have to do
this, but you, Mr. LSI, and the subcontractors are required to
submit accurate costs and pricing data to the Government for
negotiations for this OTA. By the way, I will send in the
Defense Contract Audit Agency, which they did, and I will
verify all that before I sign this piece of paper. Oh, by the
way, I will also have the Defense Management Agency to go there
to verify this as well as your earned value.
Senator McCain. Is that certified, sir?
Mr. Bolton. Those folks certify to the grants officer that
all the data was accurate and reasonable. The grants officer
took that information and said, therefore, I can sign on behalf
of the Government that what we negotiated was fair and
reasonable.
Senator McCain. That is certified.
Mr. Bolton. Yes, sir.
Senator McCain. Thank you.
Mr. Bolton. All we have to do is go back and look at the
data. I had the folks that we in the Department of Defense use,
not the Army, the Defense Audit Agency, to go in there to do
that.
We also have a provision in this agreement spelled out in,
I think it is, article 13, which is another clause, for the
U.S. Comptroller General to go in and take a look. He has not
done that, but he could if he wanted to.
Senator McCain. Was that information certified by the
contractor?
Mr. Bolton. Certified by our folks.
Senator McCain. Why would the contractor not be required to
certify it?
Mr. Bolton. Here is what you get when you do this, and I
have done this on many contracts. I put TINA in there. You
floor it down. The contractor goes out there, does his thing,
and I might go in there and take a look. But I have the
contractor on a short hook here. If I find out that there is
defective pricing here, I can get money back. I can legally sue
him.
I have the same thing here. If you will read agreement, you
will see in there I do not have to worry about litigation. I
unilaterally go in there and I adjust the price and get the
taxpayers' money back if I find that you have given me the
wrong price.
Senator McCain. Well, then would it not apply to every
acquisition that you do not need TINA?
Mr. Bolton. That is up to other acquisitions. I am only
focused on the Future Combat System.
Senator McCain. The Army Deputy General Counsel for
Acquisition told the Senate Armed Services committee last week
he could not think of a single reason why the Procurement
Integrity Act should not be included in the FCS other
transaction agreement. We asked him why it did not include the
Procurement Integrity Authority (PIA) language. He suggested it
was a decision made by ``higher Army authorities.''
Why would you not want Procurement Integrity Act provisions
put in any contract that the Government enters into? There is a
reason why we passed that law.
Mr. Bolton. Yes, sir, and we did not put it in per se.
Senator McCain. Why not put it in per se?
Mr. Bolton. What we asked them to do--because I wanted
more.
Senator McCain. Pardon me?
Mr. Bolton. I wanted more.
Senator McCain. Okay.
Mr. Bolton. Here is what I wanted. I wanted to make sure,
because ethics is a concern here, a big concern, everybody who
is on this team can sign a piece of paper and say, hey, look, I
am not going to share any information with anybody. We did that
from the first source selection on. We put fire walls up. We
asked IDA to come in and take a look at that. We had our
lawyers take a look at it. We looked at the pieces of paper
people were signing to make sure that you are not going to
share this information with anybody else.
We also said we want you to do this for the whole team once
we are on board. So the contractor, the LSI, has put together a
consultant. That consultant has put together classes. Folks are
now finishing up, not just for the LSI but for all of the subs
to go to this class, learn about integrity, the same thing I go
through every year and that I certify. That is what I want
folks to do, and then I track it.
I think that is what we are trying to do.
Senator McCain. I think that is what we are trying to do,
Secretary Bolton. I appreciate your outstanding service to this
country, but we do have laws in place that were put in that
were simply there in order to protect the taxpayers.
Mr. Bolton. Yes, sir.
Senator McCain. Now, what you are saying is we do not need
those laws. You can do the job yourself better than enforcing
laws that were passed by the Congress of the United States to
preserve the integrity of the taxpayer. You can do a better
job.
My point is if you want to come back and say, change the
procurement laws, Congress, so that I can do a better job than
these laws are having any beneficial effect, then I would be
certainly open to it. I know this committee would be and so
would all of Congress.
Mr. Bolton. Yes, sir.
Senator McCain. But to just make a decision on your own
that laws that were enacted because of previous scandals to try
to prevent future scandals are being exempted from a huge $100
billion-and-some contract, you are going to have to give me a
better reason than the fact that you have great judgment.
Mr. Bolton. No, sir. It is not my judgment. I am
responsible. I am the one to blame for everything that goes
wrong.
Senator McCain. We have had many in the past who were
responsible, but the taxpayers still lost billions of dollars.
Mr. Bolton. Yes, sir.
Senator McCain. That is why we passed the Procurement
Integrity Act. That is why we passed the Truth in Negotiations
Act.
Mr. Bolton. Yes, sir, and what we have challenged folks to
do is to take a look at every one. There are roughly in a
typical FAR type of contract for this type of activity,
actually for a single program, probably 147 FAR clauses in
there. I can go through any contract. I have been there. I have
done this. Yes, we have protected the public, but not from
costs of that program. I have worked programs where I knew I
was getting data----
Senator McCain. Then your argument is we should repeal
these laws.
Mr. Bolton. No, sir, not at all. What I am saying is that
what the OTA allows you to do is to tailor in what you want.
The articles I am talking about----
Senator McCain. Even though Congress said it should be an
exception and used for nontraditional contractors with the
Defense Department.
Mr. Bolton. What was not pointed out, although I have not
gotten what I would like to have in nontraditionals, we do have
four, not the one that is required by our rules and the
Department of Defense, but four. Two of them came from the
original concept phase. One of those is the person who is
putting together our entire advanced collaborative system. That
is where we put all of the data so we can work this thing
across the country. The other is iRobot who is helping us with
the robotics, the ground----
Senator McCain. Do you know who it was at Boeing that
suggested the OTA be used? Mr. Sears.
Mr. Bolton. I do not know that to be true. I am the guy who
sat there in the office, contemplating this. He and I never
talked about OTAs. Never, sir.
Senator McCain. You never did.
Mr. Bolton. No, sir.
Senator McCain. Thank you, Mr. Secretary.
Mr. Francis, do you have any views on this dialogue here?
Mr. Francis. Well, Mr. Chairman, I think we have heard some
discussion about what is and is not in the contract.
Senator McCain. We are probably going to ask you to define
that for us. Go ahead.
Mr. Francis. Right now? [Laughter.]
We are in the process now of taking a closer look at the
contract for you, as a matter of fact.
We do know that there are some standard FAR provisions in
the OTA, quite a number of them. Where there are not FAR
provisions, there are negotiated provisions in there. So, for
example, we know the certified cost and pricing data is not a
clause that is in the contract. There is a negotiated clause in
there. We have to take a look at that to see what protections
that offers. So we are going to do a side-by-side analysis.
Mr. Bolton says that is certified. I guess that was the one
question I had. You look at a provision like that. I understand
there is going to be cost and pricing data. Is it going to be
certified the way the law would require? Those are some of the
distinctions I think we have to take a look at.
Senator McCain. Secretary Bolton, what we would like to do
is get some questions to you along the lines of what Mr.
Francis is talking about.
Look, I appreciate the enormity of the challenge here and
the importance of modernizing our Army to meet the new
challenges. We are not interested in holding it up in any way.
But we do have this obligation to the taxpayer. So what we
would like to do, for the record, is get questions from Mr.
Francis and get them to you so we can be exactly sure what
provisions are in force, and if not the PIA and TINA, then
others.
Mr. Bolton. Yes, sir. Let me tell you I really do
appreciate that. I know the GAO has three folks who are full-
time on this program. I have always asked everyone--in fact,
will ask again when we go over it the next look-see outside of
the Army--if there is anything we need to do to make this
better, please tell me. I have asked that for the last 2\1/2\
years of everyone.
Senator McCain. Thank you.
Mr. Bolton. It is not for us to use an OTA, FAR, whatever.
What we are really trying to do is put a capability out there.
Senator McCain. Dr. Graham, assuming that Secretary Bolton
is correct--and I do not question him--that it was far better
in negotiating this contract to use OTA, which obviously was
not the intent of Congress when the law was passed--but let us
set that aside--so that certain impediments to getting this
major modernization of the United States Army into being, does
that argue that we should change our procurement laws? Could
IDA look at that for us? [Laughter.]
Dr. Graham. I think that the simple answer is we were
really asked to look specifically at this agreement, and as
Secretary Bolton said----
Senator McCain. Dr. Graham, do not duck now. You are an
experienced and talented guy. [Laughter.]
Do not tell me what you were asked to do. I am asking for
your opinion on this, and I would appreciate it really.
Dr. Graham. Well, I think it is worth looking at these
things, yes.
Senator McCain. Pardon me?
Dr. Graham. I think it is worth looking at these things,
yes.
Senator McCain. Thank you. It might call for, seriously, a
look at the procurement law as it exists. Perhaps it is too
burdensome. Perhaps it does drive up costs, as Secretary Bolton
states that it might, and that is the last thing we want to do.
But when there are laws on the books, Mr. Secretary, it seems
to me that they should be enforced until we change them.
Well, anyway, you wanted to say something else. Go ahead.
Mr. Bolton. Yes, sir. It really gets to the whole notion of
procurement laws and so forth. It is something that has bugged
me for years.
I am an acquisition type. So you get stones thrown at you
all the time. Year in and year out, we are talking about
streamlining acquisition, whether that is through procurement
laws or some other. If you do not mind, I would like to put up
one poster because I think it makes the point that if we do not
address this--and it is what we are doing on the Future Combat
System--then we will always--why do I not just put it up here
on the desk so you can see it.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Bolton. When our current Chief of Staff arrived just
over a year ago, we got talking about the FCS, what we are
going to do. I told him this is one of the best team approaches
I have ever seen. I have started major weapons systems programs
that are now coming to fruition today, and it took them 22\1/2\
years to get there. I predicted on the second day of that
program in 1982 it would take that long. Why? Because all you
have to do is look at all the other programs. Well, why is it
that you acquisition guys cannot make this faster?
So I went to the Chief and I said, if we are going to make
this work, it is not just me. We have formed a team here in the
Army that is exceptional in its vision and what it is doing.
The former Chief of Staff, General Shinseki, would have a
meeting every month with his flag officers, senior flags in the
United States, and he had a three-star who was running the task
force. That three-star's job was to bring everybody together,
the requirements folks sitting over here, the resources----
Senator McCain. I got you.
Mr. Bolton.--folks like me, the operators, and so forth,
bring them all together to work as a team.
Why is that important? Because traditionally what we do is
we write a requirement, throw that over the transom. Someone
like me is supposed to pick it up and convert that to a
contract. Then someone is supposed to go test it, not exactly
my organization, and then field it and then sustain it.
Senator McCain. I understand.
Mr. Bolton. What we are trying to do and what we are doing
in the Army is we are bringing all this together. If you had
gone down to Fort Monroe Training and Doctrine Command when we
wrote the requirement for the----
Senator McCain. To be honest with you, I do not see how the
Procurement Integrity Act and the TINA have anything to do with
that chart.
Mr. Bolton. Sir, your point was how do we help this
country's citizens be protected, the services get what they
want, and can we do that through the procurement. All I am
saying is that if you really want this to happen, you need to
take a look at everything that happens in this whole process.
Senator McCain. But again, I do not see how the Procurement
Integrity Act or the Truth in Negotiations Act in any way would
impede that process. Maybe you can tell me how.
Mr. Bolton. No, sir. A point well taken. That applies
across the entire board.
Senator McCain. I thank you. Again, I thank you for the
very difficult tasks that you perform admirably.
Mr. Boehm, we have not heard from you.
Mr. Boehm. Well, let me just say that one of the points
about this was actually made in the Washington Post yesterday.
There was a story on FCS. I think it was about the hearing and
so forth. They quoted a professor at George Washington
University who is a professor of government procurement law. He
had this to say about OTAs. He said the problem with using OTAs
is you do not have control mechanisms to work with when things
go poorly. The reason you do not have them is the mechanisms to
work with when things go poorly are these statutes that
Congress passed in response to previous problems when programs
went poorly. So that is the real risk of throwing out the baby
with the bath water in this case.
Also, let me just say this. On some of the clauses that
were put in, the disputes resolution clause, article 15, there
are all sorts of things that have the appearance of doing the
same thing as the statute. But they do not do the same thing as
the statute. In almost every case, if you take a closer look,
they leave things out. The Truth in Negotiations Act is
certainly a big one.
One of the explanations I have heard by people who defend
this OTA is you do not need the Procurement Integrity Act
because, in fact, you have 18 U.S.C. 208 conflict of interest.
They are two different things. If the conflict of interest
statutes covered everything in Procurement Integrity, Congress
would not have needed to pass Procurement Integrity.
So I think that a close, independent examination item-by-
item is going to show that many of these things are missing,
and if something is not done, then a couple years down the road
when things go wrong, to use the expression of the professor of
procurement law, we will not have the tools to make it right.
Even worse, we will not have the tools to prevent it because
they have been excluded from the agreement.
Senator McCain. Thank you.
Mr. Francis, we will send you a specific request to look at
this side-by-side comparison that we discussed, and I would
appreciate your help.
Secretary Bolton, you wanted to say something else.
Mr. Bolton. It is about tools. I agree. We have not had the
right tools in the past. You, of course, remember what this is.
You and I grew up with this.
Senator McCain. Yes, sir.
Mr. Bolton. We now have electronic devices that we use.
When I started in this game about 30 years ago, this is
basically what we had.
When it comes to measuring this contract--and I do it for
all my contracts, FAR, OTAs. It does not matter--I rely upon
one thing above all else, and it is the earned value management
system. We lay out with the contractor all the work. This is
all the subs, all the work, down to the last person, that we
expect them to do during the year. We also lay in a budget
schedule and money.
Once we agree to that, then we track it on a daily basis, a
weekly basis, and a monthly basis. It gets reported out to the
company teams on a daily basis, to my PM on a weekly basis, to
me on a monthly basis, and then it is formally brought into the
building every quarter. We bring that up to the staffs here on
a quarterly basis.
I used to terminate programs, and it gets back to the point
that was made earlier that we are going to go somewhere down
the street. I have terminated over 70 programs since I have
come here. The first thing I look at is the earned value. I do
not care how big the program is, if you are not performing to
that earned value for two quarters you come in, the third
quarter you show cause, and on the fourth one, you are probably
being terminated. I take that seriously.
Senator McCain. Thank you.
Mr. Francis, you have studied the FCS program as closely as
anybody. In your opinion, was the Army's decision premature in
moving from concept and technology development into the
critical SDD phase of the FCS program?
Mr. Francis. Mr. Chairman, I would say yes, the decision
was premature. When a program is going to go into the SDD
phase, you want to have a pretty good understanding of the
requirements. You want to have mature technologies. You want to
have a preliminary understanding of the design to put you in a
position to get a good cost and schedule estimate. As we
reported, when the FCS went through that milestone in 2003, it
did not have that level of knowledge. As I look at the program
today under the restructuring, it still does not have that
level of knowledge. We are still working requirements;
technologies are not yet mature; and the preliminary design
review is a couple years away. So I would say we are still some
time away yet from being at that point where we would be
comfortable with the decision.
Senator McCain. Dr. Graham, the Institute for Defense
Analyses should look at the entire procurement issue, if you
all would. I would be glad to send you a letter. We need to
look at the whole procurement process, and I think your
institute could probably be of assistance to us, given the
experience, background, and talent that you have. I know it is
not exactly in your line of work, but you certainly are
familiar with this and I would appreciate it. We need to look
at this whole issue of procurement, not just this specific
program. I have questions about the C-130J and other programs.
So we would like to get your help on that.
Mr. Boehm, thank you for your continued animated
participation and we appreciate it very much.
I would like to say a word. I do believe that Boeing went
through a very wrenching process. They did have people over,
including former Senator Rudman, to look at the way they did
business. They have set up a code of ethics, and I think they
have made some significant efforts to clean up their act here.
I appreciate their efforts. Perhaps the latest event concerning
Boeing was the implementation of the code of ethics that they
had enacted.
Secretary Bolton, you have a tough job. We are here to
help, and we want to do everything we can. I have significant
questions about this program, but I hope you know that we are
attempting to move this incredible transformation forward as
quickly as possible with a minimum of difficulty and exercise
our appropriate oversight responsibilities.
I thank the panel for being here. This hearing is
adjourned.
[Questions for the record with answers supplied follow:]
Questions Submitted by Senator John McCain
army restructure
1. Senator McCain. General Cody, we understand that under the
modularity initiative, the Army is currently increasing the number of
Active-Duty brigades from 33 to 43, while reducing the number of
National Guard brigades to 34. In your professional judgment, how will
the 2005 Quadrennial Defense Review (QDR) affect the force-sizing
construct and modularity?
General Cody. While it is too early to predict the outcome of a
process that will continue for several more months, I believe the QDR
will result in a force-sizing or force-planning construct that better
addresses the challenges we are facing today and those we envision over
the next 20 years. Regarding our creation of the current Army Modular
Force and its transformation to the future Army Modular Force over the
next few years, early signs in the QDR process are very positive.
Creation of the current Army Modular Force is critically important to
achieving our national objectives in the global war on terror, and
better aligns today's force organizationally with future organizations.
aviation restructure and modernization plan
2. Senator McCain. Secretary Bolton and General Cody, the new Army
aviation structure will consist of eight heavy (six active and two
National Guard), three medium (all active), and two light (all active)
multi-functional aviation brigades (MFABs). There will also be six
Aviation Expeditionary Brigades (AEB) in the National Guard. Is the
cost of the aviation restructure covered by the $14.6 billion made
available by the termination of Comanche? If not, what is the estimated
cost for the aviation restructure and what is the Army's plan for
funding the restructure?
Mr. Bolton and General Cody. Yes, funding made available by the
termination of the Comanche program, combined with funding already
associated with Army aviation programs and the Army Modular Force have
enabled us to restructure Army aviation. Costs for installation and
infrastructure requirements created by Aviation restructuring are not
covered by Comanche funding. These requirements are addressed by the
Assistant Chief of Staff, Installation Management reprogramming and/or
supplemental funding requests.
3. Senator McCain. Secretary Bolton and General Cody, why does the
Army modernization plan fail to completely modernize the Apache fleet
to the Longbow configuration, instead of maintaining 117 of the older
AH-64 A-model Apaches in the National Guard?
Mr. Bolton and General Cody. The current approved Army strategy
will convert 284 AH-64 Apache aircraft to AH64D Block III
configurations beginning in 2010. The intent of the Army is to bring
all 597 Longbow aircraft up to Block III (which goes beyond the Program
Objective Memorandum (POM) for fiscal years 2007-2011 and into the
extended planning period). The Army will continue to review future
options and funding to address the potential upgrade of the remaining
117 AH-64As.
4. Senator McCain. Secretary Bolton and General Cody, what factors
are led to the decision to slip the Apache block III program 2 years?
Why can't you use a number of the AH-64 A-model Apaches in the National
Guard that are not being recapitalized into the D-model Apache?
Mr. Bolton and General Cody. The Apache fleet strategy outlined in
the Army Modernization Plan 2005 addresses the critical issue of the
aging AH-64A model fleet. The delay on Block III was the result of the
pressing need to address aircraft modifications for combat that is,
Blue Force Tracking, 701C model engines, Reset, and the program delay
by 2 years of the Joint Tactical Radio System for the Block III Apache.
Additionally, the Block III program, if kept on the original schedule,
would have taken two AH-64D battalions (48 aircraft) out of the war
fight for induction on the AH-64D Block III production line. In the 2-
year delay time period, an additional 96 AH-64As, found in the Army
National Guard and Army Reserves, will be converted to the AH-64D Block
II configuration.
5. Senator McCain. Secretary Bolton and General Cody, the AEBs will
be augmented with light utility helicopters for active Army
installation support and for State and homeland defense missions. Why
is it not worth the additional cost to acquire more Black Hawks and
avoid a separate low-density fleet of helicopters that the Army cannot
employ in non-permissive environments?
Mr. Bolton and General Cody. The Army is planning on procuring the
Light Utility Helicopter (LUH) to replace the aging OH-58A/C and UH-1
fleets. The OH-58NC and UH-1 aircraft are currently performing non-
combat missions for the National Guard and table of distribution and
allowances (TDA) units within the active component. The LUH will be a
versatile, low cost aircraft capable of performing the missions that
are currently conducted by the OH-58 and UH-1 aircraft. The procurement
of the LUH will allow the Army to not only divest itself of aging
aircraft, but it will also allow for the 00-60 aircraft currently
conducting missions in TDA units to cascade to the combat units. The
delta between the procurement and operating and sustainment cost of the
LUH and the UH-60, as noted in the analysis of alternatives for the
LUH, supports the acquisition of the LUH.
reset
6. Senator McCain. General Cody, the Army is spending billions of
dollars to repair and replace equipment damaged and destroyed in Iraq
as units rotate back to the U.S. and prepare for their next deployment
in a process called ``Reset.'' The Army's own ``stress on equipment''
study suggests that the Army is building up a backlog which in fiscal
year 2005 alone is $7 billion-$13 billion. How big is the fiscal year
2005 backlog growing and what steps are you taking to mitigate the
growth in backlog?
General Cody. A backlog of requirements for repair is growing
primarily because equipment is in use and cannot be removed for higher
level repair. Equipment usage has prevented the Army from removing some
equipment from theater, such as the vehicles with added armor. Much of
this equipment will be in need of replacement, overhaul, or
recapitalization when hostilities end. This includes our prepositioned
stocks and the equipment units have left behind in theater for use by
follow on units. In addition, the Army sees the need to recapitalize a
number of systems, but the equipment is with units that are training to
return to theater. The exact size of the backlog is difficult to
determine and its growth will be dependent on the length of future
operational requirements. The Army estimates it will take 2 years
following the end of hostilities to fully repair and replace all
necessary equipment. Two Army initiatives, Lean Manufacturing and
Public Private Partnerships, help to mitigate the growth in backlog.
Lean Manufacturing is a process redesign effort that increases the
efficiency of our maintenance lines. Partnerships between our Army
depots and the commercial sector enable us to capitalize on the
strengths of each, which results in reduced costs and improved through
put.
7. Senator McCain. General Cody, has the industrial base been able
to absorb the increase in demand to repair and replace equipment?
General Cody. For the vast majority of Army systems, the industrial
base has been able to absorb the increase in demand to repair and
replace equipment. In some cases, we have purchased from foreign
suppliers. In other cases, we have made specific investments in Army
arsenals and depots and hired additional civilian workers to meet large
demands for cutting armor plate steel for modification kits to improve
armor protection for unarmored vehicles. We have also been working hard
to increase private sector production capabilities. In limited cases,
we will invest in private facilities, purchasing production equipment
to meet higher demands of sustainment and Army modernization.
modularity
8. Senator McCain. General Cody, the Army is in the process of
restructuring its force to better meet current operational
requirements. The Department recognizes that this will require
significant resources and has added $25 billion in the fiscal year
2007-2011 time period to the $13 billion the Army already identified
for modularity. The Department requested $4.6 billion in the fiscal
year 2005 supplemental budget request and intends on requesting an
additional $5 billion in the fiscal year 2006 supplemental request.
Does the $48 billion represent the full costs for modularity
anticipated to be funded through regular and supplemental
appropriations? If not, what is the Army's current cost estimate
through 2011?
General Cody. The Army estimates the costs to transform to the Army
Modular Force at $48 billion. This includes procurement of equipment,
requisite infrastructure, sustainment, and training. Not included in
the Army Modular Force cost is an estimated $16 billion in fiscal year
2006-2011 for the fully burdened personnel costs of the temporary
30,000 endstrength increase to support both the operational
requirements for the global war on terror and the Army Modular Force
transformation. The Army anticipates supplemental or over guidance
support to fund the end strength increases.
Of the $48 billion to transform to the Army Modular Force, the Army
base program will fund $38 billion: a combination of $13 billion
reprogrammed for fiscal year 2006-2011 and an additional $25 billion
provided in the President's 2006 budget for fiscal year 2007-2011. The
Army anticipates that supplementals will fund $10 billion for
Modularity in fiscal year 2005 and fiscal year 2006.
9. Senator McCain. General Cody, last year at this time, the Army
estimated modularity costs to be $28 billion. Why has the estimate
increased from the original estimate?
General Cody. The original estimate for the Army Modular Force in
January 2004 included building 10 new Infantry Brigade Combat Teams
(BCTs) in the active component and the reorganization of 33 active and
34 Army National Guard BCTs. Today's estimate accounts for reorganizing
not only the BCTs but the entire Army to include support brigades,
theater support structure and Joint Capable Headquarters in the Active,
Reserve, and Army National Guard. In addition, the Army is actively
responding to operational requirements and lessons learned in the
global war on terror.
Lessons learned from Operation Iraqi Freedom (OIF) and Operation
Enduring Freedom (OEF) have highlighted shortcomings in communication,
force protection, intelligence, surveillance, and reconnaissance (ISR),
and move capabilities. The Army Modular Force redesign that the Army is
currently executing is designed to address these shortcomings through
both organizational changes and investment in new equipment
procurement. We have added and modified equipment in our modular
designs in real time to support our soldiers in the contemporary
operating environment. Since January 2004, equipment additions and
force design changes have been implemented. Some of these changes
increase costs but many will save lives and increase operational
effectiveness. Throughout our formations in combat, combat support, and
combat service support units across the Active, Guard, and Reserve we
have responded to the needs of the operational environment by hardening
vehicles, increasing crew served weapons densities, and adding
communication capabilities.
10. Senator McCain. General Cody, will the planned level of funding
be sufficient to man and equip the National Guard brigade combat teams
to the same standard as the active component?
General Cody. Yes. The current planned funding will man and equip
National Guard brigade combat teams to the same standards as their
active component counterparts.
11. Senator McCain. General Cody, have you identified your fiscal
year 2006 modularity requirements and are they included in your fiscal
year 2006 budget request? If so, what are they? If not, why not? Please
submit a detailed list of the total fiscal year 2006 and fiscal year
2007 modularity requirements.
General Cody. The modularity requirements for fiscal year 2006 are
$6.5 billion of which $1.5 billion is included in the fiscal year 2006
budget request. The fiscal year 2006 budget request includes $668
million in operations and maintenance, $808 million in procurement and
$24 million in research, development, test and evaluation. The
remaining $5 billion requirement for investment will be submitted in
the anticipated fiscal year 2006 supplemental request. In fiscal year
2007, the modularity requirement is $6.6 billion with approximately
$5.4 billion for procurement, $700 million for operations and
maintenance and $500 million for military construction which also
includes both family housing and barracks construction.
12. Senator McCain. General Cody, given the high operational tempo
for Operation Iraqi Freedom and Operation Enduring Freedom, will the
Army be able to adequately man and equip the new modular brigades,
including 10 to 15 additional brigade-size units, by 2007 as originally
intended?
General Cody. Yes, while there will be some challenges in select
low density skills, the Army will be able to man and equip the 10 new
modular units of action as originally intended. The skills which remain
a challenge are primarily due to the large increase of senior
noncommissioned positions, which require time to grow. The decision for
the additional five has not been made.
13. Senator McCain. General Cody, is the Army planning to do
additional analysis, modeling, and simulations to determine the
adequacy and capabilities of the modular units currently being fielded?
General Cody. Yes. The Army will continue to review the current
design of the modular brigades and refine the design as necessary based
on simulations, modeling, and analysis. In addition, the new modular
designs will be reviewed and adjustments made based on the lessons
learned in their fielding, training, and employment in combat
operations in Operation Iraqi Freedom and Operation Enduring Freedom.
14. Senator McCain. General Cody, what tradeoffs is the Army
prepared to make to fund modularity should future defense budgets be
constrained?
General Cody. The Modular Force is critical to our continued
success and execution of the global war on terrorism. It is our second
highest priority overall, after the global war on terror. Our
aggressive plan to rapidly field increased numbers of combat effective
units to support subsequent rotations in Operations Enduring Freedom
and Iraqi Freedom is based on funding commitments from both the
executive branch and the Office of the Secretary of Defense. Should
future funding not support our transformation to a modular force, we
will neither trade-off combat capability of the new formation nor
essential quality of life programs for our soldiers and their families.
The first would result in an overall decrease in our fighting ability,
and the second would jeopardize the health of our All-Volunteer Force.
Instead, we would make the difficult decision of reducing the number of
formations in the force to preserve its quality.
15. Senator McCain. Secretary Bolton and General Cody, the Office
of the Secretary of Defense (OSD) recently directed the Army to submit
to the Deputy Secretary a plan that integrates its Future Combat System
(FCS) and modularity programs. Where is the Army in the development of
a plan to integrate FCS and modularity programs? If so, what is the
Army's strategy for integrating the new modular units and their
equipment now being fielded, and the FCS?
Mr. Bolton and General Cody. OSD asked the Army to explain the two
programs and how they work together to help OSD achieve the force
objectives in the National Military Strategy. That report is due to OSD
by April 1, 2005. The report will provide a clear and consistent step-
by-step vision of the Army's transformation to the future with the
development of organization and doctrine, first in the Modular BCTs
then added capability with FCS spirals, with the next step being the
conversion of Modular BCTs to the FCS units of action (UAs). The step-
by-step conversion of Army Maneuver Brigades to the Future Force shows
that Modularity, FCS spirals, and FCS UAs are compatible, sequential,
and necessary.
16. Senator McCain. Secretary Bolton and General Cody, has the Army
developed an integrated funding plan to consider requirements and costs
of FCS, modularity, and equipment reconstitution from ongoing
operations?
Mr. Bolton and General Cody. The Army plan addresses the challenge
of balancing the complexities of funding a war while simultaneously
sustaining the current force and transforming to the Future Force. The
Army program provides 10 new modular combat brigades, converts others
to modular designs, continues the development of FCS, spirals relevant
technologies into the current force, and sustains aging vehicle fleets.
Given assumed levels of funding, the Army has built an executable plan.
At the completion of fiscal year 2011, the Army will have converted 77
BCTs to the modular design. Given current guidance on available
funding, there is sufficient funding to develop FCS and reset and
recapitalize the operating forces. Programmed actions to reset and
recap will sustain an adequate average fleet age of key combat systems.
During the Extended Planning Period (EPP), the FCS program is projected
to begin fielding FCS-equipped BCTs. Given current assumptions and
plans, the projected FCS requirements ``bow wave'' is $6.5 billion over
the EPP (fiscal year 2012-2020), which translates to 2 percent of
requirements not resourced in projected funding. The Army assesses the
requirements bow wave as manageable financial risk and has sufficient
trade space in Army research, development, and acquisition programs to
eliminate the bow wave in future programming cycles. Retaining
flexibility in planning and a sound and realistic resourcing strategy
is an imperative for current readiness as well as for successful
transformation. With the indispensable support of Congress and DOD, the
Army will continue to adapt its programming to adjust to the urgent
priorities of supporting a force at war as well as transform for the
future. The future Army modular force will consist of a balanced array
of these transforming units and will be poised to meet the demands of
our National Security and Defense Strategies in the 21st century.
future combat system
17. Senator McCain. Secretary Bolton and General Cody, according to
budget documentation, the Army has invested roughly $6.0 billion in the
FCS to date, including $2.7 billion authorized in the National Defense
Authorization Act for Fiscal Year 2005, and is still debating
requirements. In the fiscal year 2006 budget, the Army requested $3.4
billion for the continued development of the FCS and restructured
program to accelerate capabilities to the current force. Can you tell
us what capabilities will be fielded in fiscal year 2008 and the scope
of fielding?
Mr. Bolton and General Cody. The Army plans to procure limited
quantities of FCS accelerated capabilities, referred to as Spiral
Program Manager (PM) UA terminology is now Spin) 1, in the fiscal year
2008 timeframe. These FCS accelerated capabilities consist of the
unattended ground sensors, intelligent munitions systems, non-line of
sight--launch system, the first installment of the FCS Network that
includes an integrated computer system, system of systems common
operating environment and partial FCS Battle Command. The Spin (PM UA
terminology is now Spin) 1 accelerated capabilities will be issued and
installed on selected current force systems of the Evaluation Brigade
Combat Team for the test, evaluation, and maturation of these
technologies. Once the technologies have proven to meet required
operating capability, the Army intends to field these technologies to
Brigade Combat Teams starting in fiscal year 2010.
18. Senator McCain. Secretary Bolton, the Joint Tactical Radio
System (JTRS) Cluster 1 program has been delayed 20-32 months because
of technical and security issues. What is the nature of the issues, and
what is the impact of this delay on the fielding the first spiral 1
increment?
Mr. Bolton. The JTRS Cluster 1 delays are primarily related to
three issues: cost/schedule growth due to technology availability,
National Security Agency (NSA) security certification/architecture
requirements, and Size, Weight, and Power (SWaP). These requirements
have necessitated a redesign of the current hardware baseline (as
implemented in Cluster 1 Pre-Engineering Development Models (Pre-
EDMs).) The Cluster 1 program has instituted an aggressive technology
maturation program to deliver items such as antennas and power
amplifiers capable of satisfying the broad range of frequencies and
throughputs which must be supported. In addition, the program is
working very closely with NSA to identify a cost efficient approach for
resolving the security issues. The FCS program is working very closely
with the JTRS Cluster 1 program to minimize any impacts. The FCS
program has purchased multiple Cluster 1 Pre-EDMs for Core program and
Spiral (PM UA terminology is now Spin) 1 integration requirements.
Cluster 1 currently plans on delivering fully NSA certified EDMs and
low-rate initial production (LRIPs) in time to support fielding of FCS
Spiral (PM UA terminology is now Spin) 1. Assuming the Cluster 1 early
operational assessment and Defense Acquisition Board is successful and
Cluster 1 is given the authorization to proceed in summer 2005, the
impact to the FCS core program is negligible. As part of FCS's risk
mitigation strategy; however, other radio options/alternatives are
being considered.
19. Senator McCain. Secretary Bolton and General Cody, the Army is
working with OSD to develop an independent cost estimate for the FCS
program. On March 14, 2005, a Bloomberg News report indicated that the
cost now exceeds $133 billion and that may be for only 15 units of
action. Have you identified all of the program requirements?
Mr. Bolton and General Cody. All the current Army requirements for
FCS that exist in the Joint Requirements Oversight Council Operation
Requirements Document (ORD) and the Operation and Organization document
have been identified and flowed down to and are the basis for the FCS
System of Systems Specifications (SoSS). As a result of this flow down,
the SoSS contains all of the FCS requirements for the individual
systems/platforms. Since the SoSS requirements are derived directly
from the ORD the requirements are directly traceable to specific ORD
paragraphs. This traceability and the resulting connectivity assures
that all Army requirements in the ORD and organization and operation
(O&O) have been covered by the SoSS and that any change in requirements
can be quickly and easily flowed into the SoSS.
20. Senator McCain. Secretary Bolton and General Cody, what are the
cost drivers for the program?
Mr. Bolton and General Cody. The acquisition cost of the FCS
program includes both research, development, test and evaluation
(RDT&E) and procurement. For the FCS program, RDT&E accounts for
approximately 25 percent of the acquisition cost and procurement: 75
percent. The cost drivers in RDT&E are Design Engineering (to include
software development), Systems Engineering and System Test &
Evaluation. As is typically the case with Army acquisition programs,
recurring production is the primary cost driver within procurement,
accounting for approximately 75 percent of total procurement. Within
recurring production, Manned Ground Vehicles account for approximately
60 percent, command, control, communications, computers, intelligence,
surveillance, and reconnaissance (C\4\ISR) 25 percent, and the
remaining systems (unmanned ground and air vehicles, non-line-of-sight
(NLOS-LS), and intelligent munitions system (IMS) 15 percent.
21. Senator McCain. Secretary Bolton and General Cody, do you
really believe the program is affordable given your end strength,
modularity, and reset requirements?
Mr. Bolton and General Cody. The Army has developed an integrated,
executable plan that provides the means for the Army to transform over
time, while continuing to provide modernized land forces for success in
the near-, mid-, and long-term future. The plan addresses and balances
the complexities of funding a war while simultaneously transforming to
the Future Force and sustaining the Current Force. The plan provides 10
new modular maneuver brigades, converts 67 others to modular designs,
continues development of FCS, spirals relevant technologies into the
current force, and sustains aging vehicle fleets. Given assumed levels
of funding, the Army has built an executable plan.
22. Senator McCain. Secretary Bolton and General Cody, during the
17 months since the milestone B (MS B) to transition FCS into system
development and demonstration (SDD), the FCS lead systems integrator
(LSI), in conjunction with the Training and Doctrine Command (TRADOC),
has conducted numerous engineering trade studies to mature the FCS
design concept. Has the Army acted on these trade studies?
Mr. Bolton and General Cody. Yes, these trade studies have informed
the Army. This has supported actions with their results incorporated
into the ORD, System of Systems Specification, O&O and Design Concept.
There are additional trade studies in progress and as the program
proceeds, more trade studies will continue to ensure that quality
program decisions are made and that potential impacts on the program
and systems are addressed both from technical and operational points of
view.
23. Senator McCain. Secretary Bolton and General Cody, what are the
outstanding major decisions regarding the survivability and
deployability of the FCS platform?
Mr. Bolton and General Cody. PM UA and the LSI briefed a concept
for each of the eight manned ground vehicles (MGV) to TRADOC leadership
in November 2004. These concepts are deployable by C-130, but they do
not satisfy all of the user's requirements. However, emerging results
from initial force effectiveness analysis reflect that the concepts are
operationally effective. The outstanding major decisions regarding
survivability and deployability of manned ground vehicles are tied
directly to Army leadership approval to proceed with these concepts.
Concept approval is expected to be received prior to MGV System
Functional Review in March 2006.
24. Senator McCain. Secretary Bolton and General Cody, does the
Army still have a C-130 transportability requirement for FCS? What is
the impact of a C-130 transportability requirement on FCS
survivability, lethality, reliability, and maintainability?
Mr. Bolton and General Cody. Yes, the Army still has a C-130
transport requirement for the FCS-equipped unit of action (UA). The
requirement of using a C-130 pushes technology to be smaller and
lighter in order to meet requirements such as survivability and
lethality. MGVs are projected to meet reliability and maintainability
requirements through the FCS program's investment in a robust
reliability and component maturation program and by integrating
logistics influences up front and throughout the systems engineering
process. MGV system-level trades to date have produced a relevant and
balanced set of capabilities in a C-130 deployable concept
configuration. As the program progresses through the systems
engineering process and enters into the design phase, we will continue
to assess and better understand the impacts. Emerging results from
recent Force Effectiveness (FE) analysis has indicated that the current
MGV concepts are operationally effective. Continued FE analysis will
enable the Army to further assess and improve upon the MGV design
concepts.
25. Senator McCain. Secretary Bolton, originally, the FCS program
identified 31 critical technologies, 25 percent of which are at or
above technical readiness level (TRL) 6. Now, the restructured program
identifies 32 critical technologies, of which 24 percent are at or
above TRL 6. What does that say about program risk?
Mr. Bolton. When the program began, there were 31 Critical
Technologies (CTs). Seven (23 percent) of which were at TRL 6. When the
program subdivided CTs for better clarity there were some pieces that,
although mature, were not yet tested in an ``FCS'' relevant environment
and therefore their resulting TRL was lower, however, if one considers
all of the CTs including the subdivided pieces, there are 54 CTs of
which 20 (37 percent) are at TRL 6 or higher. From a program risk
standpoint, only 5 of the CTs have a high (red) risk rating, 19 of the
CTs have a moderate (amber) risk rating and the remaining have low
(green) risk rating.
26. Senator McCain. Secretary Bolton, the ``Network'' is considered
the highest priority for FCS program development. Two key complementary
programs for FCS are the Warfighter Information Network-Terrestrial
(WIN-T) and JTRS, which will provide the ``pipes'' for the network. Why
exactly is the FCS network so critical to the program?
Mr. Bolton. The FCS Network satisfies voice, data, and video
transmission and processing requirements necessary to realize network
centric operations. This network includes not only the WIN-T and JTRS
``pipes,'' but also integrated sensors, vehicular routers, and
networked Battle Command software providing a ``Network'' of sensors,
computers, radios, applications, and services to extend the Warfighters
ability beyond his/her field of view. Using Beyond Line of Sight
systems (unmanned vehicles, sensors, and munitions) extends the
warfighters fighting ability beyond today's engagement distances. The
centerpiece of FCS is the Network.
27. Senator McCain. Secretary Bolton, is the network platform
dependent?
Mr. Bolton and General Cody. The network is not platform dependent,
it is part of the Army's overall LandWarNet network. FCS is the DOD's
first step to develop an integrated fighting system rather than
traditional efforts to develop a program like a radio or a tank.
28. Senator McCain. Secretary Bolton, are there plans to migrate
the FCS network to platforms such as the Abrams tank, Apache
Helicopter, and Bradley fighting vehicle?
Mr. Bolton. The answer is YES! The Army's Spiral (PM UA terminology
is now Spin) Out strategy is designed to migrate the FCS network to
platforms such as Bradley, Abrams, and high mobility multi-purpose
wheeled vehicles (HMMWVs). The extent of this migration is based on
priorities and available funding.
commercial item procurement strategy
29. Senator McCain. Secretary Bolton, the FCS program uses
significant new management practices under the authority of an Other
Transaction Agreement (OTA)--with commercial-like qualities. Why are
elements of the FCS program being acquired as commercial items?
Mr. Bolton. Elements of the FCS program are, in fact, commercial in
nature, we recognize this in the method used to acquire these elements,
at least prospectively. Since the FCS program is still in the SDD
phase, we are not yet in the mode of acquiring production hardware or
software. It certainly is true that the individual platforms comprised
in the FCS family of systems are expected to be military, not
commercial, in nature. However, numerous elements of the FCS system of
systems either will be commercial in nature or are being developed
using commercial-like processes and techniques. Examples would include
individual software modules and protocols; it is also expected that
some individual hardware platform components and subassemblies will be
commercial or modified-commercial in nature.
Under the OTA, authorization is given to acquire SDD requirements,
which includes demonstration of prototype hardware and software. The
LSI is allowed to use, in some cases, commercial best practices.
However, the SDD instrument is not a Federal Acquisition Regulation
(FAR) Part 12 commercial item acquisition, nor will the procurement
contract now being planned for the balance of SDD take the form of a
commercial-item acquisition. The procurement contract will be written
in compliance with FAR Part 15.
30. Senator McCain. Secretary Bolton, the FCS program calls for the
development and fielding of a sophisticated, mobile, ad hoc network;
software requiring 33 million lines of code; a family of light, highly
mobile manned vehicles; several varieties of unmanned aerial and ground
vehicles; advanced munitions; and highly capable sensors within a
brigade-sized organization of 3,000 to 5,000 soldiers. Where may one
acquire such items in the FCS program commercially?
Mr. Bolton One cannot. Again, the contractual vehicle currently in
place is an Other Transaction Agreement for SDD and not a FAR-based
commercial contract. The major-item platforms that will constitute the
FCS family of systems are military, not commercial, in nature and will
be acquired under a FAR Part 15 contractual instrument.
other transaction agreements
31. Senator McCain. Secretary Bolton, according to a report titled
Institute for Defense Analyses (IDA) Review of FCS Management, ``[t]he
Army-Boeing agreement does not anticipate future rounds of competition
for FCS systems. . . [n]or does it appear that the current agreement
provides the Army access to technical information sufficient to enable
future rounds of competition. . .'' a situation that the Government
would not find itself in if the Army had entered into a FAR Part 15
contract for FCS. Most acquisition experts believe the value of holding
such a competition generally produces savings of as much as 25 percent
on weapons procurement programs. Your decision to enter into an OTA
limited the Government's ability to conduct a competition and
essentially guaranteed a sole source contract to Boeing. Exactly why
did you make the decision to use an OTA, rather than a FAR-type
contract, as the contract vehicle for FCS when it transitioned to the
SDD phase, now valued at more than $20 billion? Take me through your
decisionmaking process here.
Mr. Bolton. The Army leveraged an existing option from the Defense
Advanced Research Project Agency (DARPA) Concept and Technology
Development (CTD) OTA. Under that OTA a best value competitive Source
Selection was conducted by DARPA with Army participation and the LSI
was selected. However, bearing in mind that FCS will include 18
separate platforms plus the network, it remains true that significant
competition exists at the first and second tier contract level
including 23 highly competitive source selection best value awards made
by the LSI for which the Army had review and final approval. These
awards were made by the LSI without a single protest. The Army made the
decision to use an OTA instead of a FAR based contract because we
believed it would provide the flexibility to rapidly deal with
technology development and continuous schedule requirement changes
which were expected on this program given the original test,
development and fielding schedules set by the Army. The OTA, however,
included a significant number of FAR/DFARS clauses as well as tailored
FAR clauses which we believe provided the safeguards to protect the
Army and taxpayers.
We are acquiring sufficient data to support a competitive
procurement in the future. Technical data is being loaded into the
Distributed Product Description (DPD) which is a subset database being
used as part of the Advanced Collaborative Environment (ACE). The
primary purpose of the DPD is to provide single source access to
authoritative technical product data throughout the FCS program's
lifecycle. DPD ties requirements specifications, modeling and
simulation, design, and test data together to support the unit of
action product elements. Data and Software developed under the OTA with
Boeing, necessary to achieve practical application of deliverable
items, components and processes shall be delivered to the government.
32. Senator McCain. Secretary Bolton, Dr. Graham, and Mr. Boehm,
Other Transaction Agreements have been used for much smaller research
or prototype projects, especially those in which the DOD is seeking to
engage nontraditional defense contractors that may be adverse to the
costs of regulation and red tape associated with government
procurement. Historically, OTAs required that the non-governmental
party contribute at least 50 percent of the funding. What are the cost-
share percentages for the non-governmental parties involved in the FCS
Agreement?
Mr. Bolton and General Cody. This Other Transaction Agreement is a
Section 845 Other Transaction, this OTA is for Prototype development
and is not based on a cost share relationship (cost sharing is not
mandatory). Funding is provided by the Army to execute the OTA.
Dr. Graham. Costs were shared in the initial phases of the FCS
program, but are not shared in the current SDD phase. The situation is
as follows:
CTD Phase I:
In May 2000, DARPA, in partnership with the Army, awarded cost-
sharing OTA agreements to four industry teams for the FCS CTD I:
``Team Gladiator'': Lockheed Martin and TRW [Agreement
amount, cost-shared with consortium: $15,461,499; government
share: $10,000,000]
TEAM FoCuS Vision Consortium: General Dynamics,
Raytheon, United Defense, Northrop Grumman and ITT Industries
[Agreement amount, cost-shared with consortium: $14,000,000;
government share: $10,000,000]
SAIC [Agreement amount, cost-shared with consortium:
$12,830,470; government share: $10,000,000]
Boeing Co., Phantom Works [Agreement amount, cost-
shared with consortium: $23,299,998; government share:
$10,000,000]
CTD Phase II:
In March 2002, DARPA and the Army selected, from the four CTD I
competitors, a merged Boeing-SAIC team to act as the LSI for CTD Phase
II. This CTD II contract was for $154 million. (The DARPA-Boeing
agreement was a cost-share arrangement with the DARPA cost being $154
million and the Boeing share being $86 million.)
During this competition, the Army announced its intent to include
an option within the resultant CTD II OTA agreement to permit a sole-
source award to the winner for follow-on work in the SDD phase.
System Design and Demonstration:
In May 2003, after a Milestone B review and OSD authority to enter
development was granted, the Army awarded a letter contract for System
Design and Demonstration to Boeing.
Boeing agreed to act as a Lead Systems Integrator to develop and
field a family of systems, networked together into a system of systems,
which is to be the core of a new brigade-sized Army organization called
an UA. The Agreement arose out of the option contained within the OTA
agreement awarded by DARPA in 2002 for performance by Boeing within the
CTD phase of the FCS program.
The Army awarded a letter contract to Boeing for the SDD on or
about 30 May 2003; a definitive agreement was finalized in December
2003. The Army-Boeing Agreement was also awarded as an Other
Transaction as defined in 10 U.S.C. Sec. 2371 and Section 845 of the
1994 National Defense Authorization Act (Public Law 103-160), as
amended (OTA). The total negotiated amount of the agreement between
fiscal year 2003 and fiscal year 2012 is $14.78 billion.\1\
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\1\ Article VI, Obligation and Incremental Funding section of the
Agreement.
---------------------------------------------------------------------------
The Army-Boeing Agreement for SDD is a Cost Plus Fixed/Incentive
fee-type. The fixed fee is set at 10 percent; the incentive fee is as
much as an additional 5 percent.
The Incentive Fee structure is targeted on LSI performance at five
program milestones: Preliminary Design Review (0.50 percent), Critical
Design Review (0.50 percent), Initial Production Decision #1 (1.75
percent), Initial Production Decision #2 (1.75 percent), and System of
System Integration and Verification (0.50 percent) \2\
---------------------------------------------------------------------------
\2\ Article VII Fee section of the Agreement.
---------------------------------------------------------------------------
Mr. Boehm. The National Legal and Policy Center obtained its copy
of the Future Combat Systems OTA via Freedom of Information Act Request
solely to determine whether the agreement contained adequate legal
protections to deter waste, fraud, and abuse. Our analyses were largely
limited to legal issues associated with the failure of the OTA to
include the statutory protections found in standard Department of
Defense acquisition contracts and did not cover cost issues.
33. Senator McCain. Secretary Bolton, are the non-governmental
parties sharing any of the risk or is the risk significantly on the
government?
Mr. Bolton. The nongovernmental parties are sharing the development
risk of the FCS. The LSI concept, which is analogous to having a
``general contractor'' for a construction project, allows us to
delegate overall system-of-systems integration and system development
selection, and therefore some of the risk, to the LSI. We have
incentivized this through the use of a fee structure that will reward
for the efficient integration and delivery of the entire system of
systems to the Government.
34. Senator McCain. Mr. Francis, Dr. Graham, and Mr. Boehm, what
are your thoughts about the risk associated with the FCS program?
Mr. Francis. FCS is a development of unprecedented complexity for
the Army. The Army faces significant challenges in setting
requirements, developing systems, financing development, and managing
the effort. Even with last year's restructuring of the program, the FCS
is still at significant risk for not delivering planned capability
within budgeted resources. This risk stems from the scope of the
program's technical challenges and the low level of knowledge
demonstrated at this point. The current schedule allows 9\1/2\ years
from development start to the production decision. FCS is developing
multiple interdependent systems and a network within a period of time
that the DOD typically needs to develop a single advanced system. The
FCS has demonstrated a level of knowledge far below that suggested by
best practices or DOD policy. Nearly 2 years after program launch and
about $4.6 billion invested to date, requirements are not firm and only
1 of over 50 technologies are mature-activities that should have been
done before the start of system development and demonstration. If
everything goes as planned, the program will attain the level of
knowledge in 2008 that it should have had when it started in 2003. But
things are not going as planned. Progress in critical areas, such as
the network, software, and requirements, has been slower than planned.
Proceeding with such low levels of knowledge makes it likely that FCS
will encounter more problems late in development, when they are costly
to correct.
The relatively immature state of program knowledge at this point
does not provide a solid basis for making a good cost estimate.
Independent estimates should provide more information but are not yet
completed. If the cost estimate for FCS is no more accurate than
traditional estimates, the impact of cost growth could be dire, given
the program's magnitude. At this point, the FCS provides a concept that
has been laid out in some detail, an architecture or framework for
integrating individual capabilities, and an investment strategy for how
to acquire those capabilities. It is not yet a good fit as an
acquisition program. If FCS-like capabilities are to be made acquirable
for which the Army has made a compelling case, then different
approaches for FCS warrant consideration because they offer building
higher levels of knowledge in advance of investment decisions and thus
lower risk.
Dr. Graham. It was understood from the beginning of the FCS program
that its execution would pose unprecedented challenges. The FCS program
has taken on a number of very ambitious technical challenges in an
environment of an incompletely defined Operational Concept and
Operational Requirements document:
It is technically ambitious (GAO reported 75 percent
of FCS technologies are currently below TRL 6).\3\
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\3\ William Graveline, ``GAO Briefing to the FCS Quarterly
Management Review in West Point, NY,'' 20 April, 2004.
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It is founded on the development of Joint Operational
Concepts for interdependent Joint ISR and Joint fires, but the
Joint network enablers are lacking.
It entails a high degree of technical integration
across many components, including complementary systems still
under development.
It involves the full spectrum of Army Doctrine,
Organizations, Training, Leading Development, Material,
Personnel, and Facilities (DOTLMPF).
It touches on the future of every branch of the Army.
And, it remains, even after the current restructuring,
on an aggressive, schedule driven development path.
Risk management at the corporate Army level is needed to address
FCS risk factors that are beyond the control of the FCS program, or are
of a scale that could force significant course corrections in the
execution strategy for the program or that could force a rethinking of
the overall design of the FCS-equipped Unit of Action.
The Army's restructuring of the FCS program in 2004 represents a
good example of the kind of corporate review that is needed. It is our
view that--given the complexity, scale, and uncertainties associated
with FCS development--such reviews, along with appropriate adjustments,
should be considered a normal, periodic activity for the FCS program.
That restructuring provided the program with more time and money, but
it did not eliminate the fundamental challenges the program will need
to overcome.
The IDA study advocated development of a systematic Army corporate
risk management framework that would institutionalize the kind of risk
management assessment that was undertaken in the 2004 restructuring of
FCS, and ensure reassessments are performed periodically as a routine
element of FCS management. Such a framework would enable the Army's
senior leadership to take stock of emerging FCS program realities and
outline contingency ``success'' options for realigning program plans
and resources. With such a strategic management mechanism in place, the
corporate Army should be able to view FCS from a strategic perspective.
Left to its own devices without such a structure, and as outside
decisions that affect it are made, the FCS program may produce systems
within its budget that mayor may not provide the best capability for
the Army as a whole.
With adequate preparation, adverse developments or external events
that invalidate current program plans or assumptions need not preclude
successful FCS outcomes, albeit outcomes that may differ significantly
from the Army's initial plans. For example, contingency options might
include deferral of the some platforms (the realignment features some
of this); other options might entail a relatively greater focus on the
fielding of incrementally improved networks and essential ISR systems,
independent of platform developments. Yet other options might entail a
focus on spiraling out limited FCS network capabilities to current
units and focused experimentation therein to refine network functional
requirements, while continuing R&D on elements of the program that
deserve a longer development timeline. In each case, if managed
effectively, program outcomes are possible that could substantially
improve the Army's fielded capability, and hence be viewed as a
success.
Examples of Strategic Risks: Adverse developments in any of a
number of areas could cause a significant setback to the FCS program.
The IDA study identified several major risks that the Army should
carefully monitor and address through the proposed strategic risk
management framework:
Emerging software cost and schedule growth.
Uncertainties in the assumed FCS mobile ad hoc
network's capabilities, including information throughput,
latency, scalability, and Joint connectivity.
Uncertainties in the ability of FCS vehicles to
simultaneously meet weight, lethality, survivability,
transportability, and maintainability targets.
External factors, including program cancellations
(Comanche) and the lack of a framework for developing adequate
joint operational concepts and architectures.
New requirements for spiraling out advanced
capabilities to current forces, including FCS capabilities and
concepts.
Army budgets and affordability constraints.
The demands of the global war on terrorism.
Two specific examples were provided in the IDA Report to illustrate
the potential application and value of the proposed corporate Army
strategic risk management framework:
Risk Management Scenario 1: Software Cost and Schedule.
Increasing complexity of software integration, coupled with
lower than expected LOC/hr productivity, could cause the
software development cost estimate to rise from $5 billion to
over $9 billion. Forecast software maintenance costs could grow
accordingly.
Software will account for well over half of the FCS development
costs. There was a considerable range of uncertainty in the initial
estimates of FCS software costs, and software historically has been a
source of cost and schedule growth.
Our preliminary review of the FCS software development effort finds
leading indicators of significant cost and schedule growth to come. The
initial program estimate was for a $5 billion cost for software in
System Design and Development. The comparable OSD Cost Analysis and
Improvement Group estimate was $8 billion. An IDA update based on the
program's April 2004 estimate of 15.8 million Effective Software Lines
of Code (ESLOCs) yields a revised cost estimate approaching $9 billion
in fiscal year 2004 constant dollars. The historic productivity norms
for software development indicate programs average about 65 percent the
level of productivity assumed in the FCS program.
Historical precedents also indicate that software development
challenges will only grow as the FCS program progresses. IDA's studies
of other program development efforts have shown that programs nearly
always experience software requirements growth; software integration
always proves to be more difficult than planned; productivity is less
than projected; the experience and availability of people are below
assumed levels; and the conversion and reuse of COTS software requires
more effort than anticipated. Given the massive scope and complexity of
the FCS development effort, it would be very surprising if these
historical norms do not hold true here, as well.
Indeed, at this early stage of the program, FCS is beginning to
experience software build schedule slips. For example, almost half of
the work content planned for Build 1 (0.7 million out of 1.6 million
ESLOCs) of FCS software was recently pushed to Build 2. (Boeing notes
that SoSCOE build 1 software development is on schedule, and that no
SoSCOE software was moved between build 1 and build 2.) Even prior to
the recent restructuring of FCS, the start of Build 3 had been delayed
from February 2004 until October 2004. These data suggest that the FCS
program has before it a substantial risk of software cost growth on the
order of $3 billion to $4 billion over the development phase of the
program. Such cost growth, accompanied by commensurate schedule delays,
could require a significant realignment of the FCS development plan,
even given the recent program realignment.
Risk Management Scenario 2: Network Performance. Developmental
and operational tests of the mobile ad hoc network performance,
including the performance of JTRS radios and the WIN-T network
development, could reveal that available designs will not
provide the desired information throughput, scaling, or low
latency, as well as seamlessly integrate with other networks,
GIG interfaces, and ISR and joint weapons systems operated
within the Joint battlespace.
Many of the FCS technical challenges entail uncertainties in the
ability to develop relatively mature technologies on a schedule
commensurate with the FCS development schedule, but the development of
the FCS network represents a technological challenge for which the
underlying principles are not well understood. A mobile ad hoc network-
of-networks has never been demonstrated on the scale envisioned for
FCS. Predicting the performance of such a network remains an unsolved
problem in basic research, and there is a significant probability that
it will not be possible to develop a network of the assumed throughput
and dependability on the FCS development schedule.
The central importance of the network to the FCS concept of
operations and the incomplete understanding of the principles clearly
make the risks associated with that development strategic in nature--
risks that the corporate Army must be able to assess and manage. It is
essential that the progress, trends, and issues are clearly understood
at each step in the development cycle, and that appropriate contingency
plans are in place. For example, accepting, at least in the near-term,
a somewhat more evolutionary approach for integrating Joint ISR,
command and control, and weaponry, might accommodate an unfavorable
network development scenario.
Mr. Boehm. I share the views of Paul L. Francis of the Government
Accountability Office with respect to the technological and
programmatic risk of the FCS program. Mr. Francis had previously
reported to Congress that, ``FCS is at significant risk for not
delivering required capability within budgeted resources.'' The
National Legal and Policy Center spent months assessing the legal
pitfalls for the Department of Defense in using an OTA for the FCS
program. Our conclusion was that an OTA greatly increased the risk that
the program would fail to stay within its budget and meet its
deadlines. OTAs were approved by Congress for much smaller research
projects and are wholly inappropriate for a multi-billion dollar
project as ambitious as the FCS program. By exempting defense
contractors from normal acquisition rules, limiting Defense Department
oversight, and greatly limiting legal options for the Defense
Department when difficulties arise, an OTA is arguably the worst way to
structure such a major undertaking.
35. Senator McCain. Secretary Bolton, a former Deputy of the FCS
program at the Defense Advanced Research Projects Agency (DARPA) and
Army Deputy Director, Future Force Directorate briefed Senate Armed
Services Committee (SASC) staff last week that the compelling reason to
use an OTA for FCS was based on a poll taken of the prime vendors of
the FCS program at the time (i.e., Boeing, Lockheed Martin, TRW,
General Dynamics, Raytheon, United Defense, Honeywell, Textron,
Northrop-Grumman, BAE, ITT Industries, and SAIC). Eighty-five percent
of the respondents of the poll wanted an OTA with commercial-like
clauses. Is it the Army's position in the development and acquisition
of major acquisition programs that they poll industry to determine what
contract vehicle to use to provide the most benefits to industry at a
disadvantage to the taxpayer?
Mr. Bolton. For SDD, the Army took no poll. We determined the
contract vehicle, the OTA, plus certain FAR clauses protect our
interest.
A detailed analysis was conducted by the Army FCS Program Office to
determine the best acquisition strategy and contracting approach in
order to meet the overall program mission and requirements. This
analysis is reflected in the approved Program Acquisition Strategy
Report and Business Decision Document respectively.
contract clauses and protections
36. Senator McCain. Secretary Bolton, the Army Deputy General
Counsel for Acquisition told the SASC last week that he could not think
of a single reason why the Procurement Integrity Act (PIA) should not
be included in the FCS Other Transaction Agreement. As the Acquisition
Contracting Executive--the Army's top acquisition executive--why did
you not include the PIA in the FCS pact?
Mr. Bolton. On April 26, 2005, the Army added FAR clauses
implementing the Procurement Integrity Act, Cost Accounting Standards,
and Truth in Negotiations Act to the current OTA. These clauses apply
to all future actions under the current agreement until the transition
to a FAR-based contract is complete.
37. Senator McCain. Secretary Bolton, regarding the FCS OTA, the
Army's Business Decision Document of March 2003 states: ``Clauses, that
are typically barriers to the participation of nontraditional defense
contractors (e.g. Cost Accounting Standards (CAS), Truth In
Negotiations Act (TINA), intellectual property, audit and accounting
requirements, etc.) have either been eliminated or significantly
tailored. . . .'' The FCS contract has many traditional defense
contractors whose participation in FCS could only be obtained by
traditional clauses governing cost accounting standards, and audit and
accountability requirements between the LSI and these major
contractors. Why did the LSI include traditional FAR contracts with its
major subcontractors yet the Army did not include these protections in
a contract with the LSI? Can you think of a reason why CAS, TINA,
intellectual property, audit and accounting requirements, etc. should
not apply to the FCS program?
Mr. Bolton. Defense contractors, to the best of our knowledge, do
not use OTAs. They use contract mechanisms modeled after FAR for their
subcontractors.
The CAS standards are fully covered in the OTA. However, to answer
the direct question, the primary advantage of not including the FAR-
based CAS clauses in the OTA was that this action removed a potential
flow-down requirement that many nontraditional defense contractors find
onerous. It is for this reason that the OTA requires CAS-compliant
accounting where a CAS-compliant system already is in place, but
permits a system based on generally accepted accounting principles
(GAAP) where a GAAP system is the one in place. This means that a
potential commercial subcontractor would be able to make use of its
existing GAAP system, and would not be faced with the duty to convert
to a CAS-compliant system in order to participate as a subcontractor
during FCS development and demonstration. There is no ``exclusion of
cost accountability'' in the OTA per se: the OTA provides for
government audit of records, and defines cost allowability per the FAR
and DFARS contract cost principles.
CAS, Intellectual Property, and Audit and Accounting requirements
do apply to the current FCS OTA. The Defense Contract Audit Agency
(DCAA) and Defense Contract Management Agency (DCMA) and the Army
Grants Officer have full access to the LSI's cost data, as does the
Army. In regard to the TINA requirement, it was not included because of
the time and additional cost anticipated to do the TINA sweeps and
certifications at the prime contractor and at each subcontractor level.
The Army, however, did conduct a detailed negotiation with full access
to all contractor/subcontractor cost data necessary to determine the
contractor's proposal fair and reasonable. Additionally TINA
certifications are not required for the competitive subcontracts placed
by the LSI; this would be no different even if the Army had awarded a
FAR procurement contract rather than an OTA, for the SDD phase.
38. Senator McCain. Secretary Bolton, two DOD Inspector General
Audit Reports, one in 1999 and the other in 2002, produced several key
findings regarding the Department's use of OTAs. It appears that DOD
has not realized the type of benefits that were the intent of Congress
when they authorized this legislation for small developmental programs.
Can you describe why the Army, DOD, and Congress would continue to
spend critical taxpayers dollars under an OTA that would leave the
government vulnerable to waste, fraud, and abuse and abuse the
confidence of the taxpayers that we are spending their money wisely?
What steps have you taken to try to protect the government and the
taxpayer in this agreement, in the absence of the traditional contract
provisions that are not included in the agreement?
Mr. Bolton. The Army's OTA with the LSI includes a significant
number of FAR and DFARS clauses which do protect the taxpayer.
Additionally, a significant number of FAR and DFAR clauses were
tailored to fit the particular requirements relative to this effort and
included as Articles under the OTA. Again, DCAA and DCMA and the Army
grants officer have full access to all cost data contained in the LSI's
cost proposals. Additionally the independently conducted IDA report
confirmed that the OTA had included the necessary protections making it
similar to a FAR contract in regard to the protections afforded to the
government.
``non-traditional'' contractors
39. Senator McCain. Secretary Bolton and Mr. Francis, the Army's
Business Decision Document of March 2003 states that the FCS OTA
``continues the use of nontraditional contractors in significant roles
and provides for innovative business managements or structures that
would not be feasible or appropriate under a FAR-based contract or
other Federal procurement.'' Furthermore, it states that the decision
to use the OTA was based ``on significant participation of non-
traditional defense contractors . . . and that two nontraditional
defense contractors, Strategic Perspectives, Inc.(SPI) and Parametric
Technology Corporation's participation is significant and they will
continue to play a significant role in the SDD phase.'' But each of
these contractors is exceedingly small. How does a contractor that has
one employee, like SPI, play a significant role in FCS contract that is
valued at nearly $133 billion?
Mr. Bolton. The Business Decision Document anticipated significant
participation of non-traditional defense contractors during SDD. To
date, only a few non-traditional defense subcontractors are in place
with the LSI but this may increase as additional second and third tier
subcontracts are awarded. The non-traditional defense subcontractors
are all performing Engineering and Technical services at various
levels: 3D Research ($5.7 million), Huntsville, Alabama; Embedded Plus
Engineering ($0.4 million), Tempe, Arizona; Northrop Mission Systems
($121 million), San Diego, California; and TechFinity, Incorporated
($0.2 million), Tarzana, California.
Mr. Francis. The requirements for the use of nontraditional defense
contractors in prototype projects are found in the National Defense Act
for Fiscal Year 1994, P.L. 103-160, section 845, as amended
(subsequently codified at 10 U.S. C. 2371 note). There, the act states:
The Secretary of Defense shall ensure that no official of an
agency enters into a transaction (other than a contract, grant
or cooperative agreement) for a prototype project under the
authority of this section unless
(A) there is at least one nontraditional defense
contractor participating to a significant extent in the
prototype project; or
(B) no nontraditional defense contractor is
participating to a significant extent in the prototype
project, but at least one of the following
circumstances exists:
I. At least one third of the total cost of
the prototype project is to be paid out of
funds provided by parties to the transaction
other than the Federal Government.
II. The senior procurement executive for the
agency . . . determines in writing that
exceptional circumstances justify the use of a
transaction that provides for innovative
business arrangements or structures that would
not be feasible or appropriate under a
contract.
Since the act does not define what is meant by participation to a
``significant extent'' by a nontraditional defense contractor, DOD
guidance defines it in terms of the significance of the contribution by
that contractor, for example as a key participant in the program. The
guidance states:
Examples of what might be considered a significant contribution
include supplying new key technology or products, accomplishing
a significant amount of the effort, or in some other way
causing a material reduction in the cost or schedule or
increase in the performance. \1\
---------------------------------------------------------------------------
\1\ Other Transactions (01) Guide for Prototype Projects, Under
Secretary of Defense for Acquisition, Technology, and Logistics
(January 2001), 11.
The rationale the Army uses for the FCS OTA is based, in part, on
participation by nontraditional defense contractors. As a result of the
OTA, two of these nontraditional contractors--Strategic Perspectives,
Inc. and Parametric Technology Corporation--were carried over from the
concept and technology development phase of the program to assist the
LSI with its responsibilities in system development and demonstration.
The Army considers the expertise that these companies bring to the
program and the importance of the projects they are working on as the
significant contribution that justifies use of the OTA.
According to the Army there are several nontraditional contractors
working in the program at various levels. However, the bulk of the
first tier subcontracts have gone to traditional defense contractors.
40. Senator McCain. Secretary Bolton, what metric are you using to
define the significant participation of a nontraditional defense
contractor in the FCS program?
Mr. Bolton. The Army and the LSI are using the ``Non-Traditional
Defense Contractor'' definition as contained in the Floyd D. Spence
National Defense Authorization Act for Fiscal Year 2001, Section 803.
The Army's Business Decision Document anticipated attracting
nontraditional defense contractors. Early in the SDD program, the LSI
has identified and placed subcontracts with four nontraditional defense
contractors. The expectation was that this would increase as additional
second and third tier subcontracts were awarded. The nontraditional
defense subcontractors are all performing Engineering and Technical
services at various levels: 3D Research ($5.7 million), Huntsville,
Alabama; Embedded Plus Engineering ($0.4 million), Tempe, Arizona;
Northrop Mission Systems ($121 million), San Diego, California; and
TechFinity, Incorporated ($0.2 million), Tarzana, California.
41. Senator McCain. Mr. Francis and Mr. Boehm, what metric should
the Army be using?
Mr. Francis. According to the Army significant participation by the
non-traditional contractors is determined by the value of the
contribution they are making to the program, but not necessarily in
financial terms. This is in accordance with DOD guidance on the use of
non-traditional contractors in other transactions cited above.
While GAO has not evaluated this, our previous work \2\ recommended
to the Secretary of Defense that DOD develop metrics to measure the
quality and significance of the involvement by non-traditional
companies, which justifies use of other transactions. DOD has not yet
done this.
---------------------------------------------------------------------------
\2\ GAO, Acquisition Reform: DOD's Guidance on Using Section 845
Agreements Could Be Improved, GAO/NSIAD-00-33 (Washington, DC: April
2000).
---------------------------------------------------------------------------
Mr. Boehm. While determining exactly what metric should be used by
the Army with respect to defining significant participation of
nontraditional defense contractors in the FCS program is beyond my area
of expertise, I believe it is abundantly clear that the FCS failed to
meet anything remotely close to a reasonable standard. Moreover, Acting
Secretary of the Army Brownlee appears to agree with his statement in
the Institute for Defense Analysis Aug. 2004 study when he stated,
``One intended benefit of OT authority--attracting nontraditional
suppliers--has not been realized to date; the initial round of
subcontracts has gone almost exclusively to traditional defense
suppliers.'' (see: Review of FCS Management Issues, Final Report to
Acting Secretary of the Army Hon. R.L. Brownlee, August 17, 2004, p.
ES-3)
ethics programs
42. Senator McCain. Secretary Bolton, a report, IDA Review of FCS
Management, is critical of the Army's FCS management approach in that
it intermixes government and industry personnel within Integrated
Product Teams and relies heavily on its ``one-team'' partners--Boeing.
The IDA report states ``[t]he Army needs to look after its own
interests on the FCS program and not expect industry participants--no
matter how well intentioned--to act independently of their explicit
contractual obligations and financial interests. . .the inherent
tension in the roles of Army participants--teammate vs. customer
representative, and in the roles of industry representatives--teammate
vs. representative of corporate management and stockholders.'' Has this
critical IDA recommendation been implemented? If not, why not?
Mr. Bolton. The reference of the IDA report left out a portion of
the quote describing the approach which identifies, ``The Army's
management approach intermixes government and industry experts within
Integrated Product Teams (IPTs) and relies heavily on its ``one-team''
partners and Boeing's management information system for information and
analyses.'' It goes on to further acknowledge that this approach does
have advantages. The IDA report suggests additional Army reviews and
coordination of management assessments leading to possibly establishing
additional Army offices. We believe the Army's overall concept for FCS
of using the LSI and one-team approach with the use of IPTs has
significant advantages as well as disadvantages. Although the Army is
looking at organizational restructuring in this area, we believe the
review/management responsibilities given to the Assistant Secretary of
the Army (Acquisitions, Logistics, and Technology)(ASA (ALT)) and the
current Army organizational structure is sufficient to help manage the
program's interface with the LSI and other industry partners.
impact of terminating/restructuring the existing agreement
43. Senator McCain. Secretary Bolton, if Congress were to require
you to terminate the existing agreement and proceed with the program
under a traditional contract, what impact would that have on your cost
and schedule?
Mr. Bolton. If the existing agreement were terminated, the LSI
would be entitled to those allowable costs associated with any
administrative closeout activity (but such costs could not be greater
than current funding obligated to date); and those costs covered by the
``termination'' article of the OTA. We would expect to be able to
overcome most if not all of the costs envisioned by the OTA's
termination article; however, since under this scenario the ending of
the OTA would merely represent the passage of the program to a
successor instrument, rather than a total cessation of work. That is,
we would try to mitigate all cost and schedule impacts by doing some
type of conversion of the OTA to a FAR-based contract, understanding
that this would take an appropriate amount of time to plan, execute,
and complete.
44. Senator McCain. Secretary Bolton, what would be the costs in
dollars and schedule if the Army was directed to include those Federal
Acquisition Regulation clauses we believe would protect the government?
Mr. Bolton. We are currently assessing the cost and schedule
impacts to include the FAR clauses that have been identified with the
LSI. In the event the Army converts the OTA to a FAR-based contract,
clauses such as the TINA, PIA, and CAS FAR will initially be included
in the OTA by modification in less than 30 days, with no additional
cost to add them.
cost accounting standards
45. Senator McCain. Secretary Bolton, I understand that the Army
waived the requirement for the application of cost accounting standards
even though the Army, through the LSI, is contracting with a number of
traditional government contractors. What are the advantages and
disadvantages to excluding the clause for cost accountability?
Mr. Bolton. The CAS are fully covered in the OTA. The primary
advantage of not including the FAR-based CAS clauses in the OTA was
that this action removed a potential flow-down requirement that many
nontraditional defense contractors find onerous. It is for this reason
that the OTA requires CAS-compliant accounting where a CAS-compliant
system already is in place, but permits a system based on GAAP where a
GAAP system is the one in place. This means that a potential commercial
subcontractor would be able to make use of its existing GAAP system,
and would not be faced with the duty to convert to a CAS-compliant
system in order to participate as a subcontractor during FCS
development and demonstration. There is no ``exclusion of cost
accountability'' in the OTA per se: the OTA provides for government
audit of records, and defines cost allow ability per the FAR and DFARS
contract cost principles.
data rights
46. Senator McCain. Secretary Bolton, in March 2003, the Army
approved Boeing's recommendation to assign to it the $1.3 billion
development effort for the FCS Distributed Management System. There is
some question regarding the data rights of the software being developed
in the FCS program. From Army documentation, it appears that Boeing
owns the FCS software and that the Army owns the rights for unlimited
use of the software. Boeing is developing the System-of-System Common
Operating Environment (SOSCOE). It appears that the SOSCOE is new
software developed only with government funds, yet I understand that
Boeing owns the software and the Army has unlimited use of this
software. Is this true? If so, why would the Army give up the ownership
of software for which the government is funding the development?
Mr. Bolton. The government data rights and software rights under
this OTA are essentially the same as we would receive under a FAR-based
contract, except that the government has more ability to control
introduction of limited rights data and restricted rights software than
would be possible in a FAR-based contract.
47. Senator McCain. Secretary Bolton, if the Army wants to migrate
the SOSCOE to other platforms, such as Abrams tanks and Bradley
fighting vehicles, would the SOSCOE be provided to the contractors who
make these platforms as part of government furnished equipment or would
a fee have to be paid to Boeing for the use of SOSCOE?
Mr. Bolton. PM UA will exercise Government Purpose Rights (GPR)
through a SOSCOE distribution agreement between PM UA and receiving
government organizations and their contractors. Boeing is not a party
to this agreement and no fee will be paid to Boeing for license costs
associated with software to which the government has purchased
government purpose rights. This distribution can, at PM UA's
discretion, include source code and the agreement mandates that any
receiving contractor provide any changes made back to PM UA under GPR
to ensure interoperability and configuration management. These changes
are owned by the company making the change, not Boeing, again with the
Army receiving full GPR.
Because of the large number of commercial, off-the-shelf (COTS) and
open source components in SOSCOE, receiving organizations or
contractors will be given the option of signing a license agreement
through Boeing that consolidates the individual license requirements of
the various COTS and open source components. If they choose not to
exercise this option, they will be required to separately negotiate
required licenses to ensure that the receiving organization complies
with the license requirements of all included components.
competition
48. Senator McCain. Dr. Graham, IDA's August 2004 report states,
``At the LSI-level, the OTA agreement laid the groundwork for Boeing to
continue as the LSI through initial production and into full rate
production.'' It goes on to say, ``At the subcontractor level, current
FCS program plans do not position the Army to conduct future
competitions at the major end-item level. . .'' In your opinion, is it
prudent for the Army to position itself to depend on an LSI through the
life cycle of the program?
Dr. Graham. The Army established a Lead System Integrator (LSI) for
the FCS program in order to capitalize on industry expertise in
structuring, integrating, and managing complex development programs. A
conventional prime contractor develops and builds what it can and
subcontracts out work that it cannot do in-house. An LSI, on the other
hand, is a prime contractor that is established primarily for system
engineering, system integration, system planning, and control of the
family of systems production.\4\ In general, the LSI concept has worked
satisfactorily in other contexts, and we have discovered nothing to
indicate such an approach cannot work for the FCS program.
---------------------------------------------------------------------------
\4\ Acting Under Secretary of Defense (Acquisition, Technology, and
Logistics) letter report on DOD's use of Lead Systems Integrators, 31
March 2004. DOD indicates that an LSI is legally equivalent to a prime
contractor.
---------------------------------------------------------------------------
The Boeing-SAIC team was selected to act as the LSI because of its
experience in technical management and program integration. Boeing has
considerable experience in integrating other large complex programs,
including the NASA International Space Station since 1997, and the
Missile Defense Agency (MDA) Ground-Based Mid-Course Defense (GMD)
program since 1998. Both agencies told the IDA review team that Boeing
is technically very good and is doing an acceptable job in executing
their programs.
The decision to partner with an industry LSI creates some special
new management challenges. The LSI is intended to act as a neutral
party in assessing program tradeoffs and in offering advice. Thus, in
theory, the LSI should not have a financial stake in developing and
building the individual elements of the system; rather, it should
recruit and oversee the best of industry. In the case of FCS, Boeing
has a large financial stake in the future of the program, thus creating
an inherent tension in Boeing's roles and responsibilities.
Careful management of the government-industry relationships will be
particularly important in the coming months as key design decisions are
made on the program. The SDD new program plan calls for major design
decisions to be made within the next 16 months, decisions that will
define the contract deliverables and work shares for the remainder of
SDD. Looking to the future production phase, moreover, there are tens
of billions of dollars at stake in upcoming decisions regarding the
composition of FCS units to be fielded beginning in 2014, as well as
the capabilities that will be assigned to each element of FCS. Industry
members of the ``One-team'' will face substantial pressures to vie for
outcomes favorable to their stockholders.
The flexibility built into the FCS program complicates the
challenge of reconciling internal competitive pressures with corporate
Army needs. The DOD customarily has relied on requirements documents to
serve as the external benchmarks to discipline program development
activities, but in this case these documents are being revised in
parallel with ongoing FCS development activities. Thus, although FCS
has an approved ORD and tentative Key Performance Parameters (KPPs),
both the ORD, KPP, and even the FCS O&O remain in development in
parallel with FCS program development.
The need for the government to balance its priorities against
corporate pressures is normal in any acquisition program, but these
challenges are magnified in FCS. The Army needs to develop its own
corporate perspective on FCS matters so that it can understand and
manage the internal competitive pressures, while keeping the program
focused on delivering a coherent set of capabilities for the Unit of
Action.
49. Senator McCain. Secretary Bolton, IDA's August 2004 report
states, ``At the LSI-level, the OTA agreement laid the groundwork for
Boeing to continue as the LSI through initial production and into full
rate production.'' It goes on to say, ``At the subcontractor level,
current FCS program plans do not position the Army to conduct future
competitions at the major end-item level. . .'' Does the Army intend to
compete FCS systems or components as the program transitions to
production?
Mr. Bolton. Yes. The current FCS Acquisition Strategy anticipates
using the LSI approach for Initial Production and Fielding of the
Army's first two unit of action brigades. This is consistent with the
LSI concept of placing full SoS integration and testing responsibility
and all logistical support under one defense contractor. Under SDD, the
LSI will provide prototypes for SoS testing to establish that the
individual systems work in a SoS environment to meet the required
performance capabilities. In order to maintain the SoS performance
capabilities demonstrated and minimize overall program schedule risk,
initial LRIP requirements will be awarded to the LSI and its one-team
partners. Follow on production for additional quantities of individual
FCS platforms is planned to be solicited using full and open
competition, and the breakout of FCS subsystems or components is
contemplated as well, as the program transitions to stable production
designs and full rate production quantities. The Army owns the data
rights it needs in order to execute full-rate production contracts on a
competitive basis.
future combat system restructure
50. Senator McCain. Secretary Bolton, both the Government
Accountability Office and the IDA have issued reports on the FCS
program. Have the study recommendations influenced the FCS restructure?
Mr. Bolton. Yes. The GAO has made a number of recommendations many
of which have had a direct impact on the program transition
(restructure). The GAO is invited and is an active participant in the
FCS program reviews. The same can be said for the IDA evaluation,
although the Army and the program office were already implementing
several suggestions made by the IDA review prior to completion of the
GAO report.
______
Questions Submitted by Senator James M. Inhofe
future combat systems
51. Senator Inhofe. Secretary Bolton, given what you know today,
would you change the approach the Service has embarked on in the
acquisition of FCS, and is it true that we are already looking at ways
to spiral some of these advance technologies into the current force?
Mr. Bolton. At the time we felt the current plan was the best
available option and we probably would still make that determination.
The Army included a requirement to Spiral (PM UA terminology is now
Spin) out available FCS technologies to the Current Force. The Spiral
(PM UA terminology is now Spin) Outs incrementally add FCS capability
every 2 years. In the fiscal year 2008 timeframe, the Army plans to
procure limited quantities of FCS accelerated capabilities, referred to
as Spiral (PM UA terminology is now Spin) Out 1. These FCS accelerated
capabilities consist of the unattended ground sensors, intelligent
munitions systems, non-line of sight-launch system, the first
installment of the future network capabilities that include an
integrated computer system, system of systems common operating
environment and partial FCS Battle Command. The Spiral (PM UA
terminology is now Spin) Out 1 accelerated capabilities will be issued
and installed on selected Current Force systems of the Evaluation
Brigade Combat Team for the test, evaluation, and maturation of these
technologies.
52. Senator Inhofe. General Cody, what are some of these spirals,
and how will they affect our soldiers today and in the near future?
General Cody. The Army remains committed to developing the future
capabilities required to wage warfare in the next decade and beyond. As
operations in Iraq and Afghanistan illustrate, technological and
training superiority is a critical ingredient to battlefield success
and must be maintained into the future. The Army will focus development
efforts on identifying promising FCS technologies and ``spinning''
these enhanced capabilities into the Current Force, so that soldiers
continue to have technological overmatch. The definition of a ``Spin''
is a product or capability set developed through one or more
integration phases that can be fielded to the Current Force. As
capabilities are spun into the Current Force, the Current Force will
inform the Future Force. FCS as a system of systems continues maturing
technologies to address the challenges of the future operational
environment for combatant commanders and warfighters.
The modular BCTs will enjoy the benefit of FCS core systems and
capabilities along with complementary systems through four planned spin
outs of technology into the Current Force. Beginning in 2008 and
continuing through 2014. Spin 1 includes development of the unmanned
ground system (UGS), IMS, and the NLOS-LS prototypes that will be used
in the Evaluation Brigade Combat Team (E-BCT) for testing and
experimentation. Following successful Spin Out capability testing, the
lead Program Executive Office will be responsible for initiation of
LRIP. This process will be repeated for Spins 2, 3, and 4. The Army
plans to Spin FCS technologies at a rate of 6 Brigades per year.
The operational capabilities brought forward to the Current Force
by the ``spinning out'' FCS technologies include enhanced intelligence
surveillance and reconnaissance capabilities utilizing multiple UGS
variants, and increased lethality and survivability by adding the NLOS-
LS and IMS. The FCS UGS program consists of tactical and urban sensors:
Tactical-UGS (TUGS), which includes ISR-UGS and chemical, biological,
radiological and nuclear (CBRN)-UGS; Urban-UGS (U-UGS), also known as
Urban Military Operations in Urban Terrain (MOUT) Advanced Sensor
System these provide soldiers with enhanced situational awareness in
both urban and open environments. The NLOS-LS consists of a family of
missiles and a highly deployable, platform-independent container launch
unit (C/LU) with self-contained tactical fire control electronics and
software for remote and unmanned operations, linking into the network,
this provides unprecedented access to networked fires. The IMS is an
unattended munitions system providing both offensive battlespace
shaping and defensive force protection capabilities. This system
provides on-off capabilities which meet the requirements of the
National Landmine Policy.
53. Senator Inhofe. General Cody, the FCS program is well into its
second year of execution. It recently underwent a complete restructure
to reduce risk and to field a fully-capable unit of action in 2014
instead of 2010. The fiscal year 2006 budget was reduced significantly
from what was projected last year. Does this restructure signal
problems with the program, since the program is only about 5 percent
along in its maturity?
General Cody. No, the FCS program was generally performing within
its cost and schedule performance metrics prior to the restructure. The
intent of the restructure was twofold. First, it reduced developmental
risk by allowing more time for technology maturation and the inclusion
of additional experimentation. More importantly, the restructure
allowed for the Spiraling (PM UA terminology is now Spin) out of
selected FCS technologies to the current force. In essence, this will
bring some of the FCS capabilities to the Army sooner than originally
planned. The fact that the Army has elected to accelerate some aspects
of the FCS program is more due to the success of the program than
problems with it.
54. Senator Inhofe. General Cody, is the FCS being sacrificed to
pay for other Army bills?
General Cody. No. FCS will use evolutionary acquisition to develop,
field, and upgrade FCS throughout its lifecycle. On July 2, 2004, the
Army announced plans to accelerate the delivery of selected Future
Combat Systems to the Current Force. The plan expands the scope of the
program's SDD phase by adding four discrete ``spin outs'' of
capabilities at 2-year increments for the Current Forces. Spin Out 1
will begin fielding in fiscal year 2008 and consist of prototypes
fielded to the E-BCT for their evaluation and feedback. Following
successful evaluation, production and fielding of Spin Out 11 will
commence to Current Force units in 2010. This process will be repeated
for each successive spiral. By 2014, the Army force structure will
include one UA equipped with all 18 + 1 FCS core systems and additional
Modular Units of Action with embedded FCS capability. This is the
centerpiece of this adjustment: providing the Current Force with FCS
capability sooner rather than later.
55. Senator Inhofe. General Cody, what are the benefits to the
restructure?
General Cody. The benefits of the restructure are twofold. First,
it reduces developmental risk by allowing more time for technology
maturation and the inclusion of additional experimentation. More
importantly, the restructure allows for the Spiraling (PM UA
terminology is now Spin) out of selected FCS technologies to the
current force. In essence, this brings some of the FCS capabilities to
the Army sooner than originally planned. The fact that the Army has
elected to accelerate some aspects of the FCS program is more due to
the success of the program than problems with it.
56. Senator Inhofe. General Cody, the Army has several fund-
consuming operations and programs that must compete for your priorities
under this fiscally-restrained budget request for 2006, those being:
the Iraq War, the RESET program, restructuring the force for
modularity, ``ReCap''-ing the current force systems, and the biggest
weapon system in the Army's budget--the FCS. How do you plan to work
out these priorities together since we usually get only one chance to
get things right the first time? How can this committee assist you in
reaching your goals for fiscal year 2006?
General Cody. The strategic goal of the Army is to remain relevant
and ready by providing the Joint Force and all combatant commanders
with essential capabilities to dominate across the full range of
current and future military operations. Since the global war on
terrorism began, the Army has been supported in its efforts through
supplemental funding. These funds have, and continue to, cover
operations in Iraq, Afghanistan, and around the world in support of
global war on terrorism. This support includes resetting our forces
through recapping and reconstitution. Our agreement with the Office of
the Secretary of Defense is to fund our Modular Force restructuring
initiative external to the Army's base budget through fiscal year 2006.
Our expectation is that support for these high priority operations and
programs will be external to the Army's base budget in fiscal year 2006
and will not compete for funds with our Future Combat System program.
Our Future Combat System program remains a priority within the Army as
evidenced by our budget submission and our efforts to accelerate future
force capabilities to our current force.
This committee can help us reach our goals by continuing to support
our requests for funding as you have in the past, both budget and
supplemental. With your continued support and efforts, we will be able
to man, train, equip, and transform our Army to win the global war on
terrorism while preparing for future challenges.
57. Senator Inhofe. General Cody, one possible result of these
hearings about FCS in both the Senate and the House would be to require
that the Army restructure the program once again. Congress could
require the Army to change the existing contracts with Boeing to
provide more protection for the government and make the contract
conform to existing FAR contracting requirements. In your opinion what
affect would such a change have on the program's time-line and more
importantly, what affect would it have on spirals the Army has
identified for the current force?
General Cody. We would try to mitigate all costs impacts and
schedule impacts by doing some type of conversion of the OTA to a FAR-
based contract, understanding that this would take an appropriate
amount of time to complete. The first priority would be to preserve
program schedule to include Spiral (PM UA terminology is now Spin) out
schedules while minimizing cost impacts. This approach is viable given
the facts known today.
non-line-of-sight-cannon
58. Senator Inhofe. Secretary Bolton and General Cody, the Army has
repeatedly stated that NLOS-C is needed in the same time frame Crusader
would have been fielded. Congress passed several laws to make sure we
met the 2008 fielding date. The restructured program does not comply
with the laws passed. Can you explain why, and what is the new plan?
Mr. Bolton and General Cody. The Army intends to comply with law
and provide a ``Crusader-type'' capability to soldiers in 2008. NLOS-C,
as the lead variant of the FCS MGV program, will be fielded ahead of
the remainder of FCS systems. The Army will provide a set of
prototypes--automated, self-propelled, cannons (NLOS-Cs)--to an
Evaluation Force by 2008. By 2014, this Evaluation Force will be
complete with fielding the entire unit of action set of FCS equipment
to include all seven variants of the MGV. This includes replacing the
prototype NLOS-C with 18 production NLOS-C systems (6 each in 2010,
2011, and 2012).
The NLOS-C project is on track to provide this capability. The
NLOS-C Concept Technology Demonstrator funded by Congress in 2003 has
fired over 1,000 rounds in testing and demonstrated the viability of
hybrid-electric propulsion.
The remainder of the MGV program is also on track. The design team
has selected the best technical approach for all seven systems and is
proceeding with SDD. This SDD process is critical to ensure the
commonality of all MGV systems that will dramatically reduce the
current logistics and personnel footprint associated with armored
vehicle formations.
59. Senator Inhofe. General Cody, there has been some talk about
restructuring the program in such a way to push the manned combat
vehicles and other systems even farther to the right by several years.
If such an action were taken and the systems were separated by several
years, it would seem to break this ``system-of-systems'' concept. It
would also jeopardize systems the Army has repeatedly stated that we
need like NLOS-C. In your personal professional opinion, what would
this do to FCS?
General Cody. The program has taken great strides to ensure an
integrated developmental effort for all eight variants within the
manned ground vehicle fleet. The results of this effort will yield the
Army dividends in terms of system of systems capabilities, commonality,
supportability, reliability and life cycle cost. To separate the NLOS-C
from the current MGV family of systems program would result in
significant sub-optimization of the NLOS-C system and also system-of-
system capability relative to the rest of the MGV fleet. In short, the
significant benefits gained in system-of-systems capabilities,
commonality, supportability, reliability and life cycle cost would
effectively be lost as it would apply to a ``break away'' NLOS-C
system. In conclusion, the NLOS-C should/must remain integral to the
MGV family of systems program. The NLOS-C lead the fleet (increment 0)
prototypes will provide one of the most cost effective means to reduce
risk on the MGV fleet, and the follow-on NLOS-C pre-production systems
will serve to begin to prove out the production line for all MGV
systems. Therefore, the NLOS-C is a critical part of the PCS program
and as such needs to maintain a well integrated development, production
and fielding strategy with the other MGV variant systems.
60. Senator Inhofe. General Cody, would the Army need to come back
to Congress and request that NLOS-C or other systems be separately
funded and brought forward?
General Cody. At this time, the Army does not need to request NLOS-
C be funded separately and brought forward. The requirements for NLOS-C
are outlined in the FCS ORD. This ORD clearly identifies NLOS-C as
supporting an FCS MGV-equipped unit of action.
Separate funding also raises programmatic issues. Additional money
would be required to support a separate research, development, test and
evaluation effort that currently gains efficiencies through the FCS MGV
program. Separate overhead costs would be required to manage NLOS-C.
Decoupling FCS also eliminates any commonality benefits with the FCS
MGV program. For instance, lifecycle costs would increase because NLOS-
C would be a separate unique vehicle. While it is true that NLOS-C
could eventually be made common with the rest of FCS, the Army would
end up funding two development programs and the overhead for two
production programs. Conversely, attempting to force FCS to align with
an accelerated NLOS-C schedule would sub-optimize other MGV systems
within FCS. For example the full design maturity of the command,
control, communications, computers, Intelligence, surveillance, and
reconnaissance network would not support an accelerated NLOS-C program.
lead systems integrator
61. Senator Inhofe. Secretary Bolton, it was reported in a February
11 article by Inside Defense that the Pentagon Acquisition Chief,
Michael Wynne, stated that ``having a lead systems integrator for the
Future Combat Systems program has worked out well for the Army.'' The
FCS program seems to be the most complex acquisition program the Army
has ever undertaken and probably the most complicated to ever come out
of the Pentagon. Can you explain to us why you chose to use a lead
systems integrator for the FCS program?
Mr. Bolton. The methodology of employing an LSI was selected for
the FCS program precisely because FCS poses such a highly complex
system-of-systems engineering development challenge, to include the
development and integration of 18 major ACAT 1 weapon systems networked
together to the soldier. Additionally, it requires networked interfaces
with a large number of defense complementary programs, at a minimum of
164 defense systems with potentially over 200 systems, many of which
are still in development. The program also has an extremely challenging
schedule and a fixed RDT&E program budget. The LSI approach is the best
choice to accomplish the Army's transformation goals given what we know
today.
62. Senator Inhofe. Secretary Bolton, how has the LSI performed to
date?
Mr. Bolton. The latest Cost Performance Report (CPR) received on
March 25, 2005, for the accounting period ending February 24, 2005, the
SDD OTA is performing to a cost efficiency of 103 percent cost
performance index (CPI), and a schedule efficiency of 99.2 percent
schedule performance index (SPI). In layman's terms, this means that
the contracting team has delivered $1.03 of performance for each dollar
spent, which means they are under budget, and is very slightly behind
schedule performing 99.2 percent of the efforts planned to be completed
to date. From a critical path perspective, the SDD contracting team is
6 days behind schedule to the next Program Event of System of System
Functional Review scheduled for August 11, 2006; commonly referred to
as 6 days of negative schedule float. This information is reflective of
a recent performance measurement re-baselining of contract activity in
September 2005.
63. Senator Inhofe. Secretary Bolton, the Army has the reputation
for being challenged in managing large complex programs. Several of
your bigger programs have been cancelled recently due to resource
management, creeping requirements, and weak execution. The FCS program
was initiated under a somewhat radical management structure for the
Defense Department with a lead systems integrator--a contractor team.
Are you happy with this organizational authority structure?
Mr. Bolton. Yes.
64. Senator Inhofe. Secretary Bolton, could you change it if the
needs changed?
Mr. Bolton. Yes.
65. Senator Inhofe. Secretary Bolton, how do you keep fundamental
government oversight responsibilities with an LSI?
Mr. Bolton. Fundamentally, the same way that we would discharge our
oversight responsibilities with a traditional prime contractor, except
that using an OTA in some ways allows us closer and more routine
coordination at the working level. The DCMA and DCAA are fully
integrated in the day-to-day oversight management of the LSI.
Additionally, the Government Accountability Office (GAO) and
independent reviewers like the IDA are invited to participate, and have
been active participants in program management and technical reviews.
The program conducts formal program milestone reviews with OSD on an
annual basis, and the government program manager, who is collocated
with the LSI in St. Louis, Missouri, conducts program reviews on a
quarterly basis. The LSI program manager conducts a weekly update
meeting, with government participation. There are also quarterly
congressional updates, primarily focused on budget, which utilize data
provided by the LSI's Earned Valued Management (EVM) system. EVM system
is implemented in the OTA in accordance with the OSD and industry-
accepted EVM criteria reflected in the DOD adopted ANSI Standard for
EVM systems. Additionally, the program has instituted a highly
collaborative process for maintaining the integrity of the Performance
Measurement Baseline (PMB), with surveillance of the contractors' EVM
systems, tying the EVM information directly to the budgetary
requirements, and reporting the program's performance to the Department
of the Army (DA), OSD, and Congress.
66. Senator Inhofe. Secretary Bolton, while it is early in the
program, are you satisfied with its progress?
Mr. Bolton. Basically yes. The contractor is 3 percent under
budget, and essentially on schedule (see response to #62). However,
this assessment must be tempered with the fact that the contract was
restructuring in September 2005. As a result of this restructure, the
Performance Measurement Baseline required restructuring as well to
reflect the restructured technical approach, and a congressional
reduction of $286 million to the 2005 President's budget. Resulting,
the work scheduled and work performed was set equal to the actual costs
as of Boeing's accounting period ending August 2005. The net effect of
this accepted EVM practice (resulting from a major rebaselining
activity) is that the historical cost and schedule variances as of
month ending August 2005 was set to zero. So, cumulative performance to
date reflects data only back to that transition date of 1 September
2005.
67. Senator Inhofe. Secretary Bolton and Mr. Francis, the Army put
Boeing under an OTA contract for FCS, and also made Boeing and Science
Application International Corporation (SAIC) the lead systems
integrators for FCS. In general, these OTAs are not governed by Federal
acquisition laws and regulations that apply to contracts, grants, or
cooperative agreements. Your institute conducted a study on the FCS
management last year to include practices which could impact on the FCS
program development efforts. Would you please explain why an OTA was
used for this billion-dollar program?
Mr. Bolton. The Army leveraged an existing option from the DARPA
CTD OTA. Under that OTA, a best value competitive source selection was
conducted by DARPA with Army participation and the current LSI, Boeing,
was selected. Significant competition exists at the first and second
tier contract level including 23 highly competitive source selection
best value awards made by the LSI for which the Army had review and
final approval. These awards were made by the LSI without a single
protest. Again, we chose the LSI approach because the FCS UA poses a
highly complex system-of-systems engineering development challenge,
representing 18 major Acquisition Category (ACAT) 1 major weapon
systems networked together to the soldier. Additionally, it requires
networked interfaces with a large number of defense complementary
programs at a minimum of 164 defense systems with potentially over 200
systems, many of which are still in development. The program also has
an extremely challenging schedule and a fixed RDT&E program budget. An
OTA gave us the flexibility to use FAR rules and requirements where
they made sense, while varying from the traditional FAR framework where
we felt it would have represented a barrier or impediment to successful
FCS development. This OTA offers flexibilities we thought we needed for
a program this complex and added certain FAR clauses for protection.
Mr. Francis. According to DOD's latest Annual Report on Cooperative
Agreements and Other Transactions, the FCS OTA allows two
nontraditional defense contractors to transition from the concept and
technology development phase to the current system design and
development phase. These contractors provide systems engineering;
advanced simulation technology; as well as design, development,
implementation and support of the Advanced Collaborative Environment.
In addition, DOD reported that the FCS program requires an
unprecedented level of interaction, cooperation, and collaboration
between the government, the LSI, and the subcontractors that could not
otherwise be achieved with a FAR contract. An Army official also noted
that the OTA was primarily used to maintain focus on the system-of-
systems integration of the program. The Army has since reconsidered its
position and has decided that it can carry out the FCS program under a
FAR contract.
68. Senator Inhofe. Mr. Francis, do you think we will see more of
the OTAs and also lead systems integrator management contracts for
government programs in the future?
Mr. Francis. Other transactions began as instruments for basic,
applied and advanced research projects sponsored by the Defense
Advanced Research Projects Agency. Since then, Congress has steadily
expanded the legal authority for OTAs so that they may now be used by
military departments, other agencies, and on a limited basis for
production. They have served as a contracting instrument for efforts
with varied sizes and scopes, including a $400,000 research project
with a university team working to reduce aerospace vehicle system life-
cycle costs and the $21 billion agreement with Boeing to develop the
Army's FCS. In short, other transactions are permissible for a larger
number of government organizations and purposes than when the law was
first passed. Moreover, for prototype projects, the law does not limit
the dollar value of the transaction or the complexity of the
transaction, provided it is a prototype project that is directly
relevant to weapons or weapon systems proposed to be acquired or
developed by DOD, or to improvement of weapons or weapon systems in use
by the Armed Forces. We have not estimated DOD's likelihood of using
OTAs in the future. However, given the trend of increased use and
application, it is not improbable that DOD will continue using OTAs for
future programs.
With regard to the increased use of LSIs, as defense acquisition
programs have increased in scope and complexity over the last 30 years,
prime contractors have increasingly been given more responsibility in
managing those programs. Sometimes these prime contractors are called
LSIs and other times they are still called prime contractors.
Regardless of what they are termed, if acquisitions continue to be as
complex as recent systems and the acquisition workforce lacks the
expertise and size to manage these systems, there is a likelihood that
prime contractors will continue to play an increased program management
role.
69. Senator Inhofe. Mr. Francis, what are some other OTA or LSI
programs that your agency has reviewed? I would appreciate your
thoughts.
Mr. Francis. To date, GAO has done work on the Missile Defense
Agency's Ballistic Missile Defense System (BMDS) program, which is
under an OTA with Boeing as the lead for the national team developing
that architecture. In addition, GAO has reviewed the ground-based mid-
course Defense element of BMDS. Boeing was the LSI for that contract,
but recently the company was re-designated a prime contractor.
Three additional programs GAO has reviewed are the Coast Guard's
Deepwater program, the Navy's DD(X) Destroyer program, and NASA's
International Space Station program. None of these programs uses an
OTA. Integrated Coast Guard Systems is the LSI for Deepwater. Although
Northrop Grumman is not termed a LSI for the DD(X) program, our work
suggests that Northrop's responsibilities in that program are very
similar to what are commonly considered LSI responsibilities.
Similarly, Boeing is actually called a prime contractor for the
International Space Station, but it has significant program management
and integration responsibilities.
70. Senator Inhofe. Mr. Francis, when you testified before the
House Armed Services Committee last April, you thought the FCS program
as it was last year was risky and because of that you recommended that
the Army should add time to the FCS acquisition schedule and to take
the time to develop and demonstrate the most critical capabilities
first, such as the FCS network. The Army seems to have listened to you
and in July of last year, the Army Chief of Staff directed that the FCS
program be restructured. They added nearly 3 years to the schedule and
have placed a priority on maturing certain technologies like the
Network. Another observation you made in that hearing was that ``in
order to manage the multitude of tasks associated with the FCS
acquisition, the Army chose the lead system integrator approach to
capitalize on industry's flexibility.'' Can you give us your assessment
of whether or not the new, restructured program is more likely to be
successful now and also give us your assessment of how this LSI program
management is working out?
Mr. Francis. In last year's restructuring of the FCS program, the
Army added more time to the program--a delay of as much as 4 years to
develop and mature the manned ground vehicles. This was a positive
step, but probably necessary in that it was highly unlikely that the
program could support the earlier date from a technical or cost
standpoint. The restructure also accelerated the development and
demonstration of the network. Focusing first on the development of the
network is, again, a good step. However, the restructure did not
address our primary concern--the lack of a match between the program's
resources and requirements. For example, the revised schedule still
depends on immature technologies. Also, the program also added a
sizable amount of scope to the program--the new spirals to the current
force and the addition of the previously-deferred systems. This
additional scope added both technical and cost risk to the program. In
addition, key areas like defining requirements and developing network
technologies have progressed more slowly than planned. These factors
impair making accurate cost and schedule estimates and thus the program
still retains significant risk for being able to deliver promised
performance within estimated resources.
It is too early to know how the FCS LSI program management
structure is working. Our informal observations are that the FCS LSI
structure allows for a number of potential efficiencies, but that it
also carries a number of potential risks. Among the potential
efficiencies is the LSI's overarching responsibility to know,
understand, and integrate functions across the various FCS platforms--
instead of focusing on one ``stovepiped'' platform at a time, as has
often been the case in the past. This is particularly important in that
the LSI has the ability to facilitate movement of requirements and make
trade-offs across platforms. However, the extent of contractor
responsibility in every aspect of the FCS program management process,
including responsibility for making numerous cost and technical trade-
offs and for conducting at least some of the subcontractor source
selections, is also a potential risk. As an example, many of the LSI
subcontractor source selections are for major weapons systems that, in
other circumstance would have been conducted by an Army evaluation
team, an Army contracting officer and a senior-level Army source
selection authority. These decisions, including procurement decisions
for major weapons systems, are now being made by the LSI with Army
involvement. This level of responsibility, as with other LSI
responsibilities in the program management process, requires careful
government oversight to ensure that the Army's interests are adequately
protected now and in the future. While we understand that the Army has
a number of oversight processes in place, we have not yet evaluated
them to know how well they are working.
71. Senator Inhofe. Dr. Graham, you spent a considerable amount of
time looking not only at the use of an OTA contract but also at a
myriad of FCS management issues. Can you explain to us some of the
safeguards that are built into this program to prevent conflict of
interests or any unethical program management issues?
Dr. Graham. Formal ethics programs, whether in the government or
industry, cannot guarantee that every participant in the FCS program
will behave appropriately; sound policies, attention to execution, and
continued vigilance, however, can help to reduce the likelihood of
future violations while demonstrating an organization's due diligence
in acting to preclude problems. Army officials, Boeing Headquarters,
and the FCS LSI organization within Boeing were highly sensitive to the
need to minimize managerial distraction and potential disruption to the
FCS program that could result from adverse publicity or legal action
resulting from ethics and related problems. The IDA review examined
Boeing's ethics initiatives in some depth, looked briefly into the
ethics programs in the other companies involved in FCS, and considered
government workforce ethics issues as well.
Boeing's ethics program has been in the public eye due to ethics
violations unrelated to the FCS program. Such violations led to
Boeing's debarment from the Air Force's EELV program, and to a series
of rather exhaustive external reviews performed over the last 2 years.
One, ``The Boeing Company: An Assessment of the Ethics Program,'' was
performed by the Ethical Leadership Group at the request of the Air
Force.\5\ Former Senator Warren Rudman performed two additional ethics
reviews at the request of Boeing.\6\ R. William Ide, a former president
of the American Bar Association, conducted a third review that focused
on Boeing's legal department.
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\5\ Ethical Leadership Group, Wilmette, IL, October 2003.
\6\ Paul, Weiss, Ritkind, Wharton, and Garrison, LLP, ``A Report to
the Chairman and Board of Directors of the Boeing Company Concerning
the Company's Ethics Program and its Rules and Procedures for the
Treatment of Competitor's Proprietary Information,'' (Washington, DC:
November 3, 2003) and ``A Report to the Chairman and Board of Directors
of the Boeing Company Concerning the Company's Policies and Practices
for the Hiring of Government and Former Government Employees,''
(Washington, DC: February 26, 2004).
---------------------------------------------------------------------------
These reviews highlighted some common strengths and weaknesses
within Boeing's approach to corporate ethics. Boeing long had policies
in place and a strong reputation for ethical behavior, but, following
significant expansion through several major corporate takeovers in the
1990s, lapses occurred. The external reviewers found Boeing's ethics
activities to be under-strength, integrated too closely with the
business and operating units, too narrowly focused, and not
sufficiently aggressive in addressing issues. The Ethical Leadership
Group noted that more than 90 percent of Boeing employees participating
in their study were aware of the Boeing Ethics Hotline; however, a
significant percentage of those same employees also felt that
complaints would not be acted upon thoughtfully, in a timely manner,
and worse, would subject the complainant to retaliation.
In response to the recommendations of these reviews, Boeing
management has taken steps to strengthen needed enforcement mechanisms,
provide stronger awareness of the company's commitment to ethical
behavior, and strengthen the mechanisms for reporting and investigating
potential violations (see Table).
The FCS program independently embarked on its own ethics training,
in large measure driven by FCS subcontract management processes. For
example, Boeing established a Tier 1 subcontracting process in which
government and Boeing subject matter experts (SMEs) entered a
physically and electronically ``fire-walled'' arena to evaluate
multiple subcontract proposals. LSI employees assigned to the
subcontractor selection process were informed that their employment
choices within the program could be limited for up to one year from the
last date on which they handled potential subcontractor proprietary
information to ensure against any potential conflict of interest at the
time of subcontractor selection, or into the future.
Boeing and the Army negotiated a set of additional firewall
arrangements to permit the flow of contractor proprietary data to and
from the FCS program to ensure technical coordination and effective
interoperability with complementary systems.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
One particularly sensitive issue is the Boeing system for hiring
former government employees into the FCS program. The Rudman review
found that, contrary to Boeing policy, the company did not have
government advisory letters on file for every former government
employee. Boeing told IDA that they are beginning to screen the files
of former government officials within its Integrated Defense Systems
arm to identify potential conflict of interest issues. This includes
identifying cases where conflict of interest advisory opinions are
missing. We understand that Boeing is asking former government
employees to ensure their personnel file includes a conflict of
interest opinion. In addition, the IDA team asked whether Boeing had
copies of disqualification letters that may have been issued to former
government employees. The FCS program had not requested copies of these
letters from Boeing, but seemed receptive to the idea.
We also asked Boeing how it intended to address the Rudman
recommendation regarding tracking employees that may bring with them
potential conflict of interest issues. As noted in Table 4, Boeing
indicated that the program is in the process of creating a personnel
mechanism for the FCS program that will allow employees with potential
conflict of interest exposure to be flagged and tracked. This system is
critically important because the ability to manage the movement of
people into, out of, and within FCS is critical for maintaining the
firewall protection of sensitive and proprietary information.
FCS Tier 1 subcontractors who work with the government on other
programs have formal systems of business ethics, procurement integrity,
and information protection (export control, proprietary information,
etc.). IDA reviewed the formal documentation for their programs, but
time and resources did not permit a more in-depth assessment. While the
public eye has been on Boeing in recent months, it would be valuable
for the Army to also verify that the other subcontractors' programs
have incorporated pertinent lessons learned from the external reviews
of Boeing's ethics programs.
On the government side, the Army has taken specific actions to
address challenges associated with implementing the ``One-team''
management approach. The Tank and Automotive Command (TACOM) appears to
have guidance in place on all the key issues of ethical conduct and
preservation of procurement integrity that are likely to arise in the
course of the FCS program.
The TACOM program has four main thrusts:
Ethics training covers all TACOM personnel, leaving
the subject of specific annual training to the discretion of
the local commands. This year, TACOM is insisting that all
personnel receive personal instruction with a live instructor
in a classroom or lecture hall environment. Because of the
prevalence of two-income families and the possibility that a
TACOM employee family member might work for a TACOM prime or
subcontractor, training focuses on conflict of interest issues.
TACOM lawyers counsel every employee on potential
conflict of interest issues when they leave government service.
In addition, the ethics adviser will, upon request, prepare an
ethics advisory letter identifying areas of potential ethics or
conflict of interest concern for employees seeking work in the
private sector. This letter may be obtained any time subsequent
to leaving the government, so employees who change jobs can
always go back to TACOM for a letter; however, such letters are
not mandated by the government. Letters of disqualification are
also provided when TACOM officials find it necessary to recuse
themselves from dealing with an acquisition matter while
concurrently interacting with a potential or current contractor
regarding employment or other matters.
The ethics adviser and acquisition staff have
addressed matters of concern regarding ethical conduct and
procurement integrity arising out of the ``One-team'' approach
used in the FCS acquisition. Training is provided to address
such issues as gifts, ride-sharing, and protection of
government property, and proprietary and competition-sensitive
information. It also addresses larger issues of procurement
integrity and the need for government participants in IPT
processes to adhere to their specific charters.
The Grants Officer has provided specific instructions
to each Grants Officer Representative and Grants Officer
Technical Representative (approximately comparable to a
Contracting Officer's Representative and Contracting Officer's
Technical Representative). These instructions identify actions
on the part of a government IPT member that could result in a
constructive change to the LSI OTA agreement. The Grants
Officer requires each government IPT member he or she appoints
to complete formal training within a year of appointment.
The IDA review concluded that Boeing is taking demonstrable steps
to ``recapture the trust of its customers'' following disclosures of
its prior ethics violations on matters unrelated to the FCS program.
IDA did not audit execution at Boeing, and while we have reviewed the
formal documentation for several of the major FCS subcontractors, their
programs have not been scrutinized during our review in the same depth
as have Boeing's. The IDA report therefore recommended some additional
steps.
______
Questions Submitted by Senator Lindsey O. Graham
assault rifles
72. Senator Graham. Secretary Bolton and General Cody, over the
past few months, United States Special Operations Command (USSOCOM) has
selected a new assault rifle system. The process followed by USSOCOM in
making that selection seems like a model of responsible, efficient, and
fair acquisition procedures--clearly based on full and open
competition--beginning with the pre-solicitation notice issued in
October 2003 and continuing through the contract award announced in
November 2004. The Army, on the other hand, seems committed to a very
different process, one that has relied on sole-source contracting with
a German company, rather than full and open competition, in selecting
its new assault rifle system. Why has the Army decided in favor of
sole-sourcing a program of this magnitude and against full and open
competition?
Mr. Bolton and General Cody. Senator Graham, the Army is in fact
pursuing a full and open competition for the Objective Individual
Combat Weapon Increment 1 (OICW 1) family of weapons. Based on the
requirements that have emerged from Operation Iraqi Freedom and
Operation Enduring Freedom, the Army approved an updated OICW 1
Capabilities Development Document (CDD) on October 19, 2004. The CDD
calls for a family of weapons that will have high degree of
commonality, enhanced capabilities, and much higher reliability than
our current weapons. The family will be comprised of Special Compact,
Carbine, Designated Marksman, and Light Machine Gun.
Subsequent to the approval of the CDD, the Program Office issued a
Sources Sought Notice on November 5, 2004, for the OICW 1 family of
weapons. The Notice invited contractors to submit a written report on
their capabilities to meet the Key Performance Parameters for the
family of weapons as well as provide a video of those capabilities.
Based on an independent team's review of the numerous submissions, the
Army has determined that a full and open competition is the best way to
obtain a Non-Developmental Item (NDI) solution to the CDD's
requirements. A pre-solicitation notice was issued on March 5, 2005,
and the Program Office issued a Draft Request for Proposals on April 1,
2005. After the final Request for Proposals is issued on or about May
6, 2005, an independent Source Selection Authority and Source Selection
Evaluation Board will conduct the evaluation process. The winner of
this competition will be awarded the contract to build this new family
of weapons.
73. Senator Inhofe. Secretary Bolton and General Cody, after
spending more than 10 years and in excess of $30 million on the XM8,
last year the Army's budget submission included a line-item request for
$25.9 million for approximately 7,000 XM8 assault rifles. Congress
declined to appropriate any funds for that program. Now it appears that
this year the Army is attempting to obtain funding to continue the
program but has not submitted a line-item budget request; how much does
the Army plan to spend on the XM8/OICW program in the next year and
from what account would these funds be appropriated?
Mr. Bolton and General Cody. Senator Graham, the Army requested
$25.9 million in the fiscal year 2005 supplemental to accelerate the
fielding of the OICW 1 kinetic energy sub-component as part of its
modularity request. The committee marks were House Armed Services
Committee (HASC) - $25.9 million, Senate Armed Services Committee
(SASC) - $13 million, House Appropriations Committee--Defense (HAC-D) -
$25.90 million and the Senate Appropriations Committee-Defense (SAC-D)
- $13 million. The final budget did not include Army modularity funding
(including OICW 1) due to higher priority funding requirements. The
Army maintained the Milestone C decision in fiscal year 2005 and
planned to start fielding the OICW 1 kinetic energy sub-component in
fiscal year 2006. The fiscal year 2005 budget supported by the
President and Congress included $21.8 million for research,
development, test and evaluation funds to support both the OICW 1
kinetic energy and OICW II airburst weapon subcomponents, and $500,000
weapons and tracked combat vehicles (WTCV) funds to support initial
production of the OICW 1 kinetic energy subcomponent. The fiscal year
2006 President's budget submission includes $32.5 million in WTCV
funding for the fielding of the OICW 1 family.
74. Senator Inhofe. Secretary Bolton and General Cody, given the
history of this program, why has the Army now decided that U.S.
companies wanting to compete will be given only 60 days to submit their
prototypes?
Mr. Bolton. Senator Graham, based on market research, the weapon
system maturity cited in the written responses, and the videos of the
weapons firing from the Sources Sought Notice, multiple contractors
have completed design work. A complete design and build cycle in small
arms can be completed in 90-120 days. Therefore, a 60-day response time
for a NDI solution is appropriate.
______
Questions Submitted by Senator Joseph I. Lieberman
science and technology to support future combat systems
75. Senator Lieberman. Secretary Bolton, I understand that the
Army's science and technology request in fiscal year 2006 for combat
vehicle research programs supporting FCS has been reduced by $60
million relative to fiscal year 2005 levels and is programmed to
continue to reduce in future years. Additionally, DARPA's investment in
research to support FCS will decline from over $100 million in fiscal
year 2006 to $21 million in fiscal year 2007. Given the fact that these
science and technology (S&T) programs have successfully transitioned a
number of technologies into the FCS program and are showing great
promise to develop new capabilities for future spirals of FCS, why are
we reducing these S&T investments?
Mr. Bolton. The reduction in Army S&T funding for combat vehicle
technology between fiscal year 2005 and fiscal year 2006 reflects the
scheduled completion of several major technology demonstrations during
fiscal year 2004 and fiscal year 2005 that were accelerated (with
additional funding) to meet critical FCS decision timelines. The fiscal
year 2006 President's budget funding request for advanced combat
vehicle technologies has returned to its previous level and is
considered sufficient to support the fielding of FCS in 2014 as
currently scheduled. The Army maintains a substantial S&T investment
profile across the Future Years Defense Program to develop and mature
key enabling technologies foe combat vehicles in areas such as advanced
lightweight armor, advanced propulsion systems, advanced power
electronics, and advanced active protection systems. The Army S&T
program continues collaborations with DARPA to solve tough challenges
to mature technologies for advanced sensors, communications, UAVs, and
mobile networks. These technologies will provide additional
capabilities for FCS beyond threshold capabilities and for other
systems.
76. Senator Lieberman. Secretary Bolton, what technological risks,
in which specific systems, are we taking on by reducing our investments
in risk-reducing science and technology programs?
Mr. Bolton. S&T programs have always provided risk reduction
initiatives for program managers by providing technology options that
increase their probability of success in fielding a more capable
product to the warfighter. Reducing S&T investments does result in loss
of opportunities to define and transition technologies which must be
balanced within the current resource constrained environment the Army
finds itself. S&T investment in the fiscal year 2006 President's
budget, while it is constrained, is robust enough to provide sufficient
options for Future Force capabilities with acceptable technological
risk.
defense advanced research project agency urban area operations research
and future combat systems
77. Senator Lieberman. Secretary Bolton, I understand that DARPA is
maintaining a significant investment in technologies to support urban
area operations. Since it is very likely that FCS technologies will be
operating in urban environments, how is the Army coordinating
investments in urban area operations with DARPA to ensure that the
DARPA systems being developed can be integrated with FCS systems?
Mr. Bolton. The Army is engaged in continuous dialogue with DARPA
to leverage their investments for applications that may satisfy Army
problems. This includes our awareness of DARPA's focused investments on
urban operations technologies. Likewise, DARPA often uses the technical
expertise of the Army's Research, Development, and Engineering Centers
and Laboratories to implement and support their technology efforts. The
Army Deputy Assistant Secretary for Research and Technology and the
Program Manager for the FCS unit of action regularly meet with the
Director of DARPA to help shape the content and monitor progress of
DARPA's technology investments.
future combat system networking and communications technologies
78. Senator Lieberman. Secretary Bolton, the key to the FCS systems
is the network and communications technologies that will provide the
backbone for future network centric operations. A number of programs
that are not specifically part of FCS are vital to its future
operational utility--including JTRS, WIN-T, and the distributed common
ground system-Army (DCGS-A). What is the status of the development of
these systems?
Mr. Bolton. JTRS Cluster 1 is currently in the SDD phase. The
program has experienced significant cost and schedule growth (due to
the technology, packaging, and security issues as discussed in item
18). In order to stabilize the program, the Under Secret of Defense for
Acquisition, Logistics and Technology, (USD AT&L) has issued a partial
Stop Work order, which directs the Program Manager to baseline the
program status via conduct of an Early Operational Assessment (EOA).
This EOA will be initiated this month (April 2005) at Fort Huachuca,
using JTRS Cluster 1 Pre-Engineering Development Models (Pre-EDMs). USD
AT&L has also directed the newly appointed JTRS Joint Program Executive
Office (JPEA) to conduct an independent assessment of the Cluster 1
program.
JTRS Cluster 5 has recently entered the System Design and
Development phase. It provides radios to support users, including
Landwarrior, UGS, IMS, UGVs, and UAVs. A System Requirements Review was
conducted on April 6-7, 2005. Schedule synchronization is ongoing to
accelerate early deliverables.
WIN-T is currently in the System Design and Development phase. WIN-
T completed a System Design Review in January 2005. WIN-T via the Point
of Presence will provide reach (inter-UA) and reachback (UA to UEx/y)
capabilities for FCS. WIN-T components may require SWaP reductions in
order to be used within certain FCS platforms (e.g., Class III/IV UAV).
DCGS-A acquisition approach was approved last fall by the Army
Capabilities Review board. DCGS-A Spin Outs 1-3 are complete, providing
improvements to systems and troops engaged in the global war on
terrorism. The DCGS-A mobile configuration, enabled through Spin Outs 4
and 5, will begin fielding in fiscal year 2008 and reach Initial
Operational Capability in fiscal year 2010.
79. Senator Lieberman. Secretary Bolton, how are their development
schedules integrated with the development and deployment plans of FCS?
Mr. Bolton. JTRS and WIN-T (Point of Presence) are integrated radio
systems into the PCS program and are therefore fully integrated into
the PCS system schedule. DCGS-A development and deployment schedules
have been aligned to provide synergy with Spiral (PM UA terminology is
now Spin) fieldings. The JTRS Cluster 1 fielding schedule originally
supported TOC-to-TOC requirements for the Stryker Brigade Combat Teams,
as well as Aviation Recapitalization requirements. It is being revised
to more closely align with the PCS Spiral (PM UA terminology is now
Spin). Out requirements, and will be documented in the Army JTRS
Migration Strategy, due in May 2005. JTRS Cluster 5, as an integrated
component within FCS platforms is aligning with PCS program
requirements. WIN-T fieldings are currently planned to be independent
of, but initiated prior, to PCS Spiral (PM UA terminology is now Spin)
1 fielding.
80. Senator Lieberman. Secretary Bolton, what are you doing to
ensure that JTRS, WIN-T, and DCGS-A are going to be compatible with
joint operations (i.e. interoperable with the other Services)?
Mr. Bolton. The FCS Program Office has established an
organizational structure that addresses coordination and
interoperability. Each program Project Office is collocated with the
FCS sensor and communications teams. Coordination with JTRS, WIN-T, &
DCGS-A is performed at the engineering staff as well as monthly/
quarterly director meetings.
Both JTRS Cluster 1 and ITRS Cluster 5 will only utilize waveforms
certified by the ITRS program's Joint Test and Evaluation Laboratory
(ITeL). These waveforms will run on all JTRS Clusters (to include
Cluster 2 (SOCOM/USMC) and Cluster AMP (U.S. Navy/USAF). The WIN-T
program, although not a joint Services program, will also run JTeL
certified waveforms.
All Services' DCGS development efforts are under a 2003 Defense
Acquisition Board mandate to adopt the DCGS Integration Backbone to
enable joint, network-centric support to the warfighter. The Services'
material developers are cooperating under the guidance of the Under
Secretary of Defense (Intelligence)-chartered DCGS council and have
formed a Multi-Service Execution Team. Further, operational experts
from each of the Services are supporting Joint Forces Command in
developing the Joint DCGS Concept of Operations.
force generation, force size, and organizational structure
81. Senator Lieberman. General Cody, I understand that Army
analyses and gaming have identified a need for up to 20 brigade combat
teams to be deployed at any one time as a steady state requirement,
plus an ability to surge to 40-43 to effectively support the 2004
National Defense Strategy and the National Military Strategy. What
effect do you expect the 2005 Quadrennial Defense Review to have on
Army organizational and force generation concepts?
General Cody. The congressionally-mandated Quadrennial Defense
Review (QDR) belongs to the Secretary to Defense (SECDEF) and the Army
is fully committed to working with the SECDEF in conducting the QDR
consistent with the priorities established by the President. It is too
early in the QDR process to talk about specific insights or results.
The four focus areas for the review, analysis, and discussion among the
Department's senior leadership could impact Army organizational and
force generation processes. That being said, we feel the Army modular
design as the basic building block for the Army is the right way to go.
Finally, the Army has already taken lessons learned from Operations
Iraqi Freedom and Enduring Freedom and realigned force structure (less
artillery and more engineers for example) as well as Active and Reserve
component rebalancing.
82. Senator Lieberman. General Cody, is the Army plan for size and
structure of the force appropriate for the types of operations it has
been performing if it must do so again in the mid-term? If yes, do you
think the Army can simply ``scale up'' to meet the mission requirement
if the contingency is a Pakistan or Iran scale of contingency in size
and complexity that lasts for several years?
General Cody. The Army is in the process of transforming and
reorganizing to meet the types of operations and requirements it
anticipates supporting in the future. The Army has shown through its
support of wars in Afghanistan, Iraq, and numerous lesser contingencies
that it is flexible in its ability to adapt to changing circumstances
and requirements. In other words, the Army is inherently a ``scalable''
force able to adapt to the changing global environment. Furthermore the
Army is incorporating lessons learned from fighting the global war on
terror as it restructures its force to meet anticipated future
requirements. The upcoming Quadrennial Defense Review will provide
additional guidance and insights that will ensure that the Army's
emerging force structure aligns with the Nation's strategic objectives.
83. Senator Lieberman. General Cody, it is critical to have a
rotation base that allows sustained commitments without over-stressing
the force or severely understaffing the critical training base. Many
analysts are now questioning whether a ``three-to-one'' rotation base
is adequate, with some saying ``four-to-one'' or even ``five-to-one''
is necessary. Your 43 brigade construct together with the Reserve
component will barely meet a ``three-to-one'' rotation base and expects
lengthy mobilizations of the Reserve component to do that. I question
whether the Army's position about a temporary 30,000 end strength
increase even fills 43 brigades let alone what would be needed for more
brigades. Does the Army believe this end strength and number of
brigades maintains a ``three-to-one'' rotation base for a contingency
requiring 20 plus brigades for 4 or 5 years? If not, what size and
types of organizations are you studying as possible alternatives? How
much more end strength would be required?
General Cody. The temporary 30,000 increase allows the Army to
continue to transform while it sustains its current level of
operational commitments. Once our restructuring efforts are completed,
we will be able to sustain a similar level of global commitment for a
period of 4 to 5 years. Achieving this capability will require
continued, predictable access to our Reserve component forces.
84. Senator Lieberman. General Cody, does the Army program
adequately support the force size and composition needed now and 10
years from now? If not, how much more table of allowance is required?
General Cody. The current program and temporary 30,000 end strength
increase in our force allows the Army to transform while sustaining
current operational commitments. Once complete, our restructuring
efforts will allow us to sustain our operational commitments for
several years provided we have assured predictable access to Reserve
component forces. It is uncertain what our force requirements will be
10 years from now.
modularity
85. Senator Lieberman. General Cody, the Army's original estimate
for its addition of 10 brigades to the Active Force and the
reorganization into modular brigade combat teams was about $28 billion.
Analysts outside the Army estimate that it will cost $70 billion to $90
billion. It would appear that currently the Department of Defense has
only identified $48 billion for that restructure, in the near term
paying for it through the supplementals, and starting in fiscal year
2007 and through fiscal year 2011 at $5 billion a year in the base
budget. How much do believe the Army restructure will cost?
General Cody. The short term cost to build the Army Modular Force,
to include 77 BCTs is fairly well defined and has widespread support to
be resourced through the Army base program and supplemental dollars.
The Army estimates the costs to transform to a Modular Force at $48
billion. This includes procurement of equipment, requisite
infrastructure, sustainment and training. Not included in the Army
Modular Force cost is an estimated $16 billion in fiscal year 2006-2011
for the fully burdened personnel costs of the temporary 39,000 end
strength increase to support both the operational requirements for the
global war on terror and the Army Modular Force transformation. The
Army anticipates supplemental or over guidance support to fund the end
strength increases.
Of the $48 billion to transform to the Army Modular Force, the Army
base program will fund $38 billion: a combination of $13 billion
reprogrammed for fiscal year 2006-2011 and an additional $25 billion
provided in the President's 2006 budget for fiscal year 2007-2011. Army
anticipates that supplementals will fund $10 billion for Modularity in
fiscal year 2005 and fiscal year 2006.
The Army is committed to provide the Army Modular Force within
these available resources at the specified temporary endstrength level
within the timeframe specified by the Army Campaign Plan. However, the
long-term costs to sustain and operate the Army Modular Force are not
fully known. Long-term costs will be a function of many known and
likely unknown, factor current operations in Afghanistan and Iraq and
future operations worldwide in support of the global war on terror,
will continue to inform the Army on the long-term costs of the Army
Modular Force. In addition, pending basing decisions, final unit
designs and the Quadrennial Defense Review outcomes will all factor
into the cost of the Army Modular Force.
86. Senator Lieberman. General Cody, is that cost covered in the
fiscal year 2005 supplemental and in the base budget? How much will you
need in a fiscal year 2006 supplemental to meet that requirement? How
much will you need in supplementals beyond fiscal year 2006? There have
been reports that you believe you will need supplementals for 2 full
years after redeployment from Iraq.
General Cody. Yes, $5 billion of that cost is covered in the fiscal
year 2005 supplemental for investment items. We have realigned a
portion of the fiscal year 2006 President's budget to support Army
Modular forces, and expect to need an additional $5 billion in a fiscal
year 2006 supplemental for investment items and $3 billion for fully-
burdened personnel costs. From fiscal year 2007 through fiscal year
2011, the Army base program will fund the remaining requirements for
the Army Modular Force. Upon return from operations in Iraq, the Army
anticipates it will need $4 billion per year from the end of the
conflict plus 2 years to fully reset its equipment to mission capable
standards. Our experience in Operation Desert Storm shows us that we
will need 2 years to reset our units to be ready for the next
contingency.
87. Senator Lieberman. General Cody, is $5 billion a year
sufficient to keep to your desired time schedule?
General Cody. The Army is committed to provide the Army Modular
Force within available resources at the specified temporary end
strength level within the timeframe specified by the Army Campaign
Plan. The short term cost to build the Army Modular Force is fairly
well defined and has widespread support to be resourced through the
Army base program and supplemental dollars. The Army barogram will fund
$38 billion: a combination of $13 billion reprogrammed for fiscal year
2006-2011 and an additional $5 billion per year for procurement and
infrastructure provided in the President's 2006 budget for fiscal year
2007-2011. The Army anticipates that supplementals will fund $10
billion for Modularity in fiscal year 2005 and fiscal year 2006.
88. Senator Lieberman. General Cody, what are the major equipment
shortages resulting from the reorganization and are those equipment
shortages covered in the funding requested?
General Cody. Combat vehicles, tactical wheeled vehicles, battle
command and communication systems, and ISR systems are the major
equipment requirements the Army needs to transform to a Modular Force.
These requirements are included in the Army's estimated $48 billion
cost to transform to a Modular Force. Of the $48 billion to transform
to a Modular Force, the Army base program plans fund $38 billion: a
combination of $13 billion reprogrammed for fiscal year 2006-2011 and
an additional $25 billion during fiscal year 2007-2011. The Army
anticipates that supplementals will fund the other $10 billion for
Modularity in fiscal year 2005-2006.
89. Senator Lieberman. General Cody, what are the decision criteria
for determining whether the Active Force will be increased by yet
another five brigade combat teams to 48 total?
General Cody. The Army's primary mission is to provide necessary
forces and capabilities to the combatant commanders in support of the
National Security and Defense Strategies. On January 30, 2004, the
Office of the Secretary of Defense approved the Army plan to increase
force structure by 10 modular brigades by fiscal year 2006 and to defer
a decision to build 5 additional brigades. In order to make this
decision, the Army will continue to evaluate the mix of capabilities
and the number of brigades required to meet future demands.
Consequently, the Army will build additional brigade combat teams if
those forces are necessary to meet the combatant commanders' and
defense strategy needs.
90. Senator Lieberman. General Cody, how much additional end
strength will be required and what will be the cost to increase the
Active Force to 48 brigade combat teams?
General Cody. Increasing the number of brigade combat teams from 43
to 48 would add approximately 20,000 soldiers within the Army's combat
formations and approximately 15 percent to our institutional Army to
recruit, train, and help sustain the additional soldiers. Proposing the
exact costs of such a growth to the Army's combat formations would be
highly speculative at this time. In general, for every 1O,000 soldiers,
it requires approximately $1 billion for all related pay and
allowances. However, given the highly variable factors involved in
determining such costs, further analysis is required to accurately
scope the nature and the magnitude of such an increase.
91. Senator Lieberman. General Cody, what additional equipment will
be required?
General Cody. The Army is committed to meet the equipment
requirements to transform to a Modular Force. However, as the Army
progresses toward the FCS and Future Force, maturing technologies that
significantly increase combat capabilities will be spiraled into the
current force. Additionally, the Army will continue to assess its
posture through lessons learned from the global war on terrorism, Total
Army Analysis, and Quadrennial Defense Reviews and respond to meet and
defeat these emerging threats. The Army will continue to respond to the
operational needs of the combatant commanders. Thus, additional
equipment, yet to be identified and developed, will be required to
maintain our battlefield superiority.
92. Senator Lieberman. General Cody, I've been told the
Congressional Budget Office (CBO) is finishing a study of Army
modularity that concludes the end product will provide only a modest
increase in combat power--on the order of 5 percent. Apparently, this
is because even though there will be more brigades in a division, the
number of companies in the brigades will actually be fewer than at
present. CBO is reported to be skeptical that the reconnaissance,
surveillance, target acquisition (RSTA) companies do not provide combat
boots on the ground for security and counterinsurgency in the irregular
warfare category of scenarios. What is your position on this question?
General Cody. The Army's new modular formations provide a 30-
percent increase in active combat power and approximately a 50-percent
increase in the brigade rotational force pool. Additionally, they
provide more than just sufficient boots on the ground. They are
designed to allow the maneuver commander the ability to see first,
think first, and act first. This is a radical shift from the way we as
an Army have traditionally measured combat power in the past. Our
ability to rapidly collect, analyze, and disseminate critical, time-
sensitive information on the battlefield provides our forces with a
common operating picture, helping to better focus both our combat power
and effects where they will have the greatest impact.
93. Senator Lieberman. General Cody, I'm concerned that the Army is
adequately considering changes in doctrine and priority for the combat
support (CS) and combat support service (CSS) units. In On Point: The
United States Army in Operation Iraqi Freedom, the analysts speculate
that the tragedy of the 507th maintenance company might be explained by
``the 507th is indicative of an Army-wide problem. This view holds that
some CS and most CSS units are generally not equipped, manned, or
trained to defend themselves while stationary, let alone when on the
march, CSS units are generally the last units to field night vision,
armor plating for flak vests, and other combat gear. They also have
fewer radios, crew served weapons and far less armor protection than
their colleagues in combat and CS units.'' I note that many things that
would fill these shortages in these units are not in the Army's budget,
but are on the Unfunded Priority List--notably $443 million for small
arms, including .50 caliber machine guns, that the 507th had only one
of; $227 million for night vision equipment; and $117 million for
radios. Now, I would assume that these things would be an absolute
priority for missions like Iraq. Why are they on the unfinanced
requirements list instead of in the budget, and what is your plan to
bring these units to the same level as combat units, in both Active and
Reserve components?
General Cody. The Army, with tremendous congressional support, has
purchased or contracted hundreds of millions of dollars in small arms,
night vision equipment, and radios to meet the operational demands of
units in Operations Enduring Freedom and Iraqi Freedom. We have done so
without regard to type or component of units. The Army has gone to
great lengths to ensure our units in contact have the appropriate type
and quantity of equipment necessary to conduct their mission
effectively and with minimum risk to the soldiers (e.g. rapid fielding
initiative, interceptor body armor, up-armored HMMWVs, add-on-armor for
wheeled vehicles, and convoy protection vehicles.) Yet while we are
fighting the global war on terrorism, we are also transforming the Army
into a Modular Force that is more joint and expeditionary. This
transformation is necessary to continue the high operational tempo
necessary to prevail in this war. The equipment you have identified on
the Army's Unfunded Priority List would allow us to accelerate our
transformation to the Modular Force. Our Army Campaign Plan encompasses
the entire operational Army and will result in units that are more
capable, lethal, and survivable. Based on our work with the executive
branch and the Office of the Secretary of Defense, our plan is funded
through a combination of base funding and a commitment of supplemental
funding.
women in modular brigade combat teams
94. Senator Lieberman. General Cody, questions are being asked
about whether the Army's new reorganization into modular brigade combat
teams complies with the rules regarding women in combat. The
controversy is whether women assigned to the forward support companies
in those brigades will be collocated with combat units. The reality of
the situation is that whether these women are habitually collocated or
not, their support duties will often take them into close contact with
those units and the non-linear nature of the battlefield puts them at
risk. The Secretary of the Army recently concluded that the Army's
proposed reorganization will not require a change in policy. Some
groups contend that this is merely a matter of semantics and that the
reorganization will, in effect, cause women to be collocated with units
assigned a direct combat mission. What are your views on this
controversy? Are the current rules too limiting and make it difficult
for the Army to reorganize into its modular structure?
General Cody. Forward support companies are not collocated with
combat units. The function of all soldiers on the current battlefield,
and this includes soldiers in the medical, maintenance support, fuel
handling, and chaplaincy fields, engage in duties that may take them
into close contact with combat units. Additionally, the non-linear
nature of our current battlefield puts all soldiers, regardless of
gender, at risk. Our policy is that women will be assigned to all units
as long as the principal mission does not include engaging in direct
ground combat. That does not mean women will not be assigned to
positions that could place them in danger. As is the case today, women
are assigned to units and positions that may necessitate combat action
such as defending them or their units from attack. For this reason, all
soldiers, regardless of gender, are equipped, trained, and prepared to
defend.
aviation restructure
95. Senator Lieberman. General Cody, is the cost of aviation
restructure included in the amount requested for modularity?
General Cody. No. Aviation restructure costs are not included in
the amount requested for modularity. However, the Army Modular Force
requires UAV capabilities outside of the aviation structure. The Army
has accepted risk with this capability and is funding it less than the
full Army Modular Force requirement. The cost of the Army Modular Force
UAV capability is included in the amount requested for modularity.
96. Senator Lieberman. General Cody, is the cost included in the
$14.6 billion made available by the termination of Comanche?
General Cody. Yes, funding made available by the termination of the
Comanche program, combined with funding already associated with Army
aviation programs and modularity have enabled us to restructure Army
aviation. Costs for installation and infrastructure requirements
created by Aviation restructuring are not covered by Comanche funding.
These requirements are addressed by the Assistant Chief of Staff,
Installation Management reprogramming and/or supplemental funding
requests.
97. Senator Lieberman. General Cody, how much will aviation
restructure cost and how much is funded in fiscal year 2006 and in the
out-years?
General Cody. The Army requested $3.8 billion for Aviation
modernization in the fiscal year 2006 budget. The remaining $30.2
billion will be funded in the out-years. These costs includes rearch,
development, and acquisition of aircraft and aircraft systems such as:
aircraft survivability equipment, avionics, aviation missiles and
rockets, and air traffic systems. It also includes operations and
maintenance for initial and advance flight training.
98. Senator Lieberman. General Cody, why does the aviation
modernization plan fail to completely modernize the Apache fleet to the
Longbow configuration, instead maintaining 117 of the old A model
Apaches in the National Guard?
General Cody. The current approved Army strategy will convert 284
AH-64 Apach aircraft to AH-64D Block III configurations beginning in
2010. The intent of the Army is to bring all 597 Longbow aircraft up to
Block III (which goes beyond the Program Objective Memorandum fiscal
years 2007-2011 and into the extended planning period). The Army will
continue to review future options and funding to address the potential
upgrade of the remaining 117 AH-64As.
99. Senator Lieberman. General Cody, I understand the Army's
argument that the light utility helicopter is cheaper to acquire and
cheaper to operate than a Blackhawk, but why is it not worth the
additional cost to acquire more Blackhawks and avoid a separate low-
density fleet of helicopters that the Army is not able to employ in a
hostile air defense environment?
General Cody. The Army is planning on procuring the LUH to replace
the aging OH-58A/C and UH-1 fleets. The OH-58A/C and UH-1 aircraft are
currently performing non-combat mission for the National Guard and TDA
units within the Active component. The LUH will be a versatile, low
cost aircraft capable of performing the missions that are currently
conducted by the OH-58 and UH-1 aircraft. The procurement of the LUH
will allow the Army to not only divest itself of aging aircraft, but it
will also allow for the UH-60 aircraft currently conducting missions in
IDA units to cascade to the combat units. The delta between the
procurement and operating and sustainment cost of the LUH and the UH-
60, as noted in the analysis of alternatives for the LUH, supports the
acquisition of the LUH.
reset
100. Senator Lieberman. General Cody, the Army is spending billions
of dollars to repair and replace equipment damaged or destroyed in Iraq
as units rotate back to the U.S. and prepare for their next deployment
in a process it calls ``Reset.'' The Army's own ``Stress on Equipment''
study suggests that the Army is building up a backlog which in fiscal
year 2005 alone is $7 billion to $13 billion. With equipment usage
estimated in some cases as 10 times a normal year's usage, the result
may very well be a force with huge equipment problems for the future.
Do you believe that the Army is adequately funded to repair and replace
equipment at a rate that will maintain the Army's combat readiness?
General Cody. The Army has adequate funding in the President's
budget and the fiscal year 2005 supplemental request to meet critical
reset requirements.
101. Senator Lieberman. General Cody, is the Army requesting
adequate funding to replace all combat losses or losses of equipment
deemed to be economically non-repairable?
General Cody. The Army requested the executable amount of funding
in the fiscal year 2005 supplemental to replace known losses as of the
time of submission. Because of supplemental timing considerations,
losses have occurred since that time, which were not requested. In
addition, the process of inspecting equipment after an incident to
determine whether it is repairable is time consuming, so it is likely
that some losses which occurred prior to the submission were not
included. The Army has received losses of specific items, such as the
OH-58D helicopter, which are no longer in production. The replement for
the OH-58D, the Armed Reconnaissance Helicopter, will not begin
fielding until fiscal year 2006, and therefore funding for these items
was not requested either.
102. Senator Lieberman. General Cody, is the Army requesting
adequate funding to reconstitute Army pre-positioned equipment stocks?
General Cody. The Army requested and received funding in fiscal
year 2005 to execute limited Army prepositioned stocks (APS) reset.
Fiscal year 2006 executable requirements are being developed and will
be submitted as part of the fiscal year 2006 supplemental request.
These requirements are being shaped by ongoing actions in support of
Operation Iraqi Freedom and the APS strategy which is pending Army
approval. The Army will continue to refine APS requirements for the out
years, ensuring that funding requests are adequate and cover all items
for return to APS and the developing APS strategy.
103. Senator Lieberman. General Cody, how big is the fiscal year
2005 backlog and is it growing?
General Cody. A backlog of requirements for repair is growing
primarily because equipment is in use and cannot be removed for higher
level repair. Equipment usage has prevented the Army from removing some
equipment from theater, such as vehicles with add-on armor. Much of
this equipment will be in need of replacement, overhaul, or
recapitalization when hostilities end. This includes our prepositioned
stocks the equipment units have left behind in theater for use by
follow on units. In addition, the Army sees the need to recapitalize a
number of systems, but the equipment is with units that are training to
return to theater. The exact size of the backlog is difficult to
determine and its growth will be dependent on the length of future
operational requirements. The Army estimates it will take 2 years
following the end of hostilities to fully repair and replace all
necessary equipment.
end strength
104. Senator Lieberman. General Cody, the Army is planning for an
Active-Duty end strength for fiscal year 2006 of 512,400 soldiers, with
482,400 funded in the defense budget and the rest funded through
supplemental appropriations. Are you at all concerned that the Army
will not be able to draw down that number through military to civilian
conversions and other ``efficiencies'' and that the increase may have
to be permanent?
General Cody. Senator Lieberman, the answer to your question is no.
The National Defense Authorization Act for Fiscal Year 2005 allows for
an active Army permanent strength of 502,400 and allows for 512,400
through fiscal year 2009. This flexibility will allow the active Army
to restructure while supporting the global war on terrorism. The Army
believes that future operational requirements and the ongoing
Quadrennial Defense Review will help DOD determine if Service strength
levels are adequate. Additionally, Army leadership will review Active
component strength requirements in late 2006 and make any necessary
recommendations to Office of the Secretary of Defense and Congress.
105. Senator Lieberman. General Cody, what do you think the
permanent Active-Duty Army end strength should be to support your
vision of a restructured Army, and to allow for less reliance on
Reserve Forces?
General Cody. The Army needs a temporary increase of at least
30,000 (512,400) soldiers to transform while supporting the global war
on terrorism. This figure assumes continued and predictable access to
Reserve component forces at no more than 1 year deployed every 6 years.
A permanent Active-Duty end strength will be based upon the defense
strategy, combatant commanders force requirements, and other factors.
Provided that the overall force requirements do not increase
significantly, the Army will rely less on Reserve component forces
after our current restructuring efforts are completed.
mobilization policy--army
106. Senator Lieberman. General Cody, troops are being mobilized
for duty in Iraq and Afghanistan under ``Partial Mobilization
Authority'' (10 U.S.C. 12302a), which authorizes members of the Reserve
component to be ordered to Active-Duty for not more than 24 consecutive
months. Although a literal interpretation of this statute would allow
multiple mobilizations of up to 24 consecutive months each, the
Department of Defense has, by policy, limited the cumulative time on
Active-Duty under this authority to 24 months. This limits most members
of the Guard and Reserves who have served in Iraq to one mobilization,
as the 12 months ``boots on the ground'' policy plus mobilization,
train-up, and demobilization consume 16 to 18 months of the 24
cumulative months allowed under the current DOD policy. Senior Army
leaders have been quoted as saying DOD needs to change this policy
because the Army is running out of Reserve members who have enough time
left on the 24-month mobilization clock to serve another tour. They
contend that the Army will not have sufficient forces to man the next
planned troop rotation in Iraq and Afghanistan beginning this fall.
Deputy Under Secretary of Defense Abell told this committee that the
Secretary of Defense does not intend to change this policy. What are
your views on DOD's policy of limiting involuntary mobilization of
members of the Reserve components to 24 cumulative months?
General Cody. The Army leadership is in consonance with the DOD
policy on 24 months cumulative service. At the present time, we believe
the 24 cumulative months serves the best interest of the Reserve
component soldiers, their families and employers, and that their
involuntary contribution to the global war on terrorism should remain
as limited. With that said, we are planning to employ a force
generation model to meet ongoing and future global commitments which is
predicated on early and continued access to our Reserve component
units. Without assured and predictable access to trained Reserve
component units, not just individuals, we may have to revisit the
current mobilization authority and associated policies or consider
increasing the number of active Army units their deployment lengths and
or shorter dwell periods between deployments.
107. Senator Lieberman. General Cody, what would be the impact on
the next planned troop rotation into Iraq and Afghanistan if the policy
remains in place?
General Cody. The Joint Staff, in conjunction with U.S. Central
Command and the Services, has identified the capabilities required to
deploy to the next rotations in Iraq and Afghanistan (OIF/OEF 05-07).
The Army will be able to source its reguired units/capabilities for
these rotations in accordance with the existing DOD Reserve component
mobilization policies.
108. Senator Lieberman. General Cody, what would be the impact on
the Army's force generation construct for the Reserve Forces?
General Cody. As the Army refines the Army Force Generation
(ARFORGEN) concept, the Reserve component presents the greatest
challenge. The Army accepted risk when it placed the bulk of the combat
CS and CSS units within its Reserve component force structure. The
evolving nature of stabilization and re-construction operations has
created a higher utilization rate for CS/CSS units than anticipated; a
rate even greater than combat arms units. Because this utilization rate
varies among unit types and capabilities, it has become a critical
issue for the RC since it makes resource allocation and management more
complex and sensitive. Rebalancing of CS/CSS assets within the Reserve
component is necessary; however, an even greater challenge is creating
a balanced CS/CSS mix among all three components.
The Reserve component requires a force generation model that will
manage their force capabilities in time cycles. To optimize the entire
force, the major tenets of ARFORGEN must: (1) provide of a set of
capabilities (Active component/Reserve component mix) based upon cyclic
readiness across a synchronized time span; (2) assume Presidential
Reserve call up of 9-month mobilization authority and 6 to 7 months
operational employment as steady-state; (3) provide for a surge
capability when required; (4) provide predictability for soldiers,
families, employers, and combatant commanders; (5) build rotational
depth; and (6) achieve flexibility in force management for operational
and institutional capabilities.
An ARFORGEN construct based upon these tenets will enable the Army
to rebalance its Reserve component forces to change types, numbers, and
size as it modularizes within end strength limitations.
future combat system
109. Senator Lieberman. General Cody, the Army's FCS program was
recently adjusted to delay the fielding of the manned ground systems by
4 years to 2014 while adding over $6 billion to the program to
accelerate the network and certain other technologies for spiraling to
the current force. Do you believe that you will be able to maintain the
FCS development schedule given the pressures on the Army budget for
modularity and reset?
General Cody. Essentially yes. See responses to #62 and #66.
110. Senator Lieberman. General Cody, are the costs of the three
planned technology spirals to the current force and are the costs of
the experimentation and testing that will be undertaken by the
experimental brigade combat team included in the FCS program or will
they be in some other program element in future budget requests?
General Cody. At this point in time, these costs reside within the
FCS program. The Army is still determining how these costs will be
funded in future budget requests.
111. Senator Lieberman. General Cody, what are the estimated costs
for the technology spirals and for experimentation and testing between
now and the initial operational capability of the FCS?
General Cody. The total estimated RDT&E costs for Spin Outs between
now and IOC is $1,272 million total year dollars, which includes both
A-kit and B-kit development for both PCS and associated programs. Of
the $1,272 million, $595 total year dollars is allocated for
experimentation and testing.
112. Senator Lieberman. General Cody, should budget pressures force
you to make a choice, what are your priorities among modularity, reset,
and FCS?
General Cody. The strategic goal of the Army is to remain relevant
and ready by providing the joint force and combatant commanders with
essential capabilities to dominate across the full range of current and
future military operations. Resetting our forces from ongoing military
operations, the transition to the Army Modular Force, and the Future
Combat System are all critical components of this goal. If forced by
budget pressures, we would make a difficult decision as to how best to
balance select components among these three critical programs by
assessing the capabilities needed to support the combatant commanders'
requirements.
protections not included in the agreement
113. Senator Lieberman. Mr. Boehm and Dr. Graham, I would like to
understand what significant contractual provisions would apply to a
traditional contract, but do not apply to the FCS program, because of
the Army's decision to use OTA. Could you give us a description of what
these provisions are and what protection they would provide to the
government and the taxpayer?
Mr. Boehm. It is important to appreciate that the use of an OTA as
an agreement for a Defense Department acquisition instead of a
traditional contract has the effect of stripping out virtually all
major statutory protections for the government which apply to
traditional contracts. Those protections may then be added to the OTA
by incorporating the missing statutes or including some version of the
protections, though typically with weaker language.
My testimony included a very detailed listing of statutes not
applicable to OTAs in general and those missing from the FCS OTA
specifically. Two important statutes missing from the FCS OTA are the
Program Integrity Act and the Truth in Negotiations Act. The Program
Integrity Act imposes standards to deter and punish conflicts of
interest. Given the major ethical problems in this area by Boeing, the
FCS program's lead system integrator, it is incredible that this
standard statutory provision was not made applicable to the FCS OTA.
The Truth in Negotiations Act (TINA) was also not made a part of the
FCS OTA. This law applies to virtually every standard Defense
Department acquisition contract. TINA requires defense contractors to
disclose to the Defense Department accurate price and cost information
in order to deter overbilling, a problem which has plagued Defense
Department acquisitions in the past. There is absolutely nothing in the
public record of the FCS program that even remotely would justify
giving the FCS defense contractors an exemption from their legal duty
to provide accurate pricing and cost information.
Dr. Graham. Congress established OTA for research, development, and
prototyping activities in order to permit government agencies to more
readily do business with innovative suppliers outside of the
traditional defense industrial base. OTA provides flexibility for the
government and supplier to negotiate tailored agreement (contract)
forms and clauses (terms and conditions) that are not governed by those
Federal acquisition laws and regulations that apply to contracts,
grants, or cooperative agreements.
The IDA review found that the Army employed OTA authority very
conservatively, incorporating numerous standard FAR provisions. The top
half of the accompanying Table summarizes selected provisions dealing
with such key issues as cancellation, dispute resolution, cost
management and reporting, change control, and data rights.\7\ This
agreement makes extensive use of standard government contractual terms
and-conditions. Some provisions are taken verbatim from the FAR; others
have been modified after negotiation between the government and Boeing.
(By contrast, the earlier CTD-phase agreement includes no FAR clauses
and incorporated none by reference.)
---------------------------------------------------------------------------
\7\ The FCS agreement was shaped through Army-Boeing negotiations.
Initial Army drafts included over 120 FAR/DFARS clauses. Incorporated
by reference within the Army-Boeing agreement are 24 FAR clauses and 16
DFARS clauses. Additionally, a review of the agreement clauses
themselves shows that local clauses relate to the subject matter of 63
additional terms and conditions that would be required to be included
as clauses within a cost reimbursement research and development FAR
contract. See FCS Other Transaction Agreement, Information Briefing,
Use of FAR/DFARS Clauses in FCS Other Transaction Agreement for System
Development and Demonstration, dated 25 April 2003.
---------------------------------------------------------------------------
The form of the Army-Boeing agreement at least in part reflects the
fact that Boeing Integrated Defense Systems is an experienced defense
contractor. Unlike the nontraditional or commercial firms that OT
authority was created to address, Boeing's defense business operations
are adapted to a FAR-based style of contracting; Boeing management, at
least in its defense business, apparently considers the FAR framework
to be a ``best practice.''
Table 3 also summarizes the flow-down provisions for the Tier 1
subcontractors. While the OTA gave Boeing the flexibility to adopt
innovative contractual forms, Boeing officials told the study team that
they followed government contracting practices because these were well-
understood by the participants--predominantly large, traditional
defense contractors. The ``nontraditional'' suppliers are iRobot from
Burlington, MA ($25.2 million) and Austin Information Systems from
Austin, TX ($56.6 million). Although there eventually may be others at
the lower tiers, for now, the $14.78 billion is being shared almost
entirely by defense industry giants.
A review of the subcontracts awarded by Boeing and SAIC to Tier 1
subcontractors shows that those subcontracts largely follow the
conventions of traditional defense contracts, including format. Boeing
terms and conditions come from a standard list, are accessible through
their web site, and are generally of the same scope, complexity, and
breadth of coverage as the FAR system.\8\
---------------------------------------------------------------------------
\8\ The subcontracts follow the format of FAR 15.204-1. Moreover,
Boeing uses standard contract terms and conditions, which incorporate
by reference numerous FAR and DFARS clauses. The subcontracts
incorporate by reference the FAR and DFARS provisions and clauses
incorporated by reference within the OTA, and also take account of
others not included (e.g., FAR 52.246-15 Certificate of Conformance,
52.247-34 F.O.B. Destination, 52.245-17 Special Tooling).
---------------------------------------------------------------------------
The lower half of the Table identifies some of the provisions that
provide flexibility for managing the FCS program. The Army-Boeing
agreement provides additional flexibility through the creation of the
Integrated Product Team (IPT) structure, the specification definition
process, and the subcontracting system employed. These features will be
discussed when we address the execution of the program.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
114. Senator Lieberman. Secretary Bolton, what steps have you taken
to try to protect the government and the taxpayer in this agreement, in
the absence of the traditional contract provisions that are not
included in the agreement?
Mr. Bolton. The OTA does include a number of FAR and DFARS clauses;
the OTA also includes a number of narrative articles which have the
function of terms and conditions: many of these articles represent
tailored FAR or DFARS clauses, essentially covering the required
provisions found in a FAR based contract as applicable in this
situation. We have, however, approached the LSI about incorporation of
the PIA, TINA, and CAS FAR clauses into the OTA and believe we can do
this with minimum impact to schedule, and moderate impact with respect
to the cost of performance.
115. Senator Lieberman. Mr. Francis, Dr. Graham, and Mr. Boehm,
what are your comments on the effectiveness of these steps?
Mr. Francis. GAO has not yet conducted a thorough analysis of the
rationale and alternative mechanisms that the Army inserted into the
OTA in lieu of the traditional FAR protections. While the Army did
inform GAO that certain provisions, such as the Truth in Negotiations
Act, were excluded because of time and resource constraints, they did
not provide an explanation of how they maintained protections that
those provisions were intended to provide. It is important to note that
the Army recently decided to convert the agreement to a traditional FAR
contract.
Dr. Graham. The Army-Boeing agreement, although based on Other
Transactions Authority, incorporates numerous standard defense
contracting clauses, including termination rights, disputes resolution,
cost accounting, and auditing, that are commonly viewed as protecting
the government's interests. The IDA review concluded that the Army's
and Boeing's conservative approach in creating this agreement
effectively addressed concerns that the use of an agreement based on OT
authority has created special risks for the FCS program. Our
recommendations addressed many other challenges to the program that we
felt posed substantially greater risks to the program than were created
by the contractual instrument.
Mr. Boehm. The FCS OTA included very little in the way of legal
protections for the government in lieu of the statutory protections
typically found in standard acquisition contracts. The net effect is
that the ability of the government to have adequate oversight over this
extremely risky program was neutered. By eliminating requirements for
accurate pricing, strong standards against conflicts of interest,
standard legal tools for the government in contract disputes, and a
host of standard auditing and accounting requirements, a very ambitious
program was set up for future failure. Several months of analysis by
NLPC confirmed that OTA language contained in place of the standard
legal protections found in Defense Department contracts almost all
provided much weaker protections for the government's interests.
role of nontraditional contractors
116. Mr. Francis, one of the reasons that has been given for using
OTA on this program is the presence of two non-traditional contractors.
We have built numerous waivers and exceptions into the traditional
contracting system over the last decade to address exactly this issue.
In your view, does the traditional contracting system give the Army the
flexibility needed to do business with a nontraditional subcontractor
on a program like this?
Mr. Francis. While the Army has some flexibility to waive a number
of FAR requirements on a case-by-case basis, including for
nontraditional defense contractors under certain circumstances, it is
difficult to tell if such waivers would be sufficient to lure
nontraditional defense contractors to do business with the Army. The
Army's recent decision to execute FCS under a FAR contract suggests it
believes it can provide the needed flexibility to do business with
nontraditional firms.
impact of terminating the existing agreement
117. Senator Lieberman. Secretary Bolton, if Congress were to
require you to terminate the existing agreement and proceed with the
program under a traditional contract, what impact would that have on
your cost and schedule?
Mr. Bolton. If the existing agreement were terminated, the LSI
would be entitled to those allowable costs associated with any
administrative closeout activity (but such costs could not be greater
than current funding obligated to date); and those costs covered by the
``termination'' article of the OTA. We would expect to be able to
overcome most if not all of the costs envisioned by the OTA's
termination article; however, since under this scenario the ending of
the OTA would merely represent the passage of the program to a
successor instrument, rather than a total cessation of work. That is,
we would try to mitigate all cost and schedule impacts by doing some
type of conversion of the OTA to a FAR based contract, understanding
that this would take an appropriate amount of time to plan, execute,
and complete.
118. Senator Lieberman. Mr. Francis, Dr. Graham, and Mr. Boehm, if
Congress were to require Secretary Bolton to terminate the existing
agreement and proceed with the program under a traditional contract
potentially impacting the cost and schedule, what are your comments on
this issue?
Mr. Francis. The Army recently decided to convert the existing
agreement to a traditional FAR contract. At this point, it is not yet
clear how long and costly the conversion process will be.
Dr. Graham. This issue was not addressed by the IDA study.
Mr. Boehm. Any costs associated with making the FCS program subject
to the level of oversight found in standard Defense Department
acquisition contracts pale next to the costs of continuing such a major
program with an OTA designed for small research projects which
minimizes oversight and accountability.
______
Questions Submitted by Senator Daniel K. Akaka
high-risk of boeing
119. Senator Akaka. Secretary Bolton, in recent months, Boeing
Corporation has been at the center of major business and personal
scandals. Ms. Darleen Druyun is serving time in a Federal prison and
former Chief Executive Officer (CEO) Michael Sears will be very soon.
Additionally, at the request of Mr. Michael Wynne, a special team
studied additional contracts that Ms. Druyun had been involved with,
identifying additional programs that would require further study.
Furthermore, a recent study by the Project on Government Oversight, a
well-respected watchdog group, determined that Boeing ``committed 50
acts of misconduct and paid $378.9 million in fines and penalties
between 1990 and 2003.'' Do you believe that the Army is accepting an
inordinately high level of risk by using Boeing Corporation as the LSI
for the FCS, a program that is very complex, has already been modified
to add $6.4 billion to the cost of the program, and the time line for
this ``system of systems'' has been extended? If you do not feel that
this is a ``high risk'' process, what measures do you have in place to
ensure that it stays on track?
Mr. Bolton. We have successfully utilized specific conflict of
interest provisions, ``Firewall'' provisions, to ensure that the LSI
and the other subcontractors (one-team partners) maintain appropriate
control of all sensitive data to avoid potential conflicts of interest.
This risk mitigation action was successfully demonstrated during the
LSI's source selection process wherein a number of highly competitive
major subcontracts were evaluated and awarded in a short period of time
without any industry protest. One letter of concern was received but
that was withdrawn within 48 hours.
future combat systems
120. Senator Akaka. Secretary Bolton, the FCS was awarded an OTA
rather than FAR Part 12 contract and Boeing Corporation is the LSI.
Would it be more efficient and less likely to lend itself to fraud and
abuse if the Department of Defense used its internal resources, such as
its own systems integrators, to manage this program?
Mr. Bolton. By ``internal resources,'' assuming you mean using the
existing Army Program Management Offices and PEOs. We considered this
traditional approach but determined that given the aggressive program
schedule and the complexity of the development and integration of
essentially 18 ACAT 1 programs tied to a large number of complementary
programs including Air Force, Navy, USMC and other government agency
programs, the LSI approach represented the most efficient use of
resources to accomplish the task.
121. Senator Akaka. Secretary Bolton, both the GAO and the National
Legal and Policy Center have indicated that if there are any
significant production slippages or cost increases for FCS, the Army
will be hard pressed to allocate funds within the Department of the
Army because the FCS program ``so dominates the Army's investment
budget for years to come.'' What processes does the Department of the
Army have in place to cover any cost overruns that might occur without
receiving additional funds from Congress?
Mr. Bolton. The FCS program has implemented an aggressive Cost as
an Independent Variable (CAIV) process which has several components, to
include the setting of specific cost targets for each acquisition phase
of the program. The objective of the CAIV process and an incentive
arrangement is to prevent cost overruns from occurring. Understanding
that there are often influences outside the direct control of the
program that may drive costs over the established targets, the Army is
prepared to make the difficult decisions required to ensure program
affordability. These decisions will be made at the appropriate times
and will be based on analytical assessments. Both this flexibility and
the willingness to make difficult decisions were demonstrated during
the recent program restructuring when a number of significant changes
were made to the program without receiving additional funds from
Congress.
women in combat support units
122. Senator Akaka. General Cody, it was recently reported in the
press that the Department of the Army is drafting new language
pertaining to women in combat support units. Currently the Army's
policy bars women from combat support units. Under the Army's
modularity structure, it is my understanding that in order for there to
be enough soldiers to fill the new structure, this new language may
allow women to be in Forward Support Companies (FSCs) that are
collocated with units conducting an assigned direct ground combat
mission. Please explain how this is in compliance with the current Army
policy that says mixed-sex units are prohibited from embedding or
collocating with land combat units.
General Cody. The Army is not drafting new language pertaining to
women in combat service support units. The Army's policy does not bar
women from being assigned to combat support units. Women in the Army
are assigned in accordance with Army Regulation (AR) 600-13, Army
Policy for the Assignment of Female Soldiers. This policy implements
the 1994 Department of Defense Direct Ground Combat Definition and
Assignment Rule policy memorandum. In January 2005, the Secretary of
the Army reviewed all personnel policies, with emphasis on the policy
of how the Army assigns women Soldiers. The new Brigade Combat Team,
unit of action, which is currently being established as a part of Army
Transformation, remains consistent with personnel assignment policies.
As a result of these studies, women may be assigned to units called
Forward Support Companies (FSCs), which provide supply, maintenance,
and field feeding support to units performing direct ground combat.
The FSC is the cornerstone of the distribution-based logistics
system and has a mission that emphasizes support and maintain as far
forward as possible. However, the FSC does not have a mission of direct
ground combat, nor does it have a mission to routinely collocate with
its supported combined arms battalion. It is organized to meet the
needs of the combined arms battalion under the assignment of the
Brigade Support Battalion (BSB). Both the FSC and the task force
commander must ensure that the FSC is tightly integrated into the task
force's operations in garrison, in training, and when deployed. The
current structure of the logistical support for the BCT continues the
focus of our Force XXI concepts.
Women comprise 14.5 percent of our Active Force, 23.4 percent of
our Reserve Force and 12.7 percent of our National Guard; they are also
representing 10 percent of the force in OEF/OIF. The Army has 9,400
women in the area of operations. They are performing in an outstanding
manner given the complexity and ambiguity of a non-linear, insurgent
driven battlefield. Their performance throughout both OIF and OEF has
been exemplified by heroics such as one of our airborne officers being
awarded the Bronze Star with valor device for her command leadership
during an attack on her military police convoy, to a Civil Affairs
specialist being awarded a Purple Heart for the injury she suffered
while defending herself and her comrades in Najaf, Iraq, to a
specialist who assisted in the capture of General Husam Mohammed Amin
one night as she stood guard.
restructuring future combat systems
123. Senator Akaka. General Cody, the FCS is well into its second
year of execution. It recently underwent a restructure to reduce risk
and to field a fully-capable unit of action in 2014 instead of in 2010.
The fiscal year 2006 budget was reduced significantly from what was
projected last year. Does this restructure signal problems with the
program and what are the benefits of this restructuring?
General Cody. No, the restructure does not signal problems with the
program. In fact, the FCS program was generally performing within its
cost and schedule performance metrics prior to the restructure. The
benefits of the restructure are twofold. First, it reduces
developmental risk by allowing more time for technology maturation and
the inclusion of additional experimentation. More importantly, the
restructure allows for the Spiraling (PM VA terminology is now Spin)
out of selected FCS technologies to the current force. In essence, this
brings some of the FCS capabilities to the Army sooner than originally
planned. The fact that the Army has elected to accelerate some aspects
of the FCS program is more due to the success of the program than
problems with it.
124. Senator Akaka. General Cody, in your prepared statement for
this subcommittee, you indicated that ``risk associated with the
maturation of technologies (of FCS) contributed to the Army's decision
last summer to restructure the FCS program and extend it by 4 years.''
Should another restructuring of the FCS program be required, can you
tell how you plan to ensure proper oversight of the program with Boeing
Corporation as the LSI?
General Cody. Government oversight of EVM performance is
effectively three dimensional. The first dimension consists of
Integrated Baseline Review (IBR) Process. The second dimension is the
collaborative analysis process. The third dimension is the use of the
EVM information by the program, DA, OSD, and congressional staff
management.
a. The IBR Process ensures the integrity of the SDD Performance
Measurement Baseline. The IBR Process began in October 2003 with an in-
depth review of the IPT schedules, and continued through May 2004
conducting discussions with 99 LSI Control Account Managers.
Subsequently, the IBR continued with seven partner IBRs until the
announcement to restructure the FCS program in July 2004.
Since the announcement of the program restructure, the program has
laid in the new Performance Measurement Baseline (PMB) in a phased
implementation representing the new technical approach. The phased PMB
implementation will culminate in May 2005 with the laying in of
planning packages for the entire program through program completion,
with subsequent detail planning in June 2005 through the Initial
Program Design Review in June 2006. Detail planning will continue in
agreement with the rolling wave concept throughout the SDD effort.
The IBR process will then continue in July 2005, with in-depth
schedule reviews of the One Team program frameworks and IPTs. The
program level schedule review will take place in August 2005 to ensure
full horizontal and vertical integration. The LSI CAM discussions will
take place in September 2005 to review full cost, schedule, and
technical integration given due consideration to program risk. The IBR
process will then focus on the partners in the October through December
2005 timeframe. The program's IBR process will continue throughout the
SDD effort as required reviewing future areas of concern to ensure the
integrity of the PMB is maintained.
b. Each month, the Program's Earned Value Management Working Group
(tri-managed and staffed by the Army's PM Office, the LSI, and DCMA)
collaborative review the earned value cost and schedule data, it's
resulting variances, and the root causes/corrective actions to the
variances. This EVM data is aligned to the congressionally directed
funding ``buckets'' for the program. The EVM data is then consolidated
into an analysis package that is used to provide EVM information to the
Program Office's management, DA, OSD, and congressional staff.
c. The ``oversight process'' cyclically provides the EVM
information that is a collaboratively analyzed product to (1) the PM
each month via a face-to-face meeting with the PM's EVM practitioners,
(2) DA staff via the monthly Senior Army Leadership Acquisition Program
Review, (3) the Integrating Integrated Product/Process Team (IIPT) each
month (the IIPT is populated by key DA and OSD principals), (4) OSD
staff via inclusion of key EVM facts in the Defense Acquisition
Executive Summary (DABS), and (5) the professional staff of each of the
four defense oversight committees each quarter.
[Whereupon, at 11:09 a.m., the subcommittee adjourned.]
DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
2006
----------
WEDNESDAY, APRIL 6, 2005
U.S. Senate,
Subcommittee on Airland,
Committee on Armed Services,
Washington, DC.
TACTICAL AVIATION PROGRAMS
The subcommittee met, pursuant to notice, at 2:45 p.m. in
room SR-232A, Russell Senate Office Building, Senator John
McCain (chairman of the subcommittee) presiding.
Committee members present: Senators McCain, Chambliss, and
Lieberman.
Majority staff members present: Ambrose R. Hock,
professional staff member; Gregory T. Kiley, professional staff
member; Thomas L. MacKenzie, professional staff member; and
Stanley R. O'Connor, Jr., professional staff member.
Minority staff member present: Creighton Greene,
professional staff member.
Staff assistants present: Alison E. Brill, Benjamin L.
Rubin, and Nicholas W. West.
Committee members' assistants present: Christopher J. Paul,
assistant to Senator McCain; Clyde A. Taylor IV, assistant to
Senator Chambliss; and Frederick M. Downey, assistant to
Senator Lieberman.
OPENING STATEMENT OF SENATOR JOHN McCAIN, CHAIRMAN
Senator McCain. Good afternoon. The Senate is presently
having a vote, and I'm sure that other members of the committee
will be arriving, but I thought I'd better get the hearing
started since we have a number of witnesses today.
Today, the Airland Subcommittee meets to receive testimony
from two distinguished panels of witnesses on those aviation
programs which the subcommittee has oversight responsibility.
I'd like to thank the witnesses for appearing before the
subcommittee today as we fulfill our oversight function. We
will draw upon your expertise and insight to gain a better
understanding of the various challenges and opportunities that
are before us.
We'll have two panels in today's hearing. The first panel
will be comprised of Mr. Bolkcom, Mr. Sullivan, and Mr.
Schmitz, who will share their views on the current and
projected operational environment program management and
acquisition strategy. The second panel will be comprised of the
Honorable Michael Wynne, the Honorable John Young, Vice Admiral
Joseph Sestak, Major General Stanley Gorenc, and Brigadier
General Martin Post, all outstanding leaders within the Defense
Department, who will address the work they are performing to
equip the warfighter.
Tactical aircraft from the Air Force, Navy, and Marine
Corps have delivered a spectacular performance in Operations
Enduring Freedom (OEF) and Iraqi Freedom (OIF). The accuracy
and reliability of our precision-guided weapons instills
confidence in our ground forces and strikes fear in the hearts
of our enemies. Where once we considered how many aircraft
would be required to destroy a target, it's now how many
targets can be destroyed by a single aircraft. The flexibility
afforded by advancements in precision-weapons development and
tactical platforms, platforms that are increasingly more
capable, reliable, and maintainable, will have profound effects
on the force structure we field in the future.
I want to extend our sincere appreciation to the brave men
and women who have flown these missions, and to all those who
support them, not only in the field, but also in our systems
commands, our program offices, our aviation depots, and
industry.
We must ensure that we remain vigilant in our efforts to
maintain our advantage in tactical aviation. To do so requires
an accurate assessment of our current and projected operating
environment. There are a number of studies and work in the
Quadrennial Defense Review (QDR) underway to assist us in this
effort. It's important that we align our limited resources to
procure the capabilities that we truly need.
The F/A-22 has recently completed its initial operational
test and evaluation. Its operational effectiveness is unmatched
by any fighter in the world. More work needs to be done to make
it operationally suitable. The Committee will also be
interested to hear what the service is doing to correct those
deficiencies. The Joint Strike Fighter has made progress. The
subcommittee is also interested in how the Air Force and Marine
Corps will meet their tactical airlift and aerial refueler
requirements should termination of the C-130 occur.
Additionally, the subcommittee views with concern the Air
Force's plan to retire 49 KC-135E aerial refueler aircraft,
presupposing the outcome of the mobility capability study and
analysis alternatives for tanker aircraft.
Once again, thank you for your service to our country. I
want to thank Senator Lieberman for his work as the ranking
member. I want to thank all of our witnesses, and we'll begin
with Mr. Sullivan.
[The following information has been inserted for the record
by Senator McCain:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
STATEMENT OF MICHAEL J. SULLIVAN, ACQUISITION AND SOURCING
MANAGEMENT, GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Sullivan. Thank you, Mr. Chairman.
I'm pleased to be here today to participate in the
subcommittee's hearing. I'll give a brief oral statement
summarizing our recent work on the F/A-22 and Joint Strike
Fighter programs, and discuss implications for the Department
of Defense's (DOD) overall acquisition process. I also have a
written statement that I'd like to submit for the record.
Senator McCain. Without objection, your entire statement
will be made part of the record, and that of the other
witnesses.
Mr. Sullivan. Thank you, Mr. Chairman.
Let me begin with the F/A-22 program. Given current
estimates for development costs, quantities, and missions, the
F/A-22 program needs a new business case to justify continued
investment now. Since the program started in 1986, development
cost has more than doubled, initial operational capability has
been delayed 10 years, and the aircraft quantities have been
reduced from 750 to about 180. A new business case should take
a look at the Air Force's needs right now and reconcile them in
terms of quantities and capabilities with available resources
before investment continues.
In addition, a modernization program has been added to
provide robust air-to-ground and intelligence-gathering
capabilities to the F/A-22. DOD estimates the cost of that
modernization plan at about $11 billion over the next 15 years.
Recently, Program Budget Decision 753 issued last December
places that modernization program in doubt. It ends procurement
after 2008, and many of the advanced capabilities perceived in
that plan were planned for aircraft that now would not be
bought under that decision.
In March, we issued a report to recommend that the DOD
direct the Air Force to establish a new business case. DOD
concurred with that recommendation, stating that it would use
the Quadrennial Defense Review to do so.
Let me turn to the Joint Strike Fighter (JSF) program. This
program has been proceeding along a similar path as the F/A-22
and is now at a crossroads. Increased development costs,
delays, and reduced quantities have made its original business
case unexecutable at this point. When the program began,
development cost was estimated at $25 billion over 12 years, to
be completed in 2008. Today, it is estimated at nearly $45
billion over 17 years, to be completed in 2013. This reflects
an 81-percent cost increase and a 5-year delay in development.
At the same time, procurement quantities have been reduced by
more than 535.
The program has experienced problems with aircraft weight
that require significant design changes causing cost and
schedule uncertainty that they are undergoing right now. It may
take a year or more until adequate knowledge about the design
and manufacturing of the aircraft can be captured to reduce
this uncertainty; however, the program is requesting long lead
funding for production in 2006. This investment is at risk.
If production begins without adequate knowledge, design
changes in the future can create further significant cost and
schedule problems. For example, between 2007 and the end of the
development program, the program plans to increase production
spending rates from about $100 million to nearly $1 billion a
month to invest in production-type tooling facilities and a
production workforce. This investment should wait until the
program knows the design is ready to produce, yet the first
integrated prototype to prove this won't fly until 3 years
after production begins.
In our March 15 report, we recommended the program take
time now to establish a new business case that's based on
better knowledge about the design and manufacturing needs and
the resources needed for this aircraft, and adjust its
acquisition strategy, moving forward, to better align with
DOD's existing acquisition policy that calls for evolutionary
knowledge-based product development.
I'd like to make one final important point about DOD's
overall acquisition process. It's currently estimated that
these two programs I've talked about will spend about $75
billion in development, twice as much as originally planned.
For that cost, they currently plan to deliver about 1,100 less
aircraft, and at a slower pace than they had originally
planned. That reflects a significant loss of buying power for
DOD, and it has serious implications for how well our
acquisition process supports the warfighter.
The problems that these two programs have encountered are
not atypical. They stem from an acquisition process that allows
programs to commit funds without enough knowledge about
requirements, technologies, designs, and manufacturing
processes at different points in the program, creating
significant unknowns that result in a cascade of cost overruns
and schedule delays, usually later in the program. DOD
recognizes this and rewrote its acquisition policy in 2003;
however, the policy still lacks discipline controls and
oversight mechanisms, and is not being consistently
implemented. More needs to be done to assure the taxpayers a
reasonable return on their investment. Reestablishing
businesses cases on these two programs at this time, when
significant changes have occurred, is a step in that right
direction.
Mr. Chairman, that concludes my oral statement. I'd be
happy to respond to any questions that you or other members of
the subcommittee may have.
[The prepared statement of Mr. Sullivan follows:]
Prepared Statement for Michael Sullivan
Mr. Chairman and members of the subcommittee: I am pleased to be
here today to participate in the Subcommittee's hearing on the status
of two of the Department of Defense's (DOD) major tactical aircraft
fighter programs, the F/A-22 Raptor and the F-35, also known as the
Joint Strike Fighter (JSF).\1\ Both programs are intended to replace
aging tactical fighter aircraft with highly advanced, stealthy
aircraft. These two programs represent a potential future investment
for DOD of about $240 billion to modernize tactical fixed-wing
aircraft.
---------------------------------------------------------------------------
\1\ The third major program, the FA-18EF, currently in production,
is not a subject of this testimony.
---------------------------------------------------------------------------
My statement today will highlight key concerns in the F/A-22 and
JSF programs. Our work has shown that because of the significant
changes in the F/A-22 development and procurement programs and the key
investment decisions remaining, a new business case is needed to
justify aircraft quantities and investments in new capabilities.
Changes in the JSF program and DOD's intent to begin producing aircraft
with at least 6 years of development remaining suggest that the JSF
does not yet have the knowledge to justify future investments. In
addition to highlighting specific F/A-22 and JSF program issues, I will
discuss the implications these development programs have on DOD's
overall investment strategy for modernizing the tactical fixed-wing
aircraft.
My statement is primarily based on our recent reports on the F/A-22
and JSF programs.\2\ We performed the work associated with this
statement in accordance with generally accepted government auditing
standards.
---------------------------------------------------------------------------
\2\ GAO, Tactcal Aircraft: Status of the F/A22 and JSF Acquistion
Programs and Implications for Tactical Aircraft Modernization, GAO-05-
390T (Washington, DC.: Mar. 3, 2005; GAO, Tactical Airlift: Air Force
Still Needs Business Case to Support F/A-22 Quantities and Increased
Capabilities, GAO-05-304 (Washington, DC: Mar. 15, 2005); and GAO
Tactical Aircraft: Opportunity to Reduce Risks in the Joint Strike
Fighter Program with Different Acquisition Strategy, GAO-05-271
(Washington, DC: Mar. 15, 2005).
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summary
The F/A-22 has been in development for 19 years, and cost increases
and delays have created affordability concerns that reduced the number
of aircraft planned for acquisition. A changing world environment and
threats over this time frame have compelled the Air Force to plan for
large investments in new capabilities to keep the F/A-22 viable.
Termination of F/A-22 procurement after fiscal year 2008 has also
placed modernization plans in doubt. The original business case
elements--needs and resources--set at the outset of the program are no
longer valid, and a new business case is needed to justify future
investments for aircraft quantities and modernization efforts. The F/A-
22's acquisition approach was not knowledge-based or evolutionary. It
attempted to develop revolutionary capability in a single step, causing
significant technology and design uncertainties and, eventually,
significant cost overruns and schedule delays. Lessons from the F/A-22
program can be applied to the JSF program to improve on its outcomes.
While relatively early in its acquisition program, the JSF program
has experienced design and weight problems that, if not solved, will
affect aircraft performance. These problems have led to increased
development and procurement costs and schedule delays so far. In
addition, the program's customers are still not sure how many aircraft
they will need. The combination of cost overruns and quantity
reductions has already diluted DOD's buying power and made the original
JSF business case unexecutable. Given continuing program uncertainties,
DOD could use more time right now to gain knowledge before it commits
to a new business case for its substantial remaining investments. The
JSF's current acquisition strategy does not embrace evolutionary,
knowledge-based techniques intended to reduce risks. Key decisions,
like the planned 2007 production decision, are expected to occur before
critical knowledge is captured. Time taken now to gain knowledge will
avoid placing sizable investments in production capabilities at risk to
expensive changes.
Taken together, the current status and continuing risk in these two
programs have broader implications to the DOD tactical fixed-wing
aircraft modernization program, raising questions as to whether its
overarching goals are now achievable. Decreases in quantities alone--
about 30 percent since original plans--raise questions about how well
the aircraft will complement our tactical air forces in the future.
background
The F/A-22 aircraft program is acquiring the Air Force's next
generation, multimission fighter for about $63.8 billion.\3\ The
continued need for the F/A-22, its increasing costs, and the quantities
required to perform its mission have been the subject of a continuing
debate within DOD and Congress. Supporters cite the F/A-22's advanced
features--stealth, supercruise speed, maneuverability, and integrated
avionics--as integral to the Air Force's Global Strike initiative and
for maintaining air superiority over potential future adversaries for
years to come.\4\ Critics, on the other hand, argue that the Soviet
threat the F/A-22 was originally designed to counter no longer exists
and that its remaining budget dollars could better be invested in
enhancing current air assets and acquiring new and more
transformational capabilities that will allow it to meet evolving
threats. The debate continues as a December 2004 budget decision by the
Office of the Secretary of Defense (OSD) reduced F/A-22 funding and the
number of aircraft to be acquired. A full-rate production decision is
expected in early April, but the Air Force already has 98 aircraft on
contract.\5\
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\3\ This amount consists of $61.3 billion currently budgeted for
the basic program and the initial stages of the modernization efforts,
$1.3 billion for future start-up costs of a separate acquisition
program for the latter stages of modernization, and $1.2 billion in
costs to retrofit aircraft with enhanced capabilities and activate
depot maintenance activities.
\4\ Global Strike is one of six complementary concepts of
operations laying out the Air Force's ability to rapidly plan and
deliver limited-duration and extended attacks against targets.
\5\ The Defense Acquisition Board met in late March of this year to
discuss the F/A-22's progress and readiness for full-rate production. A
final decision by the milestone decision authority is expected in early
April.
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The JSF program is DOD's most costly aircraft acquisition program.
The program's goals are to develop and field more than 2,400 stealthy
strike fighter aircraft for the Navy, Air Force, and Marine Corps and
potentially several hundred more aircraft for U.S. allies.
International participation in the development of this system is a
vital part of the acquisition strategy. The JSF is intended to provide
greater capability and to replace DOD's aging fighter and attack
aircraft. DOD estimates that the total cost to develop and procure its
fleet of aircraft will reach $245 billion, with total costs to maintain
and operate the JSF adding another $344 billion over its life cycle.
Since the program began in November 1996, it has experienced technical
challenges that have resulted in significant cost increases and
schedule overruns. During most of 2004, the program worked to
understand and define current development risks in order to prepare
more accurate cost and delivery estimates to support development and
production investment decisions planned over the next 2 years.
A key to successful acquisition programs is the development of a
business case that should match requirements with resources--proven
technologies, sufficient engineering capabilities, time, and funding--
when undertaking a new product development. First, the user's needs
must be accurately defined, alternative approaches to satisfying these
needs must be properly analyzed, and quantities needed for the chosen
system must be well understood. The developed product must be
producible at a cost that matches the users' expectations and budgetary
resources. Finally, the developer must have the resources to design and
deliver the product with the features that the customer wants and to
deliver it when it is needed. If the financial, material, and
intellectual resources to develop the product are not available, a
program incurs substantial risk in moving forward.
a new business case is needed to justify continued investment in the f/
a-22 program
Since its inception in 1986, the F/A-22 aircraft program has
encountered numerous and continuing management and technical
challenges. Changing threats, missions, and requirements have severely
weakened the original business case. Program milestones have slipped
substantially; development costs have more than doubled; and a
modernization program was added. The recent budget decision to
terminate procurement after fiscal year 2008, the prospect of
additional cuts because of ceilings on program cost, and upcoming
defense reviews have significant implications for the program's
viability and the future of modernization efforts.
In March 2004, we reported that the significant changes in the F/A-
22's cost, quantity, capabilities, and mission and the persistent
problems and delays in its development and testing schedules called for
a new business case to justify the continued need for the F/A-22.\6\ We
recommended that OSD direct the Air Force to consider alternatives and
examine the constraints of future defense spending. In subsequent
testimony, we reiterated this position, stating that competing
priorities--both internal and external to DOD's budget--require a sound
and sustainable business case for DOD's acquisition programs based on
comprehensive needs assessments and a thorough analysis of available
resources.\7\ In response to our recommendation, DOD stated its routine
budgeting processes annually addressed business case issues on the F/A-
22. We disagreed, as we do not think those processes provide the
breadth or depth of analysis needed to develop a comprehensive new
business case.
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\6\ GAO, Tactical Aircraft: Changng Conditions Drive Need for New
F/A-22 Business Case, GAO-04-391 (Washington, DC: Mar. 15, 2004).
\7\ GAO, Tactical Aircraft: Status of the F/A-22 and Joint Strike
Fighter Programs, GAO-04-597T (Washington, DC: Mar. 25, 2004).
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Problems in the F/A-22 Program Strain Future Viability
When initiated, the F/A-22 acquisition program planned to complete
development in 1995, achieve initial operational capability by March
1996, and ultimately procure 750 aircraft. The Air Force currently
plans to complete system development in 2005, achieve initial
operational capability by December 2005, and procure 178 aircraft.
Amidst concerns about escalating costs and schedule, Congress
placed cost limitations on both development and production budgets in
1997,\8\ later removing the development cost cap.\9\ According to the
Air Force, the current production cost cap is $37.3 billion.
Affordability concerns have, in part, led to the steady decrease in
procurement quantities. Two major reviews of defense force structure
and acquisition plans--the 1993 Bottom-Up Review and the 1997
Quadrennial Defense Review (QDR)--significantly reduced F/A-22
quantities. OSD's ``buy to budget'' acquisition strategy essentially
placed a ceiling on total program costs resulting in reducing
quantities, and in December 2004, Program Budget Decision 753 reduced
F/A-22 funding by $10.5 billion, further reducing in all likelihood
procurement quantities from 275 to 178 aircraft.\10\ The December 2004
budget decision also ended procurement in fiscal year 2008, instead of
fiscal year 2011.
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\8\ Pub. L. No. 105-85 (Nov. 18, 1997), section 217.
\9\ Pub. L. No. 107-107 (Dec. 28, 2001), section 213.
\10\ Program Budget Decision 753 nominally reduced the procurement
quantity to 179 aircraft. Subsequently, the Air Force transferred one
aircraft to be used as a permanent test bed, reducing the procurement
quantity to 178. The recent crash of an F/A-22 has reduced planned
operational aircraft to 177.
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Decreased procurement quantities, along with increased development
and production costs and increased costs to modernize and enhance
capability, have led to rising acquisition unit costs. Figure 1
illustrates the downward trend in procurement quantities and the upward
trend in program acquisition unit costs.\11\
---------------------------------------------------------------------------
\11\ Program acquisition unit cost includes funding for
development, procurement, related military construction, and initial
modernization divided by total production quantity. It does not include
later stage modernization costs and certain support costs.
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[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In arguing for reversal of the December 2004 budget decision to
stop procurement of the F/A-22 in 2008, Air Force officials noted that
the decision obviates production economies and efficiencies that the
Air Force expected to achieve through a multiyear procurement contract
that was to begin in fiscal year 2008. Officials also stated that
cutting production quantities from the final years of the program
limits expected savings in annual unit procurement costs. As with many
DOD acquisitions, Air Force program officials had assumed in future
budgets that the costs for buying F/A-22s would decrease as a result of
manufacturing efficiencies, reduced fixed costs, productivity projects,
and more economical buying quantities. For example, the average unit
flyaway cost for the F/A-22 in 2003 was about $178 million, while the
unit flyaway costs for future annual buys were projected before the
budget decision to decrease to $127 million, $111 million, and $108
million in fiscal years 2007, 2008, and 2009 respectively.\12\ Now that
the program will be truncated in 2008, the less expensive aircraft in
2009 and beyond will not be bought and unit costs are now projected at
$135 million in 2007 and $149 million in 2008 (increases associated
with close-out of production).
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\12\ Average unit flyaway cost includes the costs associated with
procuring one aircraft, including the airframe, engines, avionics,
other mission equipment, and certain nonrecurring production costs. It
does not include ``sunk'' costs for development and test and other
costs to the whole system, including logistical support and
construction.
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The F/A-22 program changes have also resulted in schedule delays
for completing development testing, operational testing, and,
consequently, the full-rate production decision. That decision is
currently expected later this month but could slip again given the
unsettled environment. One critical input to the decision is the report
by the Office of the Director of Operational Test and Evaluation to
Congress and defense leadership on the adequacy and results of the
recently completed initial operational test and evaluation.\13\ In
addition, the F/A-22 program must demonstrate it satisfies criteria
established by the Defense Acquisition Board in November 2004, which
include delivering a fully resourced plan for follow-on testing to
correct deficiencies identified in initial operational testing and
evaluation, achieving design stability of the avionics software,
demonstrating mature manufacturing processes, and validating technical
order data.\14\
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\13\ Statute 10 U.S.C. 2399 provides that a major defense
acquisition program may not proceed beyond low-rate initial production
until initial operational test and evaluation is completed and the
congressional defense committees have received the report of testing
results from the Director of Operational Test and Evaluation. This
report is to contain an opinion of test adequacy and whether the test
results confirm that the system actually tested is operationally
effective and suitable for combat.
\14\ The F/A-22 initial operational test and evaluation was
conducted by the Air Force Operational Test and Evaluation Center from
April through December 2004 to support the full-rate production
decision. Its operational test plan was designed to assess the F/A-22's
combat effectiveness and suitability in an operationally representative
environment.
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Final reports detailing the results from initial operational
testing and evaluation were not available for our review, but Air Force
test officials told us that testing showed the F/A-22 was
``overwhelmingly effective'' as an air superiority fighter and that its
supporting systems were ``potentially suitable'' pending the correction
of identified deficiencies. Operational testing of the limited ground
attack capability in the current design was not conducted but is
scheduled during follow-on testing planned to start in July 2005.\15\
Air Force officials believe that test results support approval of full-
rate production. They also believe that deficiencies identified in
aircraft reliability and maintainability (including maintaining low
observable characteristics) and in the integrated diagnostic systems
are readily correctible and the aircraft should meet the needs of the
warfighter by the scheduled initial operational capability date in
December 2005. However, whether the Air Force can accomplish all of
this by December 2005 remains to be seen.
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\15\ Air-to-ground attack capabilities are increasingly emphasized
by the Air Force, and future enhancements are planned for 80 percent of
the modernized F/A-22s. More robust ground attack and intelligence
gathering capabilities will be tested in the future as they are
developed.
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Future of Modernization Plans in Doubt
Originally, the F/A-22 was intended to replace the F-15 and achieve
air-to-air superiority to counter large numbers of advanced Soviet
fighters in conventional warfare. However, over the 19 years that the
aircraft has been in development, the projected Cold War threats never
materialized and new threats emerged, changing tactical fighter
requirements and operational war plans. The Air Force now plans to
implement a Global Strike concept of operations by developing a robust
air-to-ground attack capability to allow the aircraft to counter a
greater variety of targets, such as surface-to-air missiles systems,
that pose a significant threat to U.S. aircraft. It also plans to equip
most of the F/A-22 fleet with improved capabilities to satisfy expanded
warfighter requirements and to take on new missions, including
intelligence data gathering and the suppression of enemy air defenses
and interdiction.
To implement its Global Strike concept, the Air Force established a
time-phased modernization program. Table 1 shows how the Air Force
intended to integrate new capabilities incrementally before the
December 2004 budget decision reduced quantities by 96 aircraft. At the
time of our review, officials were still determining the impacts of the
budget decision on the modernization program content and quantities.
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In March 2003, OSD's Cost Analysis Improvement Group (CAIG)
estimated that the Air Force would need $11.7 billion for the planned
modernization programs through fiscal year 2018.\16\ The Air Force's
latest estimate includes about $4.1 billion through fiscal year 2011
for the first two modernization increments (blocks 20 and 30) and about
$1.3 billion through fiscal year 2011 for the latter two increments
(block 40). The Air Force will continue to manage blocks 20 and 30 as
part of the F/A-22 acquisition program. To manage block 40 efforts, OSD
has directed the Air Force to establish a separate modernization
program.\17\ Future modernization costs beyond 2011 have not been fully
definitized and are subject to change. The modernization program
manager projected annual funding of $700 to $750 million would be
needed for the currently planned modernization program after 2011.
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\16\ The OSD CAIG acts as the principal advisory body to the
milestone decision authority on program cost. The CAIG estimate
included costs for development, procurement, and retrofit of modernized
aircraft.
\17\ In November 2004, the acting Under Secretary of Defense for
Acquisition, Technology and Logistics directed the Air Force to hold
separate milestone reviews for the latter stages of the modernization
program to be consistent with DOD acquisition policy. The Air Force
plans to manage these efforts as a separate acquisition program.
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The December 2004 budget decision places much of the modernization
program in doubt, particularly the latter stages. This is because that
decision terminated F/A-22 procurement after fiscal year 2008 and many
of these new and advanced capabilities had been planned for aircraft
that now will not be bought. Therefore, if the budget cut is sustained,
the modernization program as currently planned is largely obsolete and
some funding for advanced capabilities planned to be incorporated after
fiscal year 2008 could be available for other uses. At the time of our
review, Air Force officials were still restructuring the modernization
program in response to the budget decision, including revising the
desired mix of capabilities and the number of aircraft in each
configuration. With the reduced quantity, they are considering having
only two configurations, with the second incorporating some
enhancements originally planned for the third configuration.
The budget decision causes a ripple effect on other resource plans
tied to the modernization. For example, it brings into question the
need for (1) upgrades to the computer architecture and processors
estimated to cost between $400 million and $500 million; (2) upgrades
to government laboratory and test range infrastructure like software
avionics integration labs, flying test beds, and test ranges estimated
to cost about $1.8 billion; and (3) changes in other activities
supporting modernization enhancements in the production line, retrofit
of aircraft, and establishing depot maintenance support estimated at
more than $1.6 billion.
new jsf business case and acquisition strategy is critical for program
success
Unlike the F/A-22 program, which is near the end of development,
the JSF program is approaching key investment decisions that will
greatly influence the efficiency of the remaining funding--over 90
percent of the $245 billion estimated total program costs--and
determine the risk DOD is willing to accept. DOD has not been able to
deliver on its initial promise, and the sizable investment greatly
raises the stakes to meet future promises. Given continuing program
uncertainties, DOD could use more time to gain knowledge before it
commits to a new business case and moves forward. Any new business case
must be accompanied by an acquisition strategy that adopts an
evolutionary approach to product development--one that enables
knowledge-based decisions to maximize the return on remaining dollars--
as dictated by best practices.
DOD Needs More Time to Develop a New JSF Business Case
Increased program costs, delayed schedules, and reduced quantities
have diluted DOD's buying power and made the original JSF business case
unexecutable. Program instability at this time makes the development of
a new and viable business case difficult to prepare. The cost estimate
to fully develop the JSF has increased by more than 80 percent.
Development costs were originally estimated at roughly $25 billion. By
the 2001 system development decision, these costs increased almost $10
billion, and by 2004, costs increased an additional $10 billion,
pushing total development cost estimates to nearly $45 billion. Current
estimates for the program acquisition unit cost are about $100 million,
a 23 percent increase since 2001. Ongoing OSD cost reviews could result
in further increases to the estimated program cost. At the same time,
procurement quantities have been reduced by 535 aircraft and the
delivery of operational aircraft has been delayed. Figure 2 shows how
costs, quantities, and schedules have changed since first estimates
based on data as of January 2005.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ongoing program uncertainties--including uncertainties about the
aircraft's design and procurement quantities--make it difficult to
understand what capabilities can be delivered with future investments.
For example, DOD has been working over the past year to restructure the
JSF program to accommodate changes in the aircraft's design; until this
restructuring is completed, it will be difficult to accurately estimate
program costs. The need for design changes largely resulted from the
increased weight of the short takeoff and vertical landing variant and
the impact it was having on key performance parameters. The other JSF
variants' designs were affected as well. The program plans to have a
more comprehensive cost estimate in the spring of 2005. However, a
detailed assessment has not been conducted to determine the impact that
the restructured program will have on meeting performance
specifications. Until the detailed design efforts are complete--after
the critical design review in February 2006--the program will have
difficulty assessing the impact of the design changes on performance.
While the program office anticipates that recent design changes will
allow the aircraft to meet key performance parameters, it will not know
with certainty if the weight problems have been resolved until after
the plane is manufactured and weighed in mid-2007.
Program officials are also examining ways to reduce program
requirements while keeping cost and schedules constant. Design and
software teams have found greater complexity and less efficiency as
they develop the 17 million lines of software needed for the system.
Program analysis indicated that some aircraft capabilities will have to
be deferred to stay within cost and schedule constraints. As a result,
the program office is working with the warfighters to determine what
capabilities could be deferred to later in the development program or
to follow-on development efforts while still meeting the warfighter's
basic needs. It may be some time before DOD knows when and what
capabilities it will be able to deliver. The content and schedule of
the planned 7-year, 10,000-hour flight test program is also being
examined. According to the program office, the test program was already
considered aggressive, and recent program changes have only increased
the risks of completing it on time.
Finally, uncertainty about the number and mix of variants the
services plan to purchase will also affect JSF's acquisition plans.
While the Air Force has announced its intention to acquire the short
takeoff and vertical-landing variant, it has yet to announce when or
how many it expects to buy or how this purchase will affect the
quantity of the conventional takeoff and landing variant it plans to
buy. The number and mix of JSF variants that the Navy and Marine Corps
intend to purchase--and their related procurement costs--also remain
undetermined. Foreign partners have expressed intent to buy about 700
aircraft between 2012 and 2015, but no formal agreements have been
signed at this time. The 2005 Quadrennial Defense Review--an
examination of U.S. defense needs--could also affect the procurement
quantities and schedule. In developing a reliable business case,
knowing the quantities to be purchased is equally as important as other
elements. Without knowing types and quantities the program manager
cannot accurately estimate costs or plan for production.
Timely Capture of Product Knowledge Needed to Support Future Business
Decisions
In recent years, DOD has revised its weapons acquisition policy to
support an evolutionary, knowledge-based strategy based on best
practices--key to executing a future business case and making more
informed business decisions.\18\ With an evolutionary acquisition
approach, new products are developed in increments based on available
resources. Design elements that are not currently achievable are
planned for and managed as separate acquisitions in future generations
of the product with separate milestones, costs, and schedules. While
JSF's acquisition strategy calls for initially delivering a small
number of aircraft with limited capabilities, the program has committed
to deliver the full capability by the end of system development and
demonstration in 2013 within an established cost and schedule for a
single increment, contrary to an evolutionary approach.
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\18\ DOD Directive 5000.1, The Defense Acquisition System (itt May
2003); DOD Instruction 5000.2, Operation of the Defense Acquision Sysem
(May 2003). The directive establishes evolutionary acquisition
strategies as the preferred approach to satisfying DOD's operational
needs. The directive also requires program managers to provide
knowledge about key aspects of a system at key points in the
acquisition process.
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In addition, JSF's planned approach will not capture adequate
knowledge about technologies, design, and manufacturing processes for
investment decisions at key investment junctures. Our past work has
shown that to ensure successful program outcomes, a high level of
demonstrated knowledge must be attained at three key junctures for each
increment in the program. Table 2 compares best practice and JSF
knowledge expectations at each critical point.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
As shown in Table 2, the JSF program will lack critical production
knowledge when it plans to enter low-rate initial production in 2007.
The department has included about $152.4 million in its fiscal year
2006 budget request to begin long lead funding for low-rate initial
production. This production decision is critical, and the knowledge
required to be captured by knowledge point 3 in our best practice model
should be achieved before this critical juncture is reached. If
production begins without knowledge that the design is mature, critical
manufacturing processes are under control, and reliability is
demonstrated, costly changes to the design and manufacturing processes
can occur, driving up costs and delaying delivery of the needed
capability to the warfighter. The size of the potential risk is
illustrated in the production ramp-up and investments planned after
this decision is made. Between 2007 (the start of low-rate production)
and 2013 (the scheduled start of full-rate production) DOD plans to buy
nearly 500 JSF aircraft--20 percent of its planned total buys--at a
cost of roughly $50 billion. Under the program's preliminary plan, DOD
expects to increase low-rate production from 5 aircraft a year to 143
aircraft a year, significantly increasing the financial investment
after production begins.\19\ Between 2007 and 2009, the program plans
to increase low-rate production spending from about $100 million a
month to more than $500 million a month, and before development has
ended and an integrated aircraft has undergone operational evaluations,
DOD expects to spend nearly $1 billion a month.
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\19\ The preliminary plan was what was being considered at the time
of our review. Since then, in its fiscal year 2006 budget submission,
DOD has reduced the planned procurement quantities for the U.S. by 38
aircraft through fiscal year 2011. This includes planned quantities for
the United Kingdom of 2 aircraft in fiscal year 2009, 4 aircraft in
fiscal year 2010; 9 aircraft in fiscal year 2011, 9 aircraft in fiscal
year 2012, and 10 aircraft in fiscal year 2013.
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To achieve its production rate, the program will invest
significantly in tooling, facilities, and personnel. According to
contractor officials, an additional $1.2 billion in tooling alone would
be needed to ramp up the production rate to 143 aircraft a year. Over
half of this increase would be needed by 2009--more than 2 years before
operational flight testing begins. Figure 3 shows the planned
production ramp up, along with the concurrently planned development
program for the JSF.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Following are examples of technology, design, and production
knowledge that should be but will not be captured when the low-rate
production decision is scheduled to be made.
Only one of JSF's eight critical technologies is
expected to be demonstrated in an operational environment by
the 2007 production decision.
Only about 40 percent of the 17 million lines of code
needed for the system's software will have been released, and
complex software needed to integrate the advanced mission
systems is not scheduled for release until about 2010--3 years
after JSF is scheduled to enter production. Further, most
structural fatigue testing and radar cross section testing of
full-up test articles are not planned to be completed until
2010.
The program will not demonstrate that critical
manufacturing processes are in statistical control, and flight
testing of a fully configured and integrated JSF (with critical
mission systems and prognostics technologies) is not scheduled
until 2011.
Further, because of the risk created by the extreme overlap of
development and production, the program office plans to place initial
production orders on a cost reimbursement contract, placing a higher
cost risk burden on the government than is normal. These contracts
provide for payment of allowable incurred costs, to the extent
prescribed in the contract. They are used when uncertainties involved
in contract performance do not permit costs to be estimated with
sufficient accuracy to use any type of fixed-price contract and place
greater cost risk on the buyer--in this case, DOD. In the case of the
JSF, a fixed-price contract will not be possible until late in the
development program.
jsf's substantial funding requirements may be difficult to sustain in
the current fiscal environment
Regardless of likely increases in program costs, the sizable
continued investment in JSF must be viewed within the context of the
fiscal imbalance facing the Nation over the next 10 years. The JSF
program will have to compete with many other large defense programs as
well as other priorities external to DOD's budget. JSF's acquisition
strategy assumes an unprecedented $225 billion in funding over the next
22 years or an average of $10 billion a year (see fig. 4).\20\
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\20\ This is based on DOD's December 2003 JSF cost estimate.
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Funding challenges will be even greater if the program fails to
stay within current cost and schedule estimates. For example, we
estimate that another 1-year delay in JSF development would cost $4
billion to $5 billion based on current and expected development
spending rates. A 10-percent increase in production costs would amount
to $20 billion.
implications for the current status of tactical aircraft programs
Continuing changes and uncertainties in the F/A-22 and JSF programs
present significant challenges to DOD in achieving its modernization
plans which attempt to blend many factors within affordability
constraints. Factors in the decision making process can include
aircraft age, ownership costs, readiness, force structure, operating
concepts, competing needs, available funds, defense policy, and
others.\21\ Today, both F/A-22 and JSF programs include significantly
fewer aircraft than originally planned--30 percent fewer or over 1,000
aircraft. Deliveries intended to provide an operational capability have
also been delayed in both programs, almost 10 years in the case of the
F/A-22, requiring legacy systems to operate longer than planned. As
legacy tactical aircraft age and near the end of their useful life,
they require ever increasing investments to keep them ready and capable
as the threat evolves--the cost of ownership.
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\21\ GAO, Tactical Aircraft: Modernizaion Plans Will Not Reduce
Average Age of Aircraft, GAO-01-163 (Washington, DC: Feb. 9, 2001).
Today acquisition plans include 3,083 aircraft (F/A-22, FA-18EF, and
JSF). The Air Force has been discussing buying fewer JSF, which would
further lower the amount of planned new tactical aircraft.
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The reduced F/A-22 force size, now fewer than 180 F/A-22 aircraft
instead of 750 aircraft planned at the start of the program, could
affect the Air Force's force structure and employment strategy. The Air
Force still maintains it has a nominal requirement for 381 aircraft to
meet its new Air and Space Expeditionary Forces--the operational
mechanism through which the Air Force allocates forces to meet the
combatant commanders' force rotation requirements--and Global Strike
concept of operations. The Air Force planned on 10 F/A-22 squadrons to
support this operational concept. Using the Air Force's normal methods
for calculating force requirements, only about 110 aircraft of the
total aircraft procured would be classified as available for combat and
assignment to operational units \22\--yielding only 4 or 5 typical
fighter squadrons for assigning across the planned 10 air and space
expeditionary units. The reduced fleet size may require the Air Force
to consider the F/A-22 as a low-density/high-demand asset, which would
require changes in these expected management and employment strategies.
It also has implications for related resources and plans, including
military personnel requirements, numbers of operating locations,
support equipment, spare parts, and logistical support mechanisms.
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\22\ The remaining aircraft are used for training and development
activities and to account for aircraft in for maintenance and those
held in reserve for normal attrition.
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Other factors will come to play in the 2005 Quadrennial Defense
Review. OSD has directed the review to include an assessment of joint
air dominance in future warfare and the contributions provided by all
tactical aircraft. An announced defense policy goal is to redirect
investment from areas of conventional warfare, where the United States
enjoys a strong combat advantage, toward more transformational
capabilities needed to counter ``irregular'' threats, such as the
insurgency in Iraq and the ongoing war on terror. DOD is also
conducting a set of joint capability reviews to ensure acquisition
decisions are based on providing integrated capabilities rather than
focused on individual weapons systems. The study results, although
still months away, could further affect the future of the F/A-22 and
JSF programs including the F/A-22's modernization plan. In these
analyses, the new tactical aircraft will also have to compete for
funding, priority, and mission assignments with operational systems,
such as the F-15 and F/A-18, and other future systems, such as the
Joint Unmanned Combat Air Systems.
The 2005 Quadrennial Defense Review provides an opportunity for DOD
to assess tactical fixed-wing aircraft modernization plans and weigh
options for accomplishing its specific as well as overarching tactical
aircraft goals. It is critical that their investment be well-managed
and balanced against DOD's other priorities. Through the review, DOD
can seek answers to overall investment strategy questions:
What is the role of tactical aircraft in relation to
other defense capabilities?
Will planned investments in tactical aircraft allow
DOD to achieve these capabilities and overall transformational
goals?
Where disconnects exist between goals and expected
investment outcomes, what are the impacts and how will DOD
compensate to minimize future security and investment risks?
If DOD fails to answer these questions and continues with its
current modernization strategy, it will likely arrive in the future
with needs similar to those that exist today but with fewer options and
resources to resolve those needs. As DOD evaluates its tactical
aircraft investment alternatives, knowledge at the program level is
needed to understand how the F/A-22 and JSF can help achieve overall
tactical aircraft modernization goals. More specific questions need to
be answered for these programs including:
Is the F/A-22 the most cost-effective alternative to
fill gaps in ground attack and intelligence-gathering
requirements?
How many F/A-22s are needed and affordable to carry
out the aircraft's original mission, air superiority, and new
ground attack and intelligence gathering missions?
If requirements for the new F/A-22 capabilities are
legitimate and not solvable by other means, does the Air Force
have the resources (mature technologies, design knowledge,
time, and money) to begin investments in a new development
program for the F/A-22 enhancements?
What is the immediate need for JSF aircraft? Delivery
of its ultimate capability or replacing aging aircraft with an
initial capability? Does the acquisition plan satisfy this
need?
Does the program have the required knowledge about
needed quantities and capabilities and resources (mature
technologies, design knowledge, time, and money) to develop a
reliable business case at this time?
Does DOD have the right acquisition strategy to
develop and produce a JSF that will maximize its return on the
more than $220 billion investment that remains in this program?
While the JSF program started off with a higher-risk approach by
starting system development with immature technologies, now is the time
to implement an evolutionary and knowledge-based acquisition strategy
to manage the system development phase and stabilize the design before
making large investments in tooling, labor, and facilities to test and
manufacture the aircraft. The JSF is relatively early in its system
development and demonstration phase and has an opportunity to learn
from the F/A-22 program experience. It must take the time needed now to
gather knowledge needed to resolve key issues that could ultimately
result in additional cost increases, delays, and performance problems.
Our March 2005 reports on the F/A-22 and JSF made recommendations
to the Secretary of Defense that would require answering some of these
questions before making significant additional investments. For the F/
A-22, we recommended that a new business case be made to justify
investments in new capabilities and the quantities needed to satisfy
mission requirements. For the JSF, we recommended the establishment of
an executable program consistent with policy and best practices,
including an affordable first increment with its own business case, and
the implementation of a knowledge-based acquisition approach to guide
future investments and reduce risks.
Mr. Chairman, this concludes my prepared statement. I would be
happy to respond to any questions that you or other members of the
subcommittee may have.
contacts and staff acknowledgments
For future questions about our work on the F/A-22 or JSF, please
call me or Michael J. Hazard at (202) 512-4841. Other individuals
making key contributions to this statement include Michael W. Aiken,
Marvin E. Bonner, Lily J. Chin, Matthew T. Drerup, Bruce D. Fairbairn,
Steven M. Hunter, Matthew B. Lea, David R. Schilling, and Adam
Vodraska.
Senator McCain. Thank you very much.
Mr. Schmitz, welcome back.
STATEMENT OF HON. JOSEPH E. SCHMITZ, INSPECTOR GENERAL,
DEPARTMENT OF DEFENSE
Mr. Schmitz. Thank you, Mr. Chairman, Senator Lieberman.
Thank you for the opportunity to appear today and answer your
questions regarding our audit report, which is entitled
``Contracting for and Performance of the C-130J Aircraft.'' My
staff has already provided you a copy of the full report.
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We conducted the audit in response to allegations made to
the Defense Hotline that the C-130J aircraft does not meet
contract specifications and, therefore, cannot perform its
operational mission. Our report addresses the issues in the
Subcommittee's invitation letter; namely ``whether or not use
of a commercial acquisition strategy to procure the C-130J was
justified,'' and ``the C-130J's ability to meet contract
specifications and perform its operational mission.''
In summary, we concluded that the Air Force used an
unjustified commercial item acquisition strategy to acquire the
C-130J aircraft and fielded aircraft that did not meet contract
specifications or perform their intended mission. Ultimately,
the Air Force agreed with all of our recommendations for the
way forward.
The primary mission of the C-130J aircraft is to airlift
and drop troops and equipment into hostile areas. The Air Force
contracted with Lockheed Martin for 117 C-130J aircraft for the
Air Force, Marine Corps, and Coast Guard, at a cost of $7.5
billion, from fiscal year 1995 through fiscal year 2008.
The Air Force initially contracted with Lockheed Martin for
two C-130J aircraft, in 1995, through a modification to a 1990
contract for C-130H aircraft. Our audit found that Lockheed
Martin promoted the C-130J as a commercial aircraft, and the
Air Force undertook to buy additional C-130J aircraft as
commercial items.
By acquiring the C-130J aircraft as a commercial item using
Federal Acquisition Regulation Part 12, the Air Force did not
apply the normal acquisition process, and could only provide
limited program oversight to the $7.5 billion aircraft program.
The Director, Operational Test and Evaluation, Department of
Defense, in his comments to a draft of our audit report,
pointed out that the only government acquisition decision on
whether to buy the C-130J aircraft as a commercial item was
based on force needs and affordability.
The Air Force commercial item acquisition strategy was
fundamentally unjustified. The Air Force was unable to provide
evidence supporting its claim that 95 percent of the features
were the same between the military and civilian versions of the
aircraft. The Air Force contracting officer's statement that
the aircraft evolved from a series of Lockheed Martin
development--developed produced commercial aircraft
configurations is contradicted by the fact that the prior
version of the aircraft, the C-130H, was only used for
government purposes. Further, at the time of our audit, the Air
Force acknowledged that no commercial version of the C-130J
currently existed, and no sales had been made to the public.
Because the Air Force determined that the C-130J was a
commercial item, the Air Force relied on the commercial
contract specifications to meet mission requirements.
In January 1999, the Air Force became aware that Lockheed
Martin could not meet the C-130J commercial model
specification, and agreed to a contractor-initiated three-phase
upgrade program consisting of upgrades 5.1, 5.2, and 5.3.
Testing showed that, even with the upgrades, the C-130J
aircraft was still not compliant with the commercial model
specifications or, more importantly, operational requirements.
In October 2002, the Air Force and Lockheed Martin reached
an agreement that the design would be considered compliant with
the successful completion of an agreed-upon plan of action.
Corrections, as agreed upon, are supposed to be completed in
upgrade 5.4, which, at the time of the audit, was scheduled for
installation in 2005.
Air Force testers had identified performance deficiencies
that degraded C-130J operations after the contractor began
aircraft delivery. The Test and Evaluation Center had developed
a testing plan with a two-phased approach. The first phase
evaluated the airlift capability of the C-130J, and the second
phase is intended to evaluate other capabilities, including the
airdrop mission. At the time of our audit, the second phase of
operational testing was scheduled for late 2005.
The first phase of testing, in September 2000, showed that
the C-130J was not effective or suitable in the airlift
mission. The Air Force stopped the suitability test in August
2000 because of the extent of the deficiencies identified.
In November 2001, the Air Force Operational Test and
Evaluation Center assessed the program's progress towards
readiness for the second phase of testing. The Air Force
assessment found that the aircraft was not ready for the second
phase of testing, and progress in the effectiveness and
suitability areas was also unsatisfactory.
In addition, schedule slips, system immaturity, and
training issues caused the Air Force Operational Test and
Evaluation Center to reschedule the second-phase operational
testing from July 2000 to November 2005.
Based on the test results, the Air Mobility Command
determined the missions that the C-130J could safely perform,
and restricted the aircraft from night-vision goggle
operations, combat search and rescue, visual formation, global
air-traffic management, and airdrop of paratroopers and
containers. Also, because the aircraft performed poorly during
testing, the Air Mobility Command could not release the C-130J
to perform other essential missions, including heavy-equipment
airdrop and hostile-environment missions.
We have one related audit of commercial acquisition
practices in the Department of Defense. This is the audit of
commercial contracting practices for procuring Defense systems,
and it will determine whether procurement officials are
complying with the Federal acquisition regulations when
procuring Defense systems or their subcomponents. Specifically,
we will evaluate the justifications used to determine whether
major systems or subsystems meet commercial item criteria, and
evaluate the adequacy of the basis for establishing price
reasonableness. However, this audit is currently suspended, due
to audit support for Base Realignment and Closure (BRAC) and
other operational priorities.
This concludes my oral statement. I'd be glad to answer any
questions.
[The prepared statement of Mr. Schmitz follows:]
Prepared Statement by Hon. Joseph E. Schmitz
Mr. Chairman and members of the Airland Subcommittee: Thank you for
the opportunity to appear before the subcommittee today and to answer
your questions regarding our audit report, ``Contracting for and
Performance of the C-130J Aircraft,'' which my staff previously
provided to the subcommittee. We conducted the audit in response to
allegations made to the Defense Hotline that the C-130J aircraft does
not meet contract specifications and therefore cannot perform its
operational mission. Our report addresses the issues in the
subcommittee's invitation letter, namely ``whether or not use of a
commercial acquisition strategy to procure the C-130J was justified,''
and ``the C-130J's ability to meet contract specifications and perform
its operational mission.'' In summary, we concluded that the Air Force
used an unjustified commercial item acquisition strategy to acquire the
C-130J aircraft and fielded aircraft that did not meet contract
specifications or perform their intended mission. Ultimately, the Air
Force agreed with all our recommendations.
c-130j aircraft
The primary mission of the C-130J aircraft is to airlift and drop
troops and equipment into hostile areas. The Air Force contracted with
Lockheed Martin for 117 C-130J aircraft for the Air Force, Marine Corps
and Coast Guard at a cost of $7.5 billion from fiscal year 1995 through
fiscal year 2008.
commercial item acquisition strategy
The Air Force initially contracted with Lockheed Martin for two C-
130J aircraft in 1995 through a modification to a 1990 contract for C-
130H aircraft. Our audit found that Lockheed Martin promoted the C-130J
as a commercial aircraft and the Air Force undertook to buy additional
C-130J aircraft as commercial items. Specifically, Lockheed Martin
developed and produced the C-130J aircraft using a commercial aircraft
model performance specification. Lockheed initiated the C-130J upgrade
and managed the program development, developmental testing, and
production process. By acquiring the C-130J aircraft as a commercial
item, using Federal Acquisition Regulation Part 12, ``Acquisition of
Commercial Items,'' the Air Force did not apply the normal acquisition
process and could only provide limited program oversight to this $7.5
billion aircraft program. The Director, Operational Test and
Evaluation, Department of Defense, in his comments to a draft of our
audit report, pointed out that the only Government acquisition decision
on whether to buy the C-130J aircraft as a commercial item was based on
force needs and affordability.
The Air Force commercial item acquisition strategy was unjustified.
The Air Force was unable to provide evidence supporting its claim that
95 percent of the features were the same between the military and
civilian versions of the aircraft. In fact, at the time of our audit,
the Air Force acknowledged that the C-130J included features not
customarily available in the commercial marketplace including aerial
delivery (cargo and paratroop), defensive systems, secure voice
communication, night vision imaging, and satellite communication. The
Air Force contracting officer statement that the aircraft evolved from
a series of Lockheed Martin developed/produced commercial aircraft
configurations is contradicted by the fact that the prior version of
the aircraft, the C-130H, was only used for government purposes.
Further, at the time of our audit, the Air Force acknowledged that no
commercial version of the C-130J (L-100J) currently existed and no
sales of the L-100J had been made to the public. A website cited by the
Air Force in its comments response to a draft of our audit report
showed that the L-100J ``would be a commercial derivative'' of the C-
130J. Also, the determination that modification (that also considered
customer requirements) would be minor had no supporting analysis.
Finally, the Air Force was unable to show that the commercial contract
specification would meet the operational requirements. Because the Air
Force determined that the C-130J was a commercial item, the Air Force
relied on the commercial contract specifications to meet mission
requirements.
contract specifications
In January 1999, the Air Force became aware that Lockheed Martin
could not meet the C-130J commercial model specification and agreed to
a contractor-initiated, three-phase upgrade program, consisting of
upgrades 5.1, 5.2, and 5.3. Not withstanding, the Air Force continued
to contract for additional aircraft and exercised options for more
aircraft before the first aircraft was delivered or tested. The first
two C-130J aircraft were not delivered until February 1999 and even
those aircraft were conditionally accepted. Testing showed that even
with the 5.1, 5.2, and 5.3 upgrades, the C-130J aircraft was still not
compliant with the commercial model specifications or, more
importantly, operational requirements. In October 2002, the Air Force
and Lockheed Martin reached an agreement that the design would be
considered compliant with the successful completion of an agreed-upon
action plan. Corrections as agreed upon are supposed to be completed in
upgrade 5.4, which, at the time of the audit, was scheduled for
installation in 2005. However, the Air Force commingled the contract
specification work with out-of-scope work in upgrade 5.4. Since the Air
Force was procuring the aircraft for the Coast Guard, the Marine Corps,
and Air Force units, those customers who could not afford the cost of
the out-of-scope work would not receive the improvements needed to have
a mission capable aircraft.
Federal Acquisition Regulation Part 12.208, ``Contract quality
assurance,'' requires that contracts for commercial items shall rely on
contractors' existing quality assurance systems as a substitute for
Government inspection and testing before tender for acceptance. As of
the time of the audit, the Air Force had conditionally accepted 50 C-
130J aircraft at a cost of $2.6 billion and the contractor had been
unable to deliver a specification compliant aircraft.
performance of operational mission
Air Force testers had identified performance deficiencies that
degraded C-130J operations after the contractor began aircraft
delivery. The Test and Evaluation Center had developed a testing plan
with a two phased approach. The first phase evaluated the airlift
capability for the C-130J and the second phase is intended to evaluate
other capabilities including the air drop mission. At the time of our
audit, the second phase of operational testing was scheduled for late
2005.
The Air Force Operational Test and Evaluation Center completed the
first phase testing in September 2000. That testing showed that the C-
130J was not effective or suitable in the airlift mission. Performance
deficiencies included inadequate range and payload, immature software,
lack of an automated planning system, and difficulties in cold weather
operations. The test also showed that the C-130J was not suitable in
its current configuration because its integrated diagnostic capability
was poor, including high built-in-test false alarm rates. The Air Force
stopped the suitability test in August 2000 because of the extent of
the deficiencies identified. The report stated that many of the
deficiencies were programmed to be corrected in upgrade 5.3.
In November 2001, the Air Force Operational Test and Evaluation
Center performed an operational assessment of upgrade 5.3 to assess the
program's progress towards readiness for the second phase of testing.
The Air Force operational assessment stated that the progress in the
effectiveness of the C-130J was unsatisfactory. Identified deficiencies
included defensive system problems, global air traffic management
compliance, mission planning system deficiencies, and interoperability
issues with the existing C-130 fleet. The report also mentioned that
progress in the suitability area was unsatisfactory. Development
schedule slips, system immaturity, and training issues caused the Air
Force Operational Test and Evaluation Center to reschedule the second
phase operational testing from July 2000 to November 2005. Further, the
deficiencies found in upgrade 5.3 resulted in the C-130J Program Office
requiring another upgrade.
Based on the qualification operational and evaluation testing
results, the Air Mobility command determined the missions that the C-
130J could safely perform given the known deficiencies. Specifically,
the Air Mobility Command released the C-130J to perform basic air,
land, assault, overwater operations, and medical evacuation, but
restricted the aircraft from performing night vision goggle operations,
combat search and rescue, visual formation, global air traffic
management, and air drop of paratroopers and containers. Because the
aircraft performed poorly during testing, the Air Mobility Command
could not release the C-130J to perform heavy equipment air drop and
hostile environment missions. Installation of upgrade 5.4 is supposed
to resolve those limitations except for heavy equipment air drop.
Installation of upgrade 6.0, which is scheduled for installation in
2007, is supposed to allow the C-130J to perform the heavy equipment
air drop mission.
recent director of operational test and evaluation assessment
In the 2004 Director of Operational Test and Evaluation Annual
report, issued in February 2005, the Director reported that the
aircraft is not operationally suitable. Demonstrated C-130J
reliability, maintainability, availability, and logistics
supportability failed to meet operational requirements and legacy
standards. Deficiencies were noted with on-aircraft integrated
diagnostics and fault isolation systems, portable maintenance aids,
maintenance technical orders, and the availability of spare parts.
Further, the testing of defensive systems did not demonstrate their
effectiveness and suitability.
related ongoing audits
We have one related audit of commercial acquisition practices in
the Department of Defense. The Audit of Commercial Contracting
Practices for Procuring Defense Systems (Project No. D2004AB-0182) will
determine whether procurement officials are complying with Federal
Acquisition Regulation Part 12 ``Acquisition of Commercial Items,'' and
Part 15, ``Contracting by Negotiation,'' when procuring defense systems
or their subcomponents. Specifically, we will evaluate the
justifications used to determine whether major systems or subsystems
meet commercial item criteria and evaluate the adequacy of the basis
for establishing price reasonableness. However, this audit is currently
suspended due to audit support for Base Realignment and Closure and
other operational priorities.
Senator McCain. Thank you very much.
Mr. Bolkcom, welcome.
STATEMENT OF CHRISTOPHER BOLKCOM, SPECIALIST IN NATIONAL
DEFENSE, CONGRESSIONAL RESEARCH SERVICE, LIBRARY OF CONGRESS
Mr. Bolkcom. Thank you, Mr. Chairman.
Distinguished members of the committee, thank you very much
for inviting me to speak with you today about DOD tactical
aviation programs. As requested, this testimony will focus on
how well the capabilities offered by these programs match DOD's
most pressing military challenges.
In short, DOD tactical aviation faces three interrelated
challenges: relevance, balance, and budget. These three
challenges will be explored at greater length in my written
statement, which I've submitted for the record.
The first challenge is relevance. Observing that DOD
tactical aviation faces a relevance challenge is, at first
blush, counterintuitive. After all, our air forces dominate
state-on-state conflict. Achieving significant military
objectives against non-state actors, however, including
terrorists and insurgents, has proven more difficult.
The terrorist attacks of September 11th graphically
illustrate that small groups of non-state actors can exploit
commercially-available technology to conduct destructive
attacks over great distances. Increasingly, it is recognized
that, in many cases, combating non-state actors presents
different, and sometimes greater, challenges than combating a
conventional military foe.
Generally speaking, today's Armed Forces were organized,
trained, and equipped with conventional state-on-state warfare
in mind. This is true for our air forces. Yet air power can
offer significant contributions to irregular warfare and
counterinsurgency. Intelligence-gathering, persistent
surveillance, aerial insertion of troops, and medical
evacuation of friendly forces are all potentially valuable
aviation missions.
The air-dominance and strike missions at which our tactical
aircraft excel are, of course, important to counterinsurgency
and other small wars. These missions, however, don't typically
require the high performance characteristics found in the F/A-
22, Joint Strike Fighter, and F/A-18E/F Super Hornet.
The second challenge is balance. There's a consensus view
in defense circles that air power is one of our great military
advantages. Some are increasingly concerned, however, that
military aviation is too focused on the demands of fighting
conventional foes, to the detriment of irregular warfare. The
challenge for U.S. air forces is to reshape themselves to
increase their relevance in small wars, while maintaining the
capability to win major conflicts. In other words, a balance
must be struck.
Supporters of DOD's current tactical aviation plan say that
the F/A-22, Joint Strike Fighter, and F/A-18E/F are required
for state-on-state conflict, despite our preeminence in this
area. Only these aircraft, they say, can cope with scenarios in
which adversaries are equipped with their own modern aircraft
and advanced surface-to-air missiles.
Supporters argue that the F/A-22, Joint Strike Fighter and
the Super Hornet can be made more applicable to small wars
through new concepts of operation, organizational schemes, or
technology upgrades.
Those seeking a re-balancing of DOD tactical aviation,
however, argue that the most stressing scenarios that require
advanced tactical aviation will be rare. U.S. dominance in
standoff weapons, airborne warning and control, electronic
warfare, and other elements of the overall air-power system
will enable U.S. tactical aircraft to prevail, with fewer
numbers.
The third challenge is budget. For more than 20 years, some
have predicted a train wreck in DOD's tactical aviation budget.
Observers see too many tactical aircraft chasing too few
dollars. Budget pressures have already taken their toll. Over
the past 14 years, the number of tactical aircraft that some
estimate DOD can afford has dropped by over 30 percent.
Tactical aviation budgets may be increasingly squeezed by other
aviation demands, such as purchasing long-range bombers, new
unmanned aerial vehicles (UAVs), and new helicopters. Perhaps
the most intense budget competition will come from the need to
replace our aging tanker fleet.
Some also believe that the costs of fighting the war on
terrorism and pending initiatives to increase personnel
benefits and personnel end strength will exacerbate budget
pressures and bring the tactical air (TACAIR) train wreck to
fruition.
In conclusion, it's noteworthy that in a recent interview
Navy Secretary Gordon England appears to confirm that DOD
leaders recognize these challenges to tactical aviation and see
a need to re-balance the force. Mr. England advocated that DOD
examine its entire tactical aviation enterprise and search for
efficiencies and savings.
One model for this examination, he said, is the recent Navy
and Marine Corps tactical air integration. By better combining
Navy and Marine Corps tactical aviation assets, the Department
was able to reduce purchases of tactical aircraft and save $35
billion in procurement while maintaining the same combat
capabilities.
Mr. Chairman, this concludes my remarks. Thank you, again,
for the opportunity to appear before you, and I look forward to
your questions.
[The prepared statement of Mr. Bolkcom follows:]
Prepared Statement by Christopher Bolkcom
Mr. Chairman, distinguished members of the subcommittee, thank you
for inviting me to speak to you today about DOD tactical aviation
programs.
As requested, this testimony will address the applicability of
DOD's tactical aviation modernization programs to the full range of
military challenges facing the United States. I will discuss how the
capabilities offered by these programs match up against DOD's most
pressing military challenges. In short, DOD tactical aviation
modernization faces three interrelated challenges: relevance, balance,
and budget.
relevance
Observing that DOD tactical aviation modernization programs face a
relevance challenge is, at first blush, counterintuitive. By all
accounts, the U.S. air forces dominate state-on-state conflict. The
United States has not faced a true peer military competitor since the
Soviet Union collapsed. Since 1991, U.S. military aircraft have flown
in excess of 400,000 combat sorties, and lost only 39 aircraft to enemy
action. Recent conflicts, such as Panama, Libya, Iraq (Desert Storm)
Bosnia, Kosovo, Afghanistan, and Iraq (Iraqi Freedom) illustrate that
in a variety of circumstances, U.S. Air Forces have proven very
effective at achieving classic military objectives against the armed
forces of other countries. Achieving significant military objectives
against non-state actors, however, has proven more difficult.\1\
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\1\ ``Non-state actors'' is an umbrella term that refers to a
number of armed groups such as political terrorists, narco-traffickers,
paramilitary insurgents, and even international organized criminal
organizations. These terms are not mutually exclusive. Paramilitary
groups can, for example, engage in narco-trafficking, terrorism, and
crime. Other terms which appear synonymous include ``Military
Operations Other Than War (MOOTW), and ``irregular warfare.'' Others
use the term ``small wars.''
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In the past, combating non-state actors was seen by many to be a
``lesser included case.'' Non-state actors appeared to be less
threatening to national security than the well funded, well organized,
and much more militarily potent Armed Forces of an enemy nation-state.
If, for example, the U.S. military was deemed adequate to deter or
defeat the Soviet military, then it was also deemed adequate to combat
non-state actors.
The terrorist attacks of September 11, 2001 graphically illustrate,
however, that small groups of non-state actors can exploit relatively
inexpensive and commercially available technology to conduct very
destructive attacks over great distances. Few observers today consider
non-state actors to be a ``lesser included case.'' Increasingly it is
recognized that in many cases, combating non-state actors presents a
different--and in many cases--a greater set of challenges than
combating a conventional military foe.
Military planners have a number of tools at their disposal to
attempt to find, identify, track, capture, neutralize, or kill
terrorists, counterinsurgents and other non-state actors. A survey of
counterinsurgency and anti-terrorism efforts indicates, that in
general, military aviation plays a prominent role in performing these
tasks. Airpower has proven very valuable in contemporary (e.g. Iraq,
Philippines) and historical (e.g. El Salvador) counterinsurgencies. The
most critical missions, appear to be persistent surveillance and
reconnaissance, aerial insertion of troops, combat search and rescue,
medical evacuation, tactical air mobility, and tactical airlift and
resupply.
The air dominance and strike missions at which today's tactical
aircraft excel are also important to counterinsurgency and other non-
state actor operations. These missions, don't however, typically
require the high performance characteristics of the combat aircraft
that DOD is currently developing and beginning to produce. Non-state
actors do not have resources to effectively challenge even modest Air
Forces. In some circumstances, aircraft less capable than the F/A-22,
JSF and F/A-18E/F may even be preferred for strikes against insurgents
owing to their lower airspeeds.
In general, the U.S. Armed Forces that are fielded today were
organized, trained and equipped principally with conventional, state-
on-state warfare in mind. This is true for DOD's major tactical
aviation programs. The F/A-22 traces its lineage to the Advanced
Tactical Fighter program (ATF) which began in the early 1980s. The F/A-
18E/F program was initiated in 1991 as the Navy's A-12 Naval ATF, and
F-14 re-manufacturing programs were terminated. The Joint Strike
Fighter (JSF) program, then called Joint Advanced Strike Technology
(JAST), began in 1993. Even in a ``post-September 11 environment,''
those developing these programs still see these aircraft as most
applicable to conventional warfare. For example, the most recent F/A-22
Operational Requirements Document (ORD), from the spring of 2004,
contains no mention of counterinsurgency missions, irregular warfare,
or capabilities to defeat terrorists.
One of the primary reasons why the relevance of DOD's tactical
aviation programs to defeating non-state actors is questioned, is
because the operational challenges are fundamentally different from
conventional military challenges. Compared to the armed forces of a
nation state, non-state actors are relatively easy to defeat in direct
combat. Non-state actors typically lack the equipment, training and
discipline that define a military force. Actually engaging in direct
combat with non-state actors is the core operational challenge. Non-
state actors typically don't wear uniforms. Indeed, they generally
strive to integrate themselves into the local civilian population.
Thus, target identification is very challenging. Non-state actors
rarely mass into easily recognizable formations. They typically lack
large infrastructure or obvious logistics processes. Therefore, non-
state actors present few ``high value'' targets for U.S. forces. This
challenge has not been lost on DOD leadership. For example Lt. Gen.
Wooley, Commander of Air Force Special Operations notes:
For many years, though, there's been a concern that
intelligence collection capability basically rested in the
ability to find a tank or an artillery piece hiding in a grove
of trees. The problem now becomes how to find individuals
hiding in groups of people. . . This presents a huge problem
for us.\2\
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\2\ Lt. Gen. Michael W. Wooley. Commander, Air Force Special
Operations Command. ``Application of Special Operations Forces in the
Global War on Terror.'' Air & Space Conference 2004. Washington, DC.
September 14, 2004.
The leadership and structure of many non-state organizations are
opaque. Such organizations might be diffuse and operate over long
distances. Al Qaeda, for example, often operates through partner
organizations which might be small and have fluid leadership. One DOD
leader has said ``When we kill or capture one of these leaders, another
one steps in and quickly takes their place.'' \3\ Once identified, non-
state actors are often difficult to engage due to concerns over
collateral damage. Even conventional state-on-state conflict presents
collateral damage concerns. When one party is actively trying to shield
itself behind non-combatants, however, delivering weapons with extreme
precision and minimum effects takes on increased importance. A recent
RAND study summed up the operational challenges:
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\3\ Ibid.
. . . ferreting out individuals or small groups of terrorists,
positively identifying them, and engaging them without harming
nearby civilians is an extremely demanding task. Substantial
improvements will be needed in several areas before the Air
Force can be confident of being able to provide this capability
to combatant commanders.\4\
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\4\ David Ochmanek. ``Military Operations Against Terrorist Groups
Abroad.'' RAND. 2003.
In sum, identifying and characterizing the insurgent or terrorist
target is a key problem for DOD, and it is difficult for many to see
how tactical aviation plays a leading role in overcoming this
challenge. Similar observations can be made for counterinsurgency and
irregular warfare tasks such as persistent surveillance, stealthy
insertion of troops, rapid resupply or medical evacuation of friendly
forces operating in remote and austere areas.
balance
Senior leaders in DOD appear to appreciate the distinct challenges
that combating non-state actors present, however, and are taking steps
to ensure that these challenges are reflected in long-term military
plans, programs, and policies.
DOD's 2006 Strategic Planning Guidance found that the U.S. is well
positioned to deal with a conventional military adversary.
Increasingly, however, the U.S. may find itself facing non-conventional
foes, for which it is not well prepared.\5\ Further, it has been
reported that DOD leadership has instructed regional combatant
commanders to ``develop and maintain new war plans designed to reduce
the chance of postwar instability like the situation in Iraq.'' \6\
Based on these plans, some believe that this year's Quadrennial Defense
Review (QDR) ``could upend U.S. military procurement plans as Pentagon
officials shift their focus from waging conventional warfare to
developing new ways to counter catastrophic, disruptive and irregular
threats--in a word, terrorism.'' \7\
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\5\ ``Building Top-Level Capabilities: A Framework for Strategic
Thinking.'' Briefing to Senior Level Review Group. August 19, 2004.
\6\ Greg Jaffe and David Cloud. ``Pentagon's New War Planning to
Stress Postconflict Stability.'' Wall Street Journal. October 25, 2004.
\7\ Jason Sherman. ``U.S. War on Terror Looms for QDR.'' Defense
News. October 25, 2004.
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There is a consensus view in defense circles that airpower is one
of the United States' great military advantages. Some are increasingly
concerned, however, that military aviation is focused too much on the
demands of fighting conventional foes to the detriment of irregular
warfare, and that ``the challenge for the Air Force is to re-shape its
forces to increase their relevance in small wars, while maintaining the
capability to win major conflicts.'' \8\ In other words, a balance must
be struck.
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\8\ Thomas McCarthy. National Security for the 21st Century: The
Air Force and Foreign Internal Defense. School of Advanced Air and
Space Studies. Air University. Maxwell AFB, AL. June 2004. p.67. And
Thomas R. Searle. ``Making Airpower Effective against Guerrillas.'' Air
& Space Power Journal. Fall 2004.
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Supporters of DOD's current plan for tactical aviation
modernization say that the F/A-22, JSF and F/A-18E/F are still required
for state-on-state conflict, despite U.S. preeminence in this area, and
that new concepts of operation, new organizational schema, or
technology upgrades may increase these systems' applicability to
counterinsurgency and irregular warfare challenges. Those who support
DOD's current tactical aviation modernization plans, could argue that
fluid threat environments are nothing new. Platforms with long
development time lines and long operational lives often must be
modified and used differently than originally intentioned so as to keep
pace with new threats and military objectives. It is much more
difficult, to take the opposite approach, they could argue. From their
perspective, DOD can't develop technologically less sophisticated
weapons systems to address unconventional threats, and then improve
these systems in the future if more high tech threats arise.
While ``low-tech'' insurgents and other non-state actors appear to
deserve more attention than in the past, the United States shouldn't
slight its traditional military strengths, tactical aviation supporters
argue. DOD has evolved from a ``threat based'' to a ``capabilities
based'' planning framework. Threats can change, but the military
capabilities we desire, tend to have a longer life-span. We know that
achieving air dominance is a key military capability we must maintain,
supporters of DOD's current tactical aviation say, and we must prepare
to achieve air dominance in the most stressing scenarios; such as a
potential conflict with China, for example.
Russian SA-10 and SA-12 surface-to-air missiles (SAM) have been
operational since the 1980s. These ``double digit'' SAMs are a concern
for military planners due to their mobility, long range, high altitude,
advanced missile guidance, and sensitive radars. The Russian SA-20,
still under development, has been likened to the U.S. Patriot PAC-2
missile, but with an even longer range, and a radar that is very
effective in detecting stealthy aircraft. Military planners are
concerned that a country with only a handful of these SAMs could
effectively challenge U.S. military air operations by threatening
aircraft and disrupting operations from great distances.
A variety of new technologies and military systems could exacerbate
the ``double digit'' SAM challenge. First, commercial information and
communications technologies are enabling adversaries to better network
the elements of their air defense systems. This allows them to disperse
radars, SAM launchers and other associated platforms throughout the
battlespace, and to share targeting information among launchers. This,
in turn, suggests that radars may be used less frequently and for
shorter periods of time, complicating efforts to avoid or suppress
them. Second, terminal defenses are being marketed by a number of
international defense companies. These radar-guided Gatling guns are
designed to protect ``double digit'' SAMs or other high value air
defense assets. These systems could prove quite effective in shooting
down missiles aimed at enemy air defenses. Third, Russia and other
countries have developed and are selling GPS jammers. Over varying
distances, these low-watt jammers may degrade the GPS guidance signals
used by many U.S. precision-guided munitions (PGMs) to augment inertial
guidance systems, reducing their accuracy.
If these double digit SAMs are protected by an enemy air force
equipped with advanced Russian or European combat aircraft, the
military problem becomes dire, say supporters of DOD tactical aviation.
According to press reports, a recent Air Force exercise with the Indian
Air Force, called Cope India, illustrates that pilots from non-North
Atlantic Treaty Organization (NATO) countries can receive excellent
training and execute advanced air combat tactics. When flying advanced
combat aircraft such as the SU-30, such well trained pilots could
effectively challenge U.S. Air Forces, some say.
DOD's tactical aviation programs are designed to prevail in
scenarios where enemies field advanced SAMs, advanced fighter aircraft,
and associated technologies. Supporters argue that a reduction in U.S.
tactical aviation would threaten our ability to prevail and could
jeopardize key U.S. national security goals.
Most would agree that DOD still requires advanced tactical aircraft
to deter and fight tomorrow's conventional conflicts. However, many
argue that the efforts and resources expended to develop and produce
the F/A-22, JSF, and F/A-18E/F are not balanced with current and
foreseeable conventional military challenges. The ability to achieve
air dominance is a key capability that DOD must sustain, but against
whom? Air dominance was achieved in about 15 minutes over Afghanistan
and Iraq, some say, and, for the most part, with aircraft designed 30
years ago (e.g. F-15s, F-16s, AV-8Bs).
The stressing air dominance scenario described above may require
some of the aircraft currently being developed by DOD. However, how
many of these scenarios might realistically emerge in the future? Many
would agree that a ``Taiwan straits scenario'' could be one such
challenge, but other examples are very difficult to credibly imagine.
Those who seek a rebalancing of DOD tactical aviation argue that the
proliferation of advanced SAMs has not occurred, and will likely not
occur in the future, at the rate predicted by DOD.
Despite being on the market for over 20 years, Russia reportedly
has only managed to sell double digit SAMs to five other countries
(Bulgaria, China, Czech Republic, Germany, and Greece), three of which
were Soviet client states at the time of the sale. While these weapons
are clearly dangerous, they are also expensive, and require extensive
training to operate effectively, some argue. This has arguably slowed
the proliferation of these systems, and may also do so in the future.
Russia failed to sell SA-10 and SA-12 SAMs to Chile, Egypt, Hungary,
Iran, Kuwait, Serbia, South Korea, Syria, and Turkey. These countries
have opted instead to purchase either U.S. SAMs, or more modest air
defense systems. According to one well known missile analyst
Russia has traditionally played a significant role in world-
wide SAM export. But Russian SAM sales have taken a nose dive
since their heyday in the 1970s and 1980s. Particularly
disappointing has been the very small scale of sales of the
expensive high altitude systems like the S-300P and S-300V. The
Russian industries had expected to sell 11 S-300P batteries in
1996-97, when in fact only about three were sold. Aside from
these very modest sales to China and Greece, few other sales
have materialized. Combined with the almost complete collapse
of Russian defense procurement, the firms developing these
systems have been on the brink of bankruptcy in recent
years.\9\
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\9\ Steven Zaloga. World Missile Briefing. Teal Group. Inc.
Fairfax, VA. February 2005.
Those who wish to re-balance DOD tactical aviation also argue that
the proliferation of, and threat from advanced combat aircraft is also
overstated. Building, operating, and maintaining a modern air force is
much more expensive and resource intensive than fielding advanced SAMs.
Few countries have the resources and national will to develop and
maintain an air force that could challenge U.S. airpower, they argue.
Some say that advanced Russian and European aircraft being developed
and fielded today may compare well to 30-year old U.S. combat aircraft,
on a one-to-one basis. But aircraft don't fight on a one-to-one basis.
Instead, they are part of a much larger airpower system. This system is
composed, for example, of combat, intelligence, surveillance, airborne
warning and control, aerial refueling, electronic warfare, and mission
control assets. The importance of well trained pilots and maintenance
personnel, which take considerable time and resources to create, cannot
be over emphasized.
No other country has an airpower system on par with the United
States, nor is one predicted to emerge. Therefore, some argue, today's
DOD's tactical aviation programs can be safely reduced in order to free
up funds to address other military challenges, and thus bring scarce
resources more into balance. The resources saved from these cuts to DOD
tactical aviation could be used to invest in systems and personnel more
applicable to combating terrorists and insurgents, or to conduct
homeland defense.
budget
For more than 20 years--since 1993--some observers have predicted a
``train wreck'' in DOD's tactical aviation programs. These observers
see too many aircraft competing for too few dollars. It may be that a
budgetary train wreck is looming. As the table below suggests, a more
apt metaphor for the tactical aviation budget to date, may be one of a
``slow leak.'' Over the past 14 years, budget pressures have reduced
the number of aircraft that some estimate DOD can afford by more than
30 percent.
ESTIMATED NUMBER OF AIRCRAFT TO BE PROCURED i
----------------------------------------------------------------------------------------------------------------
Fiscal Year F/A-22 JSFii F/A-18E/F Total
----------------------------------------------------------------------------------------------------------------
1991............................................................ 648 2,978 1,000 4,626
1993............................................................ 442 2,978 1,000 4,420
1997............................................................ 339 2,978 548 3,865
2000............................................................ 333 2,866 548 3,859
2004............................................................ 279 2,866 462 iii 3,607
2006............................................................ 179iv 2,443 462 3,084
----------------------------------------------------------------------------------------------------------------
i Estimates by DOD Comptroller, GAO, CBO, CRS.
ii The United Kingdom plans to buy 150 JSFs. However, budget shortfalls may force the U.K. to reduce purchases.
iii Figure does not include 90 EA-18G electronic attack aircraft.
iv If PBD-753 recommendations are approved.
This ``slow leak'' in tactical aviation funding may continue. Or,
budgets may hold steady. (Few predict that tactical aviation budgets
will increase in real terms.) However, other aircraft acquisition
challenges may continue to erode tactical aviation's budget. Spending
on Unmanned Aerial Vehicles (UAVs), doubled between 2001 and 2003 ($667
million to $1.1 billion) and DOD's appetite for these systems continues
to grow. All the Services wish to recapitalize their helicopter fleets.
Advocates of long range bombers have been pressuring the Air Force to
maintain its current inventory of bombers, and to field a replacement
earlier than the planned date of 2037. Also, as Congress is well aware,
replacing DOD's aging fleet of long range aerial refueling aircraft
will be costly. Outgoing Acting Secretary of the Air Force Peter Teets
recently told reporters that he believed recapitalizing the Air Force's
aerial refueling aircraft to be the Service's biggest challenge.\10\
This suggests that tankers could also compete well with fighters in the
current Quadrennial Defense Review.
---------------------------------------------------------------------------
\10\ Sharon Weinberger. ``Teets Says Tankers Number One Air Force
Priority.'' Defense Daily. March 24, 2005.
---------------------------------------------------------------------------
Some also believe that previously unanticipated costs associated
with combating terrorism may mean that the ``tac air train wreck'' has
fully arrived. CRS estimates that since the September 11 terrorist
attacks, DOD has received over $201 billion for combat operations,
occupation, and support for military personnel deployed or supporting
operations in Iraq and Afghanistan and for enhanced security at
military installations. If pending supplemental appropriations are
approved, the figure through fiscal year 2005 will amount to $270
billion.\11\ Pending DOD and congressional initiatives to increase both
personnel benefits and personnel ``end strength'' could also increase
pressure to reduce tactical aviation budgets.
---------------------------------------------------------------------------
\11\ See CRS Report RS21644. The Cost of Operations in Iraq,
Afghanistan, and Enhanced Security.
---------------------------------------------------------------------------
The act of matching resources (i.e. budget) to objectives in a
procurement program can be called a ``business case.'' Government
Accountability Office (GAO), for one, has argued that the F/A-22 lacks
a business case (GAO-05-304), and that the JSF's business case is
``unexecutable'' (GAO-05-271). This assertion suggests to some, at
least implicitly, that the relevance of these aircraft, as reflected in
their currently planned procurement quantities, to the current military
environment, is unclear. Air Force representatives say that they are
developing a new business case for the F/A-22.
conclusion
Recent remarks by Navy Secretary, and Deputy Secretary of Defense
nominee, Gordon England appear to reflect the three challenges to DOD
tactical aviation programs discussed above, and to suggest one means to
meet these challenges. In a March 21, 2005 interview, Secretary England
reportedly advocated that DOD examine its ``whole [tactical aviation]
enterprise'' and search for efficiencies and savings. He predicted,
reportedly, that ``the most efficient, effective way to construct our
air assets'' may be one of the biggest debates in the current
Quadrennial Defense Review.
According to reporters, Mr. England recognized that tactical
aviation programs amount to ``a huge amount of money,'' and noted that
by better integrating Navy and Marine Corps tactical aviation assets,
the Department was able to reduce aircraft purchases and save $35
billion, while maintaining the same combat capabilities. Increased
efficiencies that might be realized across DOD's tactical air
enterprise might include better integration, and more common assets, he
told reporters.\12\
---------------------------------------------------------------------------
\12\ Christopher J. Castelli. ``DEPSECDEF Nominee Sees Potential
For DOD-Wide TACAIR Integration.'' Inside the Navy. April 4, 2005.
---------------------------------------------------------------------------
Mr. Chairman, this concludes my remarks. Thank you again for the
opportunity to appear before you. I look forward to any questions you
may have.
Senator McCain. Thank you very much, Mr. Bolkcom.
Just to start out, one of the most spectacular aspects of
the war in Afghanistan was our capability to illuminate targets
using special forces personnel on horseback, but the remarkable
accuracy, pinpoint accuracy, of our weapons delivered both from
carriers and tactical aircraft, even some launched from the
United States, does that argue for a high-performance tactical
aircraft?
Mr. Bolkcom. Sir, I think that the most relevant resources
to irregular warfare tend not to be those most high-tech sort
of platforms. As you mentioned, helicopters special operations
or forces air-liaison officers equipped with laser range-
finders and radios can be very valuable. It's difficult to see
an application, for a 9G supersonic fighter in that sort of
specific scenario.
Senator McCain. Mr. Sullivan, you, several times in your
statement, make the comment that they have to make a new
business argument. What is that business argument?
Mr. Sullivan. For?
Senator McCain. What argument, given the nature of your
report, of your assessment, what is the new business argument
that they can make?
Mr. Sullivan. Well, generally speaking--I'm just basically
speaking, when we talk about a business case, we're talking
about as basic as you can get at matching needs with resources.
So there's a need--right now, we think that, in both programs,
the Air Force, with the F/A-22, probably more critically right
now, with the air-to-ground need that they are developing, that
seems to be not a need that has been really definitized real
hard yet, that they haven't done a strong analysis of
alternatives, for example, to make that need concrete. They
need to understand the need more for the air-to-ground mission
that they want the F/A--that strike mission they want the
mission they want the F/A-22 to do.
Senator McCain. Originally, it was an air-to-air platform.
Mr. Sullivan. The F/A-22 was an air-dominant fighter, yes.
Senator McCain. Do you know of any aircraft on the drawing
board in any country, in the world, that would challenge
present, existing aircraft fighter aircraft.
Mr. Sullivan. The F/A-22, in fact, just went through
initial operational test, did a fine job performing as an air-
dominance-type fighter. If we start talking about threats, we'd
probably get into a classified discussion pretty quickly.
Senator McCain. Classified situation.
Mr. Sullivan. But the air-to-air mission is important to
the F/A-22. The air-to-ground mission, we're less clear about.
I think they need to make that case, and that's part of the
business case we're talking about.
Now, on the flip side of that is, when do you need it? How
many of those do you need? How can that be deployed properly in
the Air Force's concept of operations? How much money is that
going to cost? Right now, they're talking about an $11 billion/
15-year program.
Senator McCain. One of the problems we always experience is
that initially we're going to plan on a huge number of
aircraft, many hundreds. I've seen this forever.
Mr. Sullivan. On most programs, I agree.
Senator McCain. Yet then the cost goes up, so we're going
to reduce the numbers. But then the cost goes up because we're
reducing numbers. What's the answer to that one?
Mr. Sullivan. Well, I think perhaps what we do in these two
reports is focus on the total cost the total investment. To
develop an aircraft would be development cost in the billions
of dollars, and then procurement costs. You can look at it two
ways. You can look at sum cost, which would be like a total
program--average program cost for aircraft of the F-22, for
example, is very high. Right now, if they terminate that and
only build 180 aircraft, for example, if you add up all those
costs and divide by 180, you get 345 million, or something. The
flip side of that is that there's a flyaway--the cost of the
last one coming off the line obviously is----
Senator McCain. One of the great imponderables in history
is the actual cost of an aircraft. [Laughter.]
Mr. Sullivan. Yes, sir.
Senator McCain. I've never even heard the actual cost of a
F-4 Phantom, much less--anyway, I thank you.
Mr. Schmitz, do you know who made the decision to base the
acquisition of C-130J as a commercial venture?
Mr. Schmitz. It was a push by Lockheed Martin. There was a
contracting officer; and, ultimately, the contracting officer
was being supervised, as we understand, by the same
contracting----
Senator McCain. By Ms. Druyun.
Mr. Schmitz. Yes, sir.
Senator McCain. Wouldn't that argue for the Air Force to go
back and reevaluate that contract when they found out that it
was Ms. Druyun that made the decision to have this as an other
transaction agreement (OTA), rather than under the normal
procurement procedures, you would think?
Mr. Schmitz. Yes, sir.
Senator McCain. Did the Air Force contracting officer, top
acquisition executive, properly justify the use of a commercial
item--have you gotten any cost data from Lockheed Martin,
actual cost data? I understand that they have not been
forthcoming with any of it. Is that true? Maybe that's a
question for the next panel, but----
Mr. Schmitz. Yes. Let me just check with my audit----
VOICE: Lockheed Martin is not required to provide any cost
or pricing data.
Mr. Schmitz. Did you understand that, Mr. Chairman?
Senator McCain. They're not required to, so they're not,
because they have an exemption from Federal Acquisition
Regulation (FAR) Part 12.
In 1995, the price for the basic C-130J was $33 million.
1998, it's now $50 million. 2004, the price is now $67 million.
Because the Air Force is acquiring these C-130Js using a FAR
Part 12, a commercial item acquisition strategy, the Air
Force's established position that it cannot require Lockheed
Martin to provide certified cost or pricing data. Is that a
concern, Mr. Schmitz?
Mr. Schmitz. Well, it is for us, because, without the
knowledge of Lockheed Martin's prices, costs, profits, or data,
the Air Force contracting officer is limited in his ability to
protect the government against overpricing or fraud.
Senator McCain. Your report concluded that Lockheed Martin
has been unable to design, develop, or produce a C-130J
aircraft that meets contract specifications in the 10 years
since production began. You made several significant
recommendations to resolve contract deficiencies, ensure what
repairs to nonoperational aircraft are performed by Lockheed
Martin in a timely manner. Did Air Force assistant Secretary
Sambur agree with your recommendations?
Mr. Schmitz. Initially not. But, by the time we got through
the process of finalizing our report, we essentially had full
concurrence in our recommendations from the Air Force.
Senator McCain. Did Secretary Sambur, as the top Air Force
acquisition executive, withhold any monies from Lockheed Martin
to leverage them to fix the C-130J?
Mr. Schmitz. Not that we're aware of.
Senator McCain. July 30, 2004, brief to the Senate Armed
Services Committee, Secretary Sambur concluded the way to
increase military capability for the C-130J and to motivate
Lockheed Martin to fix deficiencies was to establish, in 2002,
a C-130J group-hug Blue Ribbon Panel. As far as you know, did
the establishment of the C-130J group-hug Blue Ribbon Panel fix
the C-130J deficiencies?
Mr. Schmitz. As far as I know, no, sir.
Senator McCain. As far as your latest evaluation is
concerned, the C-130J is still not operationally capable?
Mr. Schmitz. We've heard, in the last 6 months, the Air
Force has made some improvements. This is only hearsay, but I'm
told that they made improvements, and there may be some
operational C-130Js now. Limited operational.
Senator McCain. Thank you.
Mr. Bolkcom, thank you for your overview.
Mr. Bolkcom. Yes, sir.
Senator McCain. We appreciate it. It's always important to
view these specific programs in the general overview of the
strategic challenges. I thank you.
Senator Lieberman.
Senator Lieberman. Thanks, Mr. Chairman.
Mr. Sullivan, I wanted to ask you some questions about your
report. I mean, to say the obvious, this committee has worked
very hard--we and our predecessors here over the years--to
provide the military with the best equipment we can. It's
doubly, maybe more than that, frustrating for us as we watch
the cost of the programs escalate, and the number of items
being reduced, as you've documented very compellingly here,
with regard to technical aircraft.
If you had to sum it up in a paragraph, what lessons have
we learned from the story of the F/A-22, up until this point,
that, for instance, can be applied to the Joint Strike Fighter
program?
Mr. Sullivan. If there's one lesson that you could apply
right now to the Joint Strike Fighter program, it would be to
wait until you have a design, an aircraft that has a stable
design, to do the mission that the requirements call for it to
do.
Senator Lieberman. But to wait until it has that stable
design to do what?
Mr. Sullivan. To be able to perform the key performance
parameters for that aircraft, in terms of how far it can fly,
how fast it can fly, what kind of payload it can deliver, air-
to-ground mission, air-to-air mission, all of those different
things. They have a requirements document that lays all of that
out.
Senator Lieberman. Yes.
Mr. Sullivan. They're trying to build an aircraft to meet
those requirements now. They're having trouble with that, at
this point.
Senator Lieberman. Right.
Mr. Sullivan. If there's one lesson I think they learned
from the F/A-22, it's to measure twice and cut once, if you
will.
Senator Lieberman. Yes.
Mr. Sullivan. It's to stop right now and try to get an
engineering-type prototype that they are fairly certain will be
able to meet at least some of those missions.
The other thing that they can do is look at their
acquisition strategy and be more evolutionary, maybe go a block
approach earlier, where they're not reaching for all of the
capability that they envision on that aircraft right now. But
this gets to the business case. Maybe reduce some of those
capabilities for a first increment of that aircraft, get the
aircraft built, and put on what they know how to do now. The
lesson is knowledge. What they should do is build what they
know how to build at this point.
Senator Lieberman. Right.
Who should we hold accountable for the fact that that
didn't happen with the F/A-22?
Mr. Sullivan. That's a good question. The Services are
required to train, organize, and equip the forces, but the
Department of Defense has an acquisition office that also more
or less heads up the decisionmaking on those programs. But I
think, even more than that, if we want to get down to laying
blame, there's probably a lot of people that you could blame
for programs getting this far out of balance.
Senator Lieberman. Is it because we try to consistently add
more to the program?
Mr. Sullivan. On the F/A-22, for example, there has been
classic requirements-creep.
Senator Lieberman. Right.
Mr. Sullivan. We try to establish the toughest requirements
that we can have for the warfighter, so the warfighter is
dominant in the field, and sometimes they're not very easy to
get to. So, yes, I'd say we overreach very often on setting
requirements.
Senator McCain. Could I ask, is lack of congressional
oversight one of those factors?
Mr. Sullivan. We believe that--well, when we look at
acquisition programs, is, we focus on the Pentagon, more than
congressional oversight, and the policies that they have for
their acquisitions. I think there are a lot of rules and laws.
We're talking about some of these--FAR Part 12 versus FAR Part
15, for example. These two programs were both FAR Part 15
programs, which means that statute has been written to put in
an awful lot of oversight, including cost accounting standards,
Truth in Negotiation Act (TINA) for cost pricing data,
Competition in Contracting Act, and all of those things. Both
of these programs had those. There was a lot of oversight on
the program, yet they still got out of control. Right.
Mr. Sullivan. When we look at DOD's--the Pentagon's
acquisition policies themselves, these are the people that are
going to manage these programs, and we think the policies lack
a lot of internal controls that could be put into place. The
policies are not ever executed very consistently. I just
believe those policies have been lax.
Senator Lieberman. Right.
Mr. Sullivan. There are a lot of contracting issues that go
along with that as well.
Senator Lieberman. Yes.
So those are the lessons you'd draw as we go forward with
the Joint Strike Fighter. Do you think it's the correct
decision to terminate procurement in fiscal year 2008, as is
now proposed, for the F/A-22?
Mr. Sullivan. That would not be for me or the Government
Accountability Office (GAO) to answer, but I think that's why,
when we looked at the program this year with that as part of
its environment, we decided, if nothing else, the Air Force has
to at least stop and recalculate, recalibrate, if you will,
what they're going to do, given that budget decision hanging
out there right now. They need to come back with a very
rational decision about how many aircraft they need and how
they're going to use them.
Senator Lieberman. So the business case would really be to
continue the program beyond 2008. Am I right?
Mr. Sullivan. Yes. If they want to continue right now, as
it stands, the modernization program that they said they've
needed to bring a very robust air-to-ground strike capability
to the F/A-22, under the decision, as it stands right now, it
will be very difficult to do that, because they will not
procure any aircraft after 2008. That modernization program was
to fit those aircraft, past 2008, with those capabilities.
Senator Lieberman. One last question. In the case of the
Joint Strike Fighter, you also indicate that there's a need for
a new business case for both aircraft--for that program, but
you mentioned that the program's critical design review is not
going to occur until early in 2006. Shouldn't we have the
results of that review before the Department decides on aspects
of a revised Joint Strike Fighter business case?
Mr. Sullivan. We would say, ideally, that a critical design
review is a key point in a program where you should come out of
that review with the knowledge that you have a stable design.
So, you're right, I think you should wait until a review like
that is over. But in the case of the Joint Strike Fighter, we
think that review, as it's scheduled right now, is probably
happening a little bit too early, because they will be having a
review that's supported by an aircraft design that's
overweight. We'd like to see them get that slimmed-down
version; not necessarily integrated, but perhaps another 6
months to a year beyond that, when they can fly that first
prototype. Then we believe they will have a very stable design,
and it wouldn't take a lot of changes after that, when it gets
very expensive.
Senator Lieberman. Thank you.
Mr. Sullivan. So I'd say somewhere past a year.
Senator Lieberman. Thanks, Mr. Chairman.
Senator McCain. Senator Chambliss?
Senator Chambliss. Mr. Sullivan, you're talking about that
problem with the Joint Strike Fighter? That was a similar
problem you had with the F/A-22, relative to weight, initially,
wasn't it?
Mr. Sullivan. I believe the F/A-22 did have weight issues.
Senator Chambliss. Similar problem we had with the F-15,
wasn't it?
Mr. Sullivan. Yes, sir.
Senator Chambliss. Similar problem we had with the F-4,
wasn't it?
Mr. Sullivan. Yes, sir.
Senator Chambliss. In other words, my point is, anytime you
have a new tactical aircraft to come out, you're going to have
problems that are consistently appearing on all of the aircraft
that are not that unusual. We have problems in the design,
research, and development of basically every airplane, do we
not?
Mr. Sullivan. Yes, sir, we do.
Senator Chambliss. That's the reason we have research and
development. Your point about the F/A-22 being designed for
air-to-air, when this airplane was originally conceived, was
the real threat out there, and that was why we needed this
follow-on airplane to the F-15, isn't that correct?
Mr. Sullivan. Yes, sir.
Senator Chambliss. That changed during the course of the
last several years to require the Air Force to come back to the
contractor and say, ``We still want that air-to-air capability,
but, in addition to that, we want air-to-ground capability,''
right?
Mr. Sullivan. Yes, sir.
Senator Chambliss. That is a major change, isn't that
correct?
Mr. Sullivan. Yes, sir. That's a lot of extra additional
requirements. It will be tough to get.
Senator Chambliss. Have we ever manufactured a tactical
fighter where the Air Force said, ``We want you to have air-to-
air and air-to-ground capability''?
Mr. Sullivan. I couldn't answer that right now.
Senator Chambliss. Well, from the standpoint of air
dominance, we obviously have to be able to knock out the enemy
on the ground, correct? That was to be one function of this
air-to-ground availability of the F-22, right?
Mr. Sullivan. Yes. That's a function they want now, yes.
Senator Chambliss. If any of them got away, we wanted to
make sure we had the most superior aircraft in the world to be
able to knock them out air-to-air. Is that airplane headed in
that direction now?
Mr. Sullivan. I think that its air-to-air capability has
been tested and looks very robust. I could not comment on where
the Air Force is now with the air-to-ground capabilities.
They're just beginning that. I think the requirements are still
not locked down in the modernization program. They're still
working on coming up with a plan to implement that.
Senator Chambliss. Okay.
Mr. Chairman, I assume at some point we're going to have a
classified hearing where we can talk a little more about the
specifics of that, so I'll leave that alone for right now.
Mr. Schmitz, wasn't the commercial contract on the C-130J
unusual to have for an airplane like that?
Mr. Schmitz. Yes, sir.
Senator Chambliss. In fact, it was a pilot testing project
to have a commercial contract for that airplane.
Mr. Schmitz. Generally speaking, that was a test. Yes, sir.
Senator Chambliss. That's the reason you have projects like
that, to see whether or not it works, from a commercial
standpoint, correct?
Mr. Schmitz. Yes, sir.
Senator Chambliss. As you look back on it, do you think a
commercial contract for the C-130J is probably the best route
to go, or should we go the normal contracting route?
Mr. Schmitz. Well, it certainly doesn't give us the level
of oversight that a standard system acquisition strategy would
give us.
Senator Chambliss. Okay. In your report, you cited some
significant deficiencies in the airplane, all of which
deficiencies were addressed by the Air Force. Is that right?
Mr. Schmitz. In their comments, they addressed them. Yes,
sir.
Senator Chambliss. The Air Force totally disagrees with
your assessment of the airplane. Is that a fair statement?
Mr. Schmitz. They did, initially, at the time that we
circulated our report; but we've actually worked with them, in
terms of coming to an agreed-upon way forward to address the
deficiencies.
Senator Chambliss. Yes. In fact, they've addressed each one
of the four areas where you felt there were deficiencies with
the airplane.
Mr. Schmitz. They addressed them in their comments? Or
they've actually solved?
Senator Chambliss. No, they've actually addressed them.
Mr. Schmitz. Yes, this is an ongoing process. I would say
they are addressing them. Yes, sir.
Senator Chambliss. Yes. Well, they've addressed them to the
point to where you pointed out that 50 of the airplanes were
delivered, and--what was your exact term? They were not
operationally suitable. Is that the term you used? I just had
it a minute ago. I apologize.
Mr. Schmitz. Yes, sir.
Senator Chambliss. Is that the term you used?
Mr. Schmitz. Yes, sir.
Senator Chambliss. The fact of the matter is that the
airplane is flying in theater today, isn't it?
Mr. Schmitz. We understand, in the last 6 months, there
have been some operational missions. Yes, sir.
Senator Chambliss. Yes. In fact, the Air Force pretty well
refuted your statement beginning in February 2003, that the
delivery of these airplanes was not operationally suitable. In
fact, they said that every one of them was operationally
suitable under the terms of the commercial contract. Isn't that
correct?
Mr. Schmitz. Is that what the Air Force said?
Senator Chambliss. Yes.
Mr. Schmitz. Is that what you're asking?
Senator Chambliss. Yes.
Mr. Schmitz. I believe that's an accurate description of
the Air Force's position at the time.
Senator Chambliss. Okay. I understand what your job is. You
have a difficult job in trying to assess each one of these
programs and trying to determine whether or not the Air Force
is doing exactly what they're supposed to do under the
contract. After reading your report and looking at the Air
Force's response to your report, you really didn't find
anything that the Air Force was either not addressing at that
point in time of your report or that they have sat down, as you
said, and been willing to address with you, to get that
aircraft to the point to where it's capable of flying in
theater, in combat, today. Is that fair?
Mr. Schmitz. It is fair to say that they have addressed all
of the issues we raised. They are addressing them. My
understanding is, as of today, there are still over a hundred
deficiencies that they are outstanding, and are still being
addressed.
Senator Chambliss. But the plane is flying in combat today,
is it not, with those deficiencies still being worked on.
Mr. Schmitz. There have been limited, not all of the
delivered aircrafts, I believe, are operationally capable. I
believe that it's been very limited operational success, thus
far, sir.
Senator Chambliss. Are you aware of any C-130Js that have
been sold to other countries, that have been flying in theater
for the last couple of years?
Mr. Schmitz. No, sir.
Senator Chambliss. Okay. Did you ask about those?
Mr. Schmitz. Yes, sir.
Senator Chambliss. What were you told?
Mr. Schmitz. I believe we did ask about them. There are
no--the British? There--I stand corrected, sir. There is a
British C-130J.
Senator Chambliss. Yes, I want to make sure you all
understand they've been flying in theater for a couple of
years.
Mr. Schmitz. Yes, sir.
Senator Chambliss. Now, Senator McCain's question to you
relative to these documents, I want to make sure I understand
this, because I have great sympathy for the fact that
contractors ought to provide this committee or you with
whatever documents that they're supposed to give you.
Withholding documents is a pretty serious charge. But is it my
understanding that the fact that this is a commercial contract
exempts the contractor from the requirement of giving you
certain documents?
Mr. Schmitz. That's right. We did not ask for them, and so,
there were none to withhold.
Senator Chambliss. Again, going back to the issue of
whether or not this should have been a commercial contract or
not. Just looking at it from that perspective, Mr. Schmitz,
getting the various documents that you asked for, was this a
mistake to go with a commercial contract?
Mr. Schmitz. Well, it goes back to what you said at the
beginning, that this was a test case, and I think we've learned
some very good lessons from this test case. It ultimately comes
down to a level of oversight that both you, as Congress has,
and we, are able to exercise as an oversight entity. It's a
choice. It's a calculated risk. The bottom line in this case is
that with very limited exceptions, the U.S. Services have not
gotten an operationally capable aircraft. Yet.
I would also point out, my staff has reminded me, the
British operational capabilities are not the same as the U.S.
specifications. So it is true that there are some British.
Senator Chambliss. Which might tell us something about our
requirements, I guess?
Mr. Schmitz. Yes, sir.
Senator Chambliss. I don't want to dwell on this too long,
Mr. Chairman, but let me just close with this question. Is the
Air Force continuing to work with your office to make sure that
all the deficiencies which you, as the civilian oversight arm
of DOD, working with you to do everything possible to make the
corrections that you have identified?
Mr. Schmitz. Yes, sir. I would point out that the Air Force
is using FAR Part 15 for future upgrades, as a result of the
lessons learned thus far.
Senator Chambliss. Has there been any pushback from either
the Air Force or the contractor relative to addressing the
deficiencies which you have noted?
Mr. Schmitz. Well, initially there was significant
pushback, and, as we've worked through things, we've gotten
them to cooperate with our recommendations.
Senator Chambliss. Thank you, Mr. Chairman.
Senator McCain. Thank you. I want to thank the witnesses.
We'll now move to our next panel, which is the Honorable
Mike Wynne, Under Secretary of Defense for Acquisition,
Technology, and Logistics; the Honorable John Young, Assistant
Secretary of the Navy for Research, Development, and
Acquisition; Vice Admiral Joseph Sestak, Deputy Chief of Naval
Operations for Warfare, Requirements, and Programs; Major
General Stanley Gorenc, Director, Operational Capabilities and
Requirements, United States Air Force; and Brigadier General
Martin Post, USMC, Assistant Deputy Commandant for Aviation,
United States Marine Corps.
As the witnesses are taking their seats, I would like to
just make a personal comment to Secretary Wynne. I thank you
for your service. I appreciate your willingness to stay on in
your position. We may have had differences from time to time,
but I think you have always been honest and honorable in your
attempts to do what's best for the United States and the
taxpayer, and I thank you, Secretary Wynne.
Mr. Wynne. Thank you, Mr. Chairman, for those kind remarks.
Senator McCain. We'll begin with you.
STATEMENT OF HON. MICHAEL W. WYNNE, UNDER SECRETARY OF DEFENSE
FOR ACQUISITION, TECHNOLOGY, AND LOGISTICS
Mr. Wynne. Thank you, Mr. Chairman, members of this
committee, Senator Lieberman, Senator Chambliss. It's a
pleasure to be here to address my decision to expand my normal
oversight role, temporarily, to oversee selected Air Force
programs beyond the normal category 1D, to category 1C.
This temporary change, I felt, was necessary, given the
vacancies in the Air Force and the timing that is required to
restore the management structure. This action is meant to
assist the new Acting Air Force Secretary by overseeing and
providing advice on important Air Force programs during this
time of transition.
The result is that I will now be the milestone decision
authority for at least 21 additional major defense acquisition
programs that were previously overseen by the Air Force
acquisition executive. I have, in fact, asked the Air Force to
provide, by this Saturday, a list of all significant programs
and the milestone decisions expected in the next 6 months for
these programs so that I might plan my schedule.
To a large extent, I plan to rely on the existing reporting
process, such as the Defense Acquisition Executive Summary
(DAES) process. In this process, I already review, on a
quarterly basis, all of the nearly 90 defense acquisition
programs, both those for which I have been the decision
authority, as well as those for which the Service acquisition
executives, and sometimes their subordinates, are normally the
decision authority. I have always reviewed these programs in
terms of performance, schedule, cost, funding, tests,
interoperability, logistics, contracting management, and
production. The difference now is that I will also be the
milestone decision authority for the specified 21 programs.
I also plan to rely on the Air Force Acquisition Corps to
continue their high-quality efforts on these programs, and to
provide me with any necessary information for decisions on
these programs. After all, they are, in fact, one floor above
me in the building, although that may change as we rearrange
the Pentagon. I'll look to them, in particular, to provide
input on technical cost and testing issues. My staff support
for this oversight will be Dr. Glenn Lamartin and Mr. John
Landon, who now support me in the management of the major
programs that I currently oversee, such as the F-22 and the
small-diameter bomb.
There is no set timeline for this temporary designation. I
am working closely with the acting Secretary of the Air Force,
Michael Dominguez, and the Air Force acquisition workforce. I
have advised him and the Service leadership that I will not be
spending their resources without their direct involvement, and
I plan to return oversight of these 21 programs to the Air
Force when the Air Force acquisition leadership is properly
staffed such that it provides adequate checks and balances to
guarantee the integrity of the system.
Again, thank you, Mr. Chairman, Senator Lieberman, Senator
Chambliss, and members of the committee, for the opportunity to
testify before you. I'd be happy to answer your questions.
[The prepared statement of Mr. Wynne follows:]
Prepared Statement by Hon. Michael W. Wynne
Mr. Chairman, members of the committee, I am pleased to appear
before you this afternoon to address my decision to expand my normal
oversight role temporarily to oversee selected Air Force programs
beyond the normal Category 1D to the Category 1C.
This temporary change is necessary given the vacancies in the Air
Force and the timing to restore the management structure. This action
is meant to assist the new Acting Air Force Secretary by overseeing and
providing advice on important Air Force programs during a time of
transition.
I will now be the milestone decision authority for at least 21
Major Defense Acquisition programs that were previously overseen by the
Air Force Acquisition Executive. I have asked the Air Force to provide,
by this Saturday, April 9, a list of all significant programs and
milestone decisions expected in the next 6 months for these programs.
To a large extent, I plan to rely on the existing reporting
process, such as the Defense Acquisition Executive Summary (DAES). In
this process, I already review on a quarterly basis all of the nearly
90 Major Defense Acquisition Programs--both those for which I have
always been the decision authority, as well as those for which the
Service Acquisition Executives are normally the decision authority.
I have always reviewed these programs in terms of performance,
schedule, cost, funding, testing, interoperability, logistics,
contracting, management, and production. The difference is that now I
will also be the milestone decision authority for these programs.
I also plan to rely on the Air Force acquisition corps to continue
their high quality efforts on these programs and to provide me with any
necessary information for decisions on these programs. After all, they
are only one floor above me. I will look to them in particular to
provide input on technical, cost, and testing issues.
My staff support for this oversight will be Dr. Glenn Lamartin and
John Landon, who support me in the management of the Air Force Major
Programs that I currently directly oversee, such as the F/A-22 and the
Small Diameter Bomb.
There is no set timeline for this temporary designation. I am
working closely with Acting Secretary of the Air Force Michael L.
Dominguez and the Air Force acquisition workforce.
I have advised him and the Service leadership that I will not be
spending their resources without their direct involvement, and that I
plan to return oversight of these 21 programs to the Air Force when the
Air Force's acquisition leadership is properly staffed such that it
provides adequate checks and balances to guarantee the integrity of the
system.
Again, thank you, Mr. Chairman and members of the subcommittee, for
the opportunity to testify before you. I would be happy to answer your
questions.
Senator McCain. Thank you very much.
Mr. Young.
STATEMENT OF HON. JOHN J. YOUNG, JR., ASSISTANT SECRETARY OF
THE NAVY FOR RESEARCH, DEVELOPMENT, AND ACQUISITION
Mr. Young. Mr. Chairman, Senator Lieberman, members of the
committee, it is a great privilege to appear before the
committee today to discuss the status of Navy and Marine Corps
aviation programs in the fiscal year 2006 budget request. Mr.
Chairman, thank you for introducing my colleagues.
In multiple theaters throughout the world, your Navy and
Marine Corps team is prosecuting the global war on terror and a
wide range of operations. From pursuit of hostile forces in
Iraq and Afghanistan to providing humanitarian relief after the
tsunami, your Navy and Marine Corps team has executed superbly.
In each of these operations, naval aviation has provided a
unique demonstration to the world of the immense capabilities
of the United States Navy and Marine Corps team.
This committee and Congress have been instrumental in
helping the Department attain these results. Building on this
support, the fiscal year 2006 budget request reflects the
investments that will most improve our warfighting capability
by developing and investing in future seabased and
expeditionary forces for our Navy and Marine Corps.
The fiscal year 2006 request includes funds for 138
aircraft, reflecting the continuous successful efforts by the
Department to increase the number of aircraft we are purchasing
to modernize our force. Within these efforts, it's also
important to improve how we buy aircraft and weapons. The
Congress' steady calls for jointness and discipline in
acquisition, as well as support of new initiatives has enabled
the Department of the Navy to make significant progress.
There are a number of programs and initiatives that merit
your consideration. In the interest of time, I will only
highlight a few actions.
In the urgent category, the Marine Corps and the
acquisition team acted to install advanced survivability
equipment on all helicopters going into Iraq with 1 Marine
Expeditionary Force (MEF) last spring. To achieve greater
efficiency, the Navy has used multi-year procurements to attain
savings and stability in procurement accounts. The fiscal year
2006 request continues multi-year procurements for F/A-18E/F,
the airframe and the engine; MH-60S helicopter; MH-60S/R Common
Cockpits; and the E-2C Hawkeye.
The Department achieved Initial Operating Capability for
Tactical Tomahawk, awarding the Navy's first weapons multi-year
contract at a 12-percent savings for up to $1.6 billion and
2,200 missiles, including innovative measures that reward
performance and incentivize cost reduction in future missiles
beyond this contract.
We successfully awarded the Multi-Mission Maritime Aircraft
System Development and Demonstration (SDD) contract, leveraging
the commercial aircraft industry base.
The F-18E/F Super Hornet continues to transition to the
fleet, improving survivability and strike capability of the
carrier airwing.
The E/A-18G continues development as the Navy's Advanced
Electronic Attack Aircraft replacement for the E/A-6B . The
Navy is using the F/A-18E/F multi-year to buy four SDD aircraft
in fiscal year 2006 and install and integrate the Improved
Capabilities System-III (ICAP-III) on these aircraft.
The Marine Corps has taken delivery of 17 KC-130J aircraft
to date, with four more deliveries scheduled in 2005, and 12
aircraft are planned for fiscal year 2006. The KC-130J provides
significant enhancements to the current fleet. Additionally, we
have continued to ensure the tactical capability of our
existing KC-130 F, R, and T series by installing night-vision
kits and upgraded advanced survivability equipment.
The H-1 Upgrades Development Program is over 90 percent
complete, with operational evaluation (OPEVAL) beginning this
summer. We initiated a cost-reduction initiative for Joint
Standoff Weapon (JSOW) Block II, lowering the cost of that
weapon by $84,000 and increasing our buy requirements.
Working jointly, the naval team recommended specific JSF
design, ground-rule, and requirements changes, which restored
short take-off and vertical landing (STOVL) aircraft viability
and also initiated the Independent Review Team to help us.
The STOVL variant has been reduced in weight by 2,500
pounds through design optimization. Installed thrust
improvements, drag improvements, and ground-rule assumptions
have allowed this plane to meet its key performance parameters
(KPP).
Another joint program, the V-22 Osprey, has flown in excess
of 4,900 hours since resuming flight tests in May. Operational
Evaluation began on March 28, 2005, and should lead to full
rate production in 2006.
Finally, the Navy led an effort that merged the Joint
Tactical Radio System (JTRS), Clusters 3 and 4, to ensure
interoperability between the Navy and Air Force on a aircraft-
based JTRS.
Mr. Chairman, out of respect for the committee, I will stop
here, leaving much more to say. We are grateful for the chance
to offer just a few examples of how the Department is working
day in and day out supporting sailors and marines in the global
war on terrorism. Congressional support of these aviation
programs is vital to achieving these results, and I thank you
for your consideration of our budget request. We look forward
to your questions.
[The joint prepared statement of Mr. Young, Admiral Sestak,
and General Post follows:]
Joint Prepared Statement by Hon. John J. Young, Jr.; VADM Joseph A.
Sestak, Jr., USN; and Brig. Gen. Martin Post, USMC
Mr. Chairman, distinguished members of the subcommittee, thank you
for this opportunity to appear before you to discuss the Department of
the Navy's Fiscal Year 2006 Acquisition and Research, Development,
Technology, and Evaluation (RDT&E) programs.
In multiple theaters in the global war on terror today, your Navy
and Marine Corps Team is involved in a range of operations, from combat
ashore to Extended Maritime Interdiction Operations (EMIO) at sea. EMIO
serves as a key maritime component of the global war on terror, and its
purpose is to deter, delay, and disrupt the movement of terrorists and
terrorist-related materials at sea. Your team has conducted over 2,200
boardings in this last year alone, even as it has flown more than 3,000
sorties while dropping more than 100,000 pounds of ordnance from sea-
based tactical aircraft in Iraq; and providing nearly 5,000 hours of
dedicated surveillance in and around Iraq to Coalition Forces.
At the same time, our Nation took advantage of the immediate global
access provided by naval forces to bring time-critical assistance to
tsunami victims in South Asia. By seabasing our relief efforts in
Operation Unified Assistance, the Abraham Lincoln Carrier Strike Group
(CSG) and the Bonhomme Richard Expeditionary Strike Group (ESG)--with
marines from the 15th Marine Expeditionary Unit--delivered more than
6,000,000 pounds of relief supplies and equipment quickly, and with
more political acceptance than may have been possible if a larger
footprint ashore might have been required.
The fiscal year 2006 budget request maximizes our Nation's return
on its investment by positioning us to meet today's challenges--from
peacekeeping/stability operations to global war on terror operations
and small-scale contingencies--and by transforming the force for future
challenges.
your future navy and marine corps team
We developed the Sea Power 21 vision in support of our National
Military Strategy. The objective of Sea Power 21 is to ensure this
Nation possesses credible combat capability on scene to promote
regional stability, to deter aggression throughout the world, to assure
access of joint forces and to fight and win should deterrence fail. Sea
Power 21 guides the Navy's transformation from a threat-based platform
centric structure to a capabilities-based, fully integrated force. The
pillars of Sea Power 21--Sea Strike, Sea Shield, and Sea Base--are
integrated by FORCEnet, the means by which the power of sensors,
networks, weapons, warriors, and platforms are harnessed in a networked
combat force. This networked force will provide the strategic agility
and persistence necessary to prevail in the continuing global war on
terror, as well as the speed and overwhelming power to seize the
initiative and swiftly defeat any regional peer competitor in Major
Combat Operations (MCO).
The Navy and Marine Corps Team of the future must be capabilities-
based and threat-oriented. Through agility and persistence, our Navy
and Marine Corps Team needs to be poised for the ``close-in knife
fight'' that is the global war on terror, able to act immediately to a
fleeting target. The challenge is to simultaneously ``set the
conditions'' for a MCO while continuing to fight the global war on
terror, with the understanding that the capabilities required for the
global war on terror cannot necessarily be assumed to be a lesser-
included case of an MCO. Our force must be the right mix of
capabilities that balances persistence and agility with power and speed
in order to fight the global war on terror while prepared to win a MCO.
To do so, it must be properly postured in terms of greater operational
availability from platforms that are much more capable as a
distributed, networked force. While the fabric of our fighting force
will still be the power and speed needed to seize the initiative and
swiftly defeat any regional threat, FORCEnet's pervasive awareness
(C\4\ISR) will be more important than mass. Because of its access from
the sea, the Navy and Marine Corps are focusing significant effort and
analysis in support of joint combat power projection by leveraging the
maneuver space of the oceans through Seabasing. Seabasing is a national
capability that will project and sustain naval power and joint forces,
assuring joint access by leveraging the operational maneuver of
sovereign, distributed, and fully networked forces operating globally
from the sea, while accelerating expeditionary deployment and
employment timelines. The Sea-based Navy will be distributed, netted,
immediately employable and rapidly deployable, greatly increasing its
operational availability through innovative concepts such as, for
example, Sea Swap and the Fleet Response Plan. At the same time,
innovative transformational platforms under development such as
Maritime Prepositioning Forces (MPF(F)), Amphibious Assault Ship
(LHA(R)), and high-speed connectors, will be instrumental to the Sea
Base.
To this end, the technological innovations and human-systems
integration advances in future warships are critical. Our future
warships will sustain operations in forward areas longer, be able to
respond more quickly to emerging contingencies, and generate more
sorties and simultaneous attacks against greater numbers of multiple
aimpoints and targets with greater effect than our current fleet. The
future is about the capabilities posture of the fleet. Our analysis is
unveiling the type and mix of capabilities of the future fleet and has
moved us away from point solutions towards a range of 260-325 ships
that meet all warfighting requirements and hedges against the
uncertainty of alternate futures.
developing transformational joint seabasing capabilities
The Naval Power 21 vision defines the capabilities that the 21st
century Navy and Marine Corps Team will deliver. Our overarching
transformational operating concept is Sea Basing; a national
capability, for projecting and sustaining naval power and joint forces
that assures joint access by leveraging the operational maneuver of
sovereign, distributed, and networked forces operating globally from
the sea. Seabasing unifies our capabilities for projecting offensive
power, defensive power, command and control, mobility and sustainment
around the world. It will enable commanders to generate high tempo
operational maneuver by making use of the sea as a means of gaining and
maintaining advantage.
Sea Shield is the projection of layered defensive power. It seeks
maritime superiority to assure access, and to project defense overland.
Sea Strike is the projection of precise and persistent offensive
power. It leverages persistence, precision, stealth, and new force
packaging concepts to increase operational tempo and reach. It includes
strikes by air, missiles, and maneuver by Marine Air Ground Task Forces
(MAGTF) supported by sea based air and long-range gunfires.
Sea Base is the projection of operational independence. It provides
the Joint Force Commander the ability to exploit Expeditionary Maneuver
Warfare (EMW), and the capability to retain command and control and
logistics at mobile, secure locations at sea.
FORCEnet is the operational construct and architectural framework
for naval warfare in the joint, information age. It integrates
warriors, sensors, networks, command and control, platforms and weapons
into a networked, distributed combat system.
Sea Trial is the Navy's recently created process for formulating
and testing innovative operational concepts, most of which harness
advanced technologies and are often combined with new organizational
configurations, in pursuit of dramatic improvements in warfighting
effectiveness. Sea Trial concept development and experimentation (CD&E)
is being conducted in close coordination with, the Marine Corps combat/
force development process and reflects a sustained commitment to
innovation. These efforts tie warfare innovation to the core
operational challenges facing the future joint force.
As a means of accelerating our investment in Naval Power 21, we
employ the Naval Capability Development Process (NCDP) and
Expeditionary Force Development System (EFDS). The NCDP and EFDS take a
concepts-to-capabilities approach to direct investment to achieve
future warfighting wholeness. The NCDP takes a sea-based, offensive
approach that provides power projection and access with distributed and
networked forces featuring unmanned and off-board nodes with
penetrating surveillance via pervasive sensing and displaying that
rapidly deliver precision effects. The EFDS assesses, analyzes and
integrates MAGTF warfighting concepts, and requirements in a naval and
joint context to support the overarching operational concept of Joint
Seabasing. Both processes are designed to incorporate innovative
products of Service and Joint CD&E and Science and Technology (S&T)
efforts.
The fiscal year 2006 budget request reflects the investments that
will most improve our warfighting capability by developing and
investing in future sea based and expeditionary capabilities for the
Navy and Marine Corps. We will briefly summarize our programs, and
address transformation of our capability pillars by describing some of
the key aviation enablers.
Aviation Programs
The fiscal year 2006 President's budget request balances continued
recapitalization in obtaining new capabilities and reducing operating
costs while simultaneously sustaining the legacy fleet aircraft that
are performing magnificently in current operations. Taking advantage of
multi-year procurement (MYP) to achieve significant savings in
procurement accounts, the Navy has entered numerous MYP contracts that
will define the future of weapons systems and further investment. The
Department's fiscal year 2006 budget request continues MYP arrangements
for the F/A-18E/F (both airframe and engine), the KC-130J, the MH-60S,
the MH-60S/R Common Cockpit, and the E-2C to maximize the return on our
investment. Our proposed plan will procure 44 tactical, fixed wing
aircraft (38 F/A-18E/F aircraft, 4 EA-18G System Development and
Demonstration assets, and 2 E-2C aircraft), as well as 26 MH-60S, 12
MH-60R, 9 MV-22, and 10 upgraded UH-1Y/AH-1Z helicopters. This plan
also continues the development of the F-35, the E-2C Advanced Hawkeye,
the EA-18G, the Multi-mission Maritime Aircraft (MMA), the Aerial
Common Sensor (ACS), and the Presidential Helicopter Replacement
Aircraft (VXX), and initiates development of the Heavy Lift Replacement
(HLR, CH-53X) aircraft.
sea shield
Multi-mission Maritime Aircraft (MMA)/P-3C
The future for the Navy's maritime patrol force includes plans for
sustainment, modernization, and re-capitalization of the force. Results
of the P-3 Service Life Assessment Program (SLAP) have revealed the
need for an aggressive approach to P-3 airframe sustainment. Key
elements of the sustainment plan are strict management of requirements
and flight hour use, special structural inspections to keep the
aircraft safely flying, and increased use of simulators to satisfy
training requirements. The fiscal year 2006 budget request reflects
$74.5 million for Special Structural Inspections (SSI) and Special
Structural Inspections-Kits (SSI-K), which will allow for sustainment
and continued operation of approximately 166 aircraft. As the
sustainment plan progresses, the inventory may be further reduced to
around a number approaching 130 aircraft. The fiscal year 2006 budget
request also reflects a modernization budget of $51.3 million for
continued procurement and installation of the USQ-78B acoustic
processor and for completion of final installations of Anti-Surface
Warfare Improvement Program (AIP) kits. We are working on plans for
further mission system modernization to allow us to continue meeting
combatant command (COCOM) requirements. To recapitalize these critical
aircraft, the Navy is procuring a MMA. The MMA program entered System
Development and Demonstration (SDD) phase in May 2004 and awarded a
contract to the Boeing Corporation for a 737 commercial derivative
aircraft. The fiscal year 2006 budget requests $964.1 million for
continuation of MMA SDD. Our comprehensive and balanced approach has
allowed for re-capitalization of these critical assets.
MH-60R and MH-60S
The fiscal year 2006 budget requests $655.5 million in procurement
and $48.1 million in RDT&E for the replacement of the Light Airborne
Multi-Purpose System (LAMPS) MK III SH-60B and carrier-based SH-60F
helicopters with the new configuration designated as MH-60R. The
procurement quantity was reduced to provide an orderly production ramp.
A Full Rate Production decision is scheduled during the second quarter
of fiscal year 2006.
The fiscal year 2006 budget requests $608.7 million in procurement
and $78.6 million in RDT&E funds for the MH-60S, which is the Navy's
primary combat support helicopter designed to support Carrier and
Expeditionary Strike Groups. It will replace four legacy platforms with
a newly manufactured H-60 airframe. The MH-60S is currently in the full
rate 5-year MYP contract with the Army. The Army and Navy intend to
execute another platform MYP contract commencing in fiscal year 2007.
Navy's total procurement requirement was increased from 237 to 271 to
provide a force structure that supports the Navy-approved helicopter
concept of operations.
AIM-9X
The fiscal year 2006 budget requests $37.8 million for 165
missiles. AIM-9X continues deployment to operational sites after a
successful Full Rate Production decision last year.
sea strike
F/A-18E/F
The F/A-18E/F continues to transition into the fleet, improving the
survivability and strike capability of the carrier air wing. The Super
Hornet provides a 40-percent increase in combat radius, 50 percent
increase in endurance, and 25 percent increase in weapons payload over
our older Hornets. Over 300 F/A-18E/Fs have been procured through
fiscal year 2005, on track to complete procurement of the program of
record 462 aircraft in 2011. The fiscal year 2006 budget requests $2.82
billion for 38 F/A-18E/F aircraft for the second year of the 5-year MYP
contract (fiscal year 2005 to 2009). The Super Hornet has used a spiral
development approach to incorporate new technologies, such as the Joint
Helmet Mounted Cueing System, Advanced Targeting FLIR, Shared
Reconnaissance Pod System and Multifunctional Information Distribution
System data link. The first Low Rate Initial Production Advanced
Electronically Scanned Antenna Radar system has been delivered to
Boeing for installation into an F/A-18 and will undergo operational
testing in 2006.
F-35 Joint Strike Fighter (JSF)
Our recapitalization plan includes the JSF, a stealthy, multi-role
fighter aircraft designed jointly to be an enabler for Naval Power 21.
The fiscal year 2006 budget request contains $2.4 billion for
continuation of System Development and Demonstration on the JSF. The
JSF will enhance the DON's precision strike capability with
unprecedented stealth, range, sensor fusion, improved radar
performance, combat identification and electronic attack capabilities
compared to legacy platforms. The carrier variant (CV) JSF complements
the F/A-18E/F and EA-18G in providing long-range strike capability and
much improved persistence over the battlefield. The short takeoff and
vertical landing (STOVL) JSF combines the multi-role versatility of the
F/A-18 and the basing flexibility of the AV-8B. The commonality
designed into the JSF program will reduce acquisition and operating
costs of Navy and Marine Corps tactical aircraft and allow enhanced
interoperability with our allies and sister Services.
The JSF has completed the third year of its development program,
and the program continues working to translate concept designs to three
producible variants. Manufacture/assembly of the first flight test
aircraft conventional takeoff and landing (CTOL) is underway and
roughly 40 percent complete, with assembly times much less than
planned. Two thousand engine test hours have been completed through
mid-January 2005. Detailed design work continues for the CTOL and STOVL
variants. First flight is scheduled for 2006. The JSF program has
aggressively addressed the performance issues associated with weight
and airframe design. The STOVL variant weight has been reduced by 2,500
lbs. through design optimization. Installed thrust improvements and
aerodynamic drag reduction as well as requirements tailoring are being
incorporated to further improve aerodynamic performance. All three
variants are projected to meet Key Performance Parameter (KPP)
requirements.
The JSF program is completing a replan effort that began
approximately a year ago. The software block plan and test plan are
being reviewed consistent with the revised schedule and Service needs.
The fiscal year 2006 budget reflects the revised System Development and
Demonstration and production schedule.
V-22
The MV-22 remains the Marine Corps' number one aviation acquisition
priority. The Osprey's increased range, speed, payload, and
survivability will generate transformational tactical and operational
capabilities. Ospreys will replace the aging Marine fleets of CH-46E
and CH-53D helicopters beginning in fiscal year 2005, which will
provide both strategic and tactical flexibility to meet emerging
threats in the global war on terror. Utilization far above peacetime
rates, and the physical demands of continuous operations in the harsh
conditions of Iraq and Afghanistan, are accelerating the deterioration
and increasing operating costs of the legacy aircraft that the MV-22
will replace. These factors make a timely fielding of the MV-22
critical.
The fiscal year 2006 budget request includes $1.3 billion for nine
MV-22s, trainer modifications and retrofits and $206.4 million for
continued development, testing, and evaluation. The V-22 Osprey resumed
flight-testing in May 2002, and it has flown in excess of 4,900 hours.
The Commander Operational Test and Evaluation Force (COTF) Letter of
Observation was completed in February 2005 to support Section 123
Certification to Congress to allow the program to increase production
above minimum sustaining rate of 11 aircraft. Operational Evaluation
began on March 28, 2005, and should lead to Full Rate Production in
early fiscal year 2006.
Heavy Lift Replacement Program (HLR, CH-53X)
The fiscal year 2006 budget requests $272 million RDT&E to begin
the SDD phase of the HLR program that will replace the aging fleet of
CH-53E platforms. The Marine Corps' CH-53E continues to demonstrate its
value as an expeditionary heavy-lift platform, with significant assault
support contributions in Afghanistan, the Horn of Africa, and Iraq.
Vertical heavy lift will be critical to successful operations in anti-
access, area-denial environments globally, enabling force application
and focused logistics envisioned within the joint operating concepts.
The CH-53E requires significant design enhancements to meet future
interoperability requirements, improve survivability, expand range and
payload performance, improve cargo handling and turn-around
capabilities, and reduce operations and support costs. An Analysis of
Alternatives determined that a ``new build'' helicopter would be the
most cost-effective solution. The Operational Requirements Document
defining HLR capabilities was approved in December 2004. The HLR will
replace our aging fleet of CH-53E Super Stallion helicopters to fill
the vertical heavy lift requirement not resident in any other platform
that is necessary for force application and focused logistics
envisioned in Sea Basing and joint operating concepts. With the ability
to transport 27,000 pounds to distances of 110 nautical miles under
most environmental conditions, commanders will have the option to
insert a force equipped with armored combat vehicles or two armored
High Mobility Multi-Wheeled Vehicles (HMMWVs) per sortie. To sustain
the force, the HLR will be able to transport three independent loads
tailored to individual receiving unit requirements and provide the
critical logistics air connector to facilitate sea-based operations.
This reliable, cost-effective heavy lift capability will address
critical challenges in maintainability, reliability, and affordability
found in present-day operations supporting the global war on terror.
F/A-18 A/B/C/D
The fiscal year 2006 budget request contains $422.4 million for the
continuation of the systems upgrade programs for F/A-18 platform. As
the F/A-18 program transitions to the F/A-18E/F, the existing inventory
of over 900 F/A-18A/B/C/Ds will continue to comprise half of the
Carrier Strike Group until 2012. Included in this request is the
continued procurement of recently fielded systems such as Joint Helmet
Mounted Cueing System, Advanced Targeting FLIR, Multi-Function
Information Distribution System, and Digital Communications System. The
Marine Corps continues to upgrade 76 Lot 7-11 F/A-18 A and C to Lot 17
F/A-18C aircraft capability with digital communications and tactical
data link. The Marine Corps anticipates programmed upgrades to enhance
the current capabilities of the F/A-18C/D with digital communications,
tactical data link and tactical reconnaissance systems. This upgrade
ensures that our F/A-18s remain viable and relevant in support of
TACAIR Tactical Air Integration and Expeditionary Maneuver Warfare. The
Marine Corps expects the F/A-18A+ to remain in the active inventory
until 2015. The Marines are also employing the Litening targeting pod
on the F/A-18 A+ and D aircraft in OIF. When combined with data link
hardware, the Litening pod provides real time video to ground forces
engaged with the enemy. The capabilities of the Litening pod with data
link are highly effective for Marine Corps expeditionary F/A-18
operations. The fiscal year 2006 budget request also includes
procurement of Center Barrel Replacements to extend service life of F/
A-18 A/C/Ds 7 years to meet fleet inventory requirements until 2022.
Integrated Defensive Electronic Countermeasures (IDECM)
The fiscal year 2006 budget reflects $7.6 million in RDT&E to
continue the development of the IDECM Block III (ALQ-214 w/the ALE-55
(fiber optic towed decoy)) that will undergo Operational Test and
Evaluation (OPEVAL) in fiscal year 2006. Additionally, $86.5 million in
Aircraft Procurement funding is included for the procurement of 55 ALQ-
214 systems.
EA-18G
The E/A-18G continues development as the Navy's replacement for the
EA-6B Airborne Electronic Attack (AEA) aircraft. The Navy is using the
F/A-18E/F multi-year contract to buy four Systems Design and
Development aircraft in fiscal year 2006 to install and integrate
Northrop Grumman's in-production Improved Capabilities (ICAP)-III
Airborne Electronic Attack (AEA) system. These aircraft will support
EA-18G operational testing and allow the department to deliver the next
generation AEA capability at reduced cost and in the shortest possible
timeframe. The Marine Corps initiated studies to examine options for
replacing their electronic attack aircraft.
The fiscal year 2006 budget request reflects $409 million for
Systems Design and Development. The Systems Design and Development
continues on schedule with construction underway of the two development
aircraft. First flight is scheduled for the fourth quarter of fiscal
year 2006. A total quantity of 30 systems will be procured in low rate
initial production (LRIP) with a planned fiscal year 2009 initial
operational capability (IOC) and fiscal year 2012 final operational
capability (FOC). The EA-18G will replace carrier-based Navy EA-6B
aircraft by 2012.
AH-1Z/UH-1Y
The H-1 Upgrades Program will remanufacture 180 AH-1W and 100 UH-1N
helicopters into state-of-the-art AH-1Z and UH-1Y models. The fiscal
year 2006 budget requests $307.5 million APN funds to procure 10 UH-1Y/
AH-1Z aircraft and $42.0 million RDT&E funds to complete the H-1
Upgrades Engineering and Manufacturing Development phase. The
development program is over 90 percent complete with five aircraft
being readied for OPEVAL, which will begin this summer. Work on the
first LRIP lot, awarded to Bell Helicopter in December 2003, is
progressing well and the second LRIP lot will be awarded by the end of
March 2005. The program is seeking opportunities to reduce unit cost
and minimize the negative impact the remanufacture strategy could have
on ongoing military operations. Regarding the latter point, we
anticipate that some number of airframes will be newly fabricated
instead of remanufactured in order to reduce the amount of time
aircraft would otherwise be out of service. The optimum mix of
remanufactured and newly fabricated aircraft is being evaluated with
the results to be reflected in future budget requests.
The H-1 Upgrade Program is a key modernization effort designed to
resolve existing safety deficiencies, enhance operational effectiveness
of both the AH-1W and the UH-1N, and extend the service life of both
aircraft. The program will provide 100 UH-1Ys and 180 AH-1Zs with
10,000 hour airframes. Additionally, the commonality gained between the
AH-1Z and UH-1Y (84 percent) will significantly reduce life-cycle costs
and logistical footprint, while increasing the maintainability and
deployability of both aircraft.
AV-8B
The fiscal year 2006 budget requests $15.5 million RDT&E funds to
support development of the Engine Life Management Plan (ELMP)/
Accelerated Simulated Mission Endurance Testing, Tactical Moving Map
Display, and Aircraft Handling initiatives. The fiscal year 2006 budget
also requests $36.6 million procurement funding for Production Line
Transition efforts, procurement of Open Systems Core Avionics
Requirement, ELMP upgrades, and the Readiness Management Plan which
addresses aircraft obsolescence and deficiency issues associated with
sustaining the AV-8B until JSF transition.
EA-6B
The fiscal year 2006 budget request of $120.6 million reflects the
total budget for wing center section modifications and procurement of
three Improved Capability (ICAP) III systems. The aging EA-6B has been
in ever-increasing demand as DOD's only tactical radar jamming aircraft
that also engages in communications jamming and information operations.
EA-6B operational tempo has continued at extremely high levels during
the past year. Safety considerations, due to wing center section and
outer wing panel fatigue, have reduced aircraft available to the fleet
from 95 to 85. Aircraft inventory is projected to return to above 95 by
the end of fiscal year 2005. Program priorities are current readiness
and successful fleet introduction of the ICAP III selective reactive
jamming system.
Precision-Guided Munitions (PGM)
The U.S Navy weapons programs of the 21st century are evolving to
address the challenges of a dynamic and unpredictable enemy. New weapon
systems are planned or have been developed and delivered to the
combatant commanders to provide new options to engage enemy forces in
support of the global war on terror. The Navy's fiscal year 2006 budget
supports PGM programs that continue to allow domination of the maritime
environment, support in-land operational forces, and enhance the
overall department strategy to deter and dissuade potential adversaries
while supporting our allies and friends.
Joint Direct Attack Munitions (JDAM)
JDAM has been the Department's weapon of choice for OEF/OIF. In
October 2004, the U.S. Navy provided an Early Operational
Capability(EOC) and accelerated deliveries for a 500 lb. JDAM variant
(GBU-38) for Navy F/A-18 A+/C/D platforms. After approving production
of this variant, we immediately deployed it in order to meet an urgent
warfighter need to employ precision munitions with limited collateral
effects in the congested urban environments of Iraq. The fiscal year
2006 budget request of $82.6 million procures 3,400 DON JDAM tail kits
for all variants, thus supporting all current and projected warfighter
requirements. The fiscal year 2006 budget reduces procurements to 1,500
kits per year starting in fiscal year 2008; however, the Department
will closely monitor all JDAM variant requirements and combat
expenditures in order to make any necessary adjustments.
Joint Standoff Weapon (JSOW)
A new variant of the JSOW called JSOW-C was approved for Full Rate
Production in December 2004. Similar to the new 500 lb. JDAM program,
this capability is in demand by the warfighter to provide new options
for precision attack against point targets vulnerable to blast
fragmentation effects and hardened targets. The new JSOW-C variant
employs an augmenting charge with a follow-through penetrator bomb for
hard targets that can also be set to explode both payloads
simultaneously. This lethal package is coupled with an Imaging Infrared
Seeker and GPS/INS to provide the standoff precision attack capability
in demand by the warfighter. The fiscal year 2006 budget fully funds
JSOW-C production and support. It also shifts funding from production
of a submunition variant of JSOW to all JSOW-Cs until there is
resolution of unexploded battlefield ordnance issues that are of
concern to the Department and our allies. The Navy/contractor JSOW Team
is dedicated to reducing acquisition costs. Specifically, we are
expecting to achieve a unit cost reduction of more than 25 percent by
2006 due to the implementation of lean initiatives, innovative
processes, and engineering changes.
Advanced Anti-Radiation Guided Missile (AARGM)
The fiscal year 2006 budget request continues the development of a
next generation defense suppression weapon system, the AARGM. AARGM
ensures continued air dominance and multi-mission flexibility to the F/
A-18 and EA-18 aircraft across suppression and defeat of enemy air
defenses, strike, and electronic warfare missions. The Department
recently entered into international partnership negotiations with our
North Atlantic Treaty Organization (NATO) partner Italy, and we plan an
Initial Operating Capability for F/A-18 C/D during fiscal year 2009.
The Navy is dedicated to developing new means by which the Joint
warfighter can defeat time critical strike targets in anti-access
scenarios, address counter-weapons of mass destruction (WMD) missions,
and improve our ability to fight the global war on terror. Towards that
end, we are working with the other Services, the Joint Chiefs of Staff,
and the combatant commanders to begin studies that may afford
opportunities for the possible development of the next generation of
affordable weapons. We envision that these weapons may allow us to
employ long-range standoff weapons in direct attack roles via advanced
high-speed propulsion and deployment of a variety of lethal packages.
Tactical Tomahawk (TACTOM)
The fiscal year 2006 budget supports the Navy's commitment to
replenish our precision-guided munitions inventories utilizing the
Navy's first MYP contract for a weapon. TACTOM entered Full Rate
Production in August 2004. We completed our second and final
remanufacture program, converting all available older Tomahawk
airframes to the latest Block III configuration. The Firm Fixed Price
5-year contract (fiscal years 2004-2008) for TACTOM will save the
taxpayer 12 percent over annual procurements. TACTOM's advanced design
and manufacturing processes have cut procurement cost to $729,000 or
half the cost of a Block III missile and maintenance costs by half of
the cost of its predecessor. TACTOM provides a more capable missile
with a 15-year product warranty and a 15-year recertification interval.
This approach mitigates price growth of follow-on procurements by
providing incentive for the contractor to manage for obsolescence,
which will control future price growth on follow procurements.
sea base
KC-130
The fiscal year 2006 budget requests $1,093 million for 12 KC-130J
Hercules aircraft. These aircraft will be procured under an existing
Air Force multi-year contract. The Marine Corps has taken delivery of
16 KC-130J aircraft to date, with 5 more deliveries scheduled for
fiscal year 2005. Twelve aircraft are planned for procurement in fiscal
year 2006 to bring the total number of KC-130J aircraft to 33. The KC-
130 fleet once again proved itself as a workhorse during operations in
Iraq. The KC-130J provides major enhancements to the current fleet of
KC-130s, extending its range, payload, and refueling capabilities. The
first KC-130J squadron (12 aircraft) has achieved IOC and will
immediately be deployed in support of the global war on terror. Bold
steps in simulator training and joint flight instruction place the KC-
130J program on the leading edge of the transformation continuum.
Additionally, we have continued to ensure the tactical capability of
our existing KC-130 F, R, and T series aircraft by installing night
vision kits and upgraded aircraft survivability equipment.
C-40
The fiscal year 2006 budget requests $10.3 million to support
delivery of C-40 (Boeing 737-700C) aircraft previously funded. The C-40
replaces the aging C-9 aircraft providing intra-theater logistics
support. To date, the Navy has taken delivery of eight C-40s with one
more on contract. An additional six are planned for procurement in the
FYDP.
command, control and net-centric capabilities
Joint Tactical Radio System (JTRS)
We are working with the Air Force to successfully converge
development of Navy and Air Force versions of JTRS (JTRS-AMF) to
provide a common acquisition approach. Closely coupled with the JTRS
Program and building on the initial Multi-functional Information
Distribution System (MIDS), we have developed a promising joint effort
with the Air Force that will significantly improve interoperability to
the cockpit and maintain alignment with our tactical radio transition
to the JTRS environment. This effort also has four international
partners who are paying participants in the program.
E-2C and Advanced Hawkeye (AHE)
The E-2C AHE is a critical enabler of transformational
intelligence, surveillance, and reconnaissance, providing a robust
overland capability against current and future cruise missile-type
targets. The AHE program will modernize the E-2 platform by replacing
the current radar and other system components to maintain open ocean
capability while adding transformational surveillance as well as
theater air and missile defense capabilities. The fiscal year 2006
budget requests $249 million to procure two TE-2Cs in the third year of
a 4-year MYP. This effort will keep the production line viable while
the AHE, formerly known as the Radar Modernization Program, continues
spiral development toward an Initial Operational Capability in fiscal
year 2011. The AHE program continues to execute the SDD program of
record. Further, OA standards are being integrated into E-2C aircraft
and AHE program to enhance interoperability with DOD systems.
Aerial Common Sensor (ACS)/EP-3
The fiscal year 2006 budget requests $133.6 million of RDT&E for
joint ACS aircraft development. ACS is an Army Lead program that
entered the SDD phase in July 2004. The Army awarded a contract to
Lockheed-Martin for a commercial-derivative Embraer ERJ-145 aircraft.
ACS replaces the Army's Guardrail and Airborne Reconnaissance Low
systems as well as the Navy's EP-3E aircraft. It will provide a
transformational multi-intelligence platform capable of providing
strike support to the warfighter. The Navy became a fully integrated
partner in February 2005. The fiscal year 2006 budget requests $55.1
million to modernize and sustain the EP-3E fleet until ACS IOC of 2012.
Unmanned Aerial Vehicles (UAV)
The global war on terror continues to place emphasis on the
importance of UAVs. The fiscal year 2006 budget request reflects our
commitment to a focused array of UAVs that will support and enhance
both surveillance and strike missions with persistent, distributed,
netted sensors.
Fire Scout UAV
The fiscal year 2006 budget requests $77.6 million to continue
development of the Fire Scout UAV. The Fire Scout is a Vertical Takeoff
and Landing Tactical UAV (VTUAV) designed to operate from all air-
capable ships, carry modular mission payloads, and operate using the
Tactical Control System and Tactical Common Data Link. The Fire Scout
UAV will provide day/night real time ISR and Targeting as well as
communication-relay and battlefield management capabilities to support
core Littoral Combat Ship (LCS) mission areas of ASW, MIW, and ASUW for
the naval forces. Upgrades will include a four-bladed rotor and
increased payload capacity. Upgraded Fire Scout capability will be
fielded with LCS Flt 0.
The Army has selected the Fire Scout for their Army Future Combat
System Class IV UAV. Numerous similarities in hardware components,
testing, logistics, training, software and support requirements, offer
potential for overall program cost reduction which would clearly
benefit both the Army and Navy. We expect to sign a memorandum of
agreement (MOA) with the Army for the acquisition of the Fire Scout
airframe, and selected subsystems on a single Navy contract. The
airframes will be subsequently modified to Service specific
requirements under separate existing Navy and Army contracts. The goal
is to maximize common support opportunities, eliminate redundant costs,
maximize common avionics and sensor configuration to promote
interoperability, and eliminate redundant tests.
Vertical Unmanned Air Vehicle (VUAV)
UAVs have played a critical role in recent operations and are also
a key element of our transformation. The Marine Corps is pursuing the
replacement of its almost 20-year-old Pioneer UAV system that has flown
over 6,950 hours in support of OIF highlighting the criticality of
these systems for our Marine forces. Requirements for VUAV are being
developed in consonance with Ship to Objective Maneuver concepts from
Expeditionary Maneuver Warfare, the naval concepts of Sea Basing and
Seapower 21, and with lessons learned from recent operational
experience. The fiscal year 2006 budget requests $9.2 million to
evaluate the Eagle Eye UAV, currently being developed by the United
States Coast Guard in connection with its Deepwater Program. The
Department will also continue to evaluate the capabilities of Fire
Scout for this mission, seeking commonality within the Department.
Joint Unmanned Combat Air System (JUCAS)
The fiscal year 2006 budget realigns funding to the Air Force to
establish a Joint Program Office with Navy representation to advance
the JUCAS Program. The Department is committed to a JUCAS initiative,
developed in partnership with the Air Force and Defense Advanced
Research Projects Agency (DARPA). The Navy and the Air Force have
defined a common set of science and technology requirements that
recognize the unique needs of each Service that will form the basis for
developing air vehicles that will contribute to a joint warfighting
concept of operation.
other significant capabilities
Presidential Helicopter Replacement Aircraft (VXX)
The fiscal year 2006 budget requests $936 million RDT&E for SDD
efforts for the VXX program. The goal of this accelerated program is to
introduce a new Presidential helicopter by October 2009. The VXX
program will utilize an evolutionary acquisition approach through a
two-part incremental development to deliver a safe, survivable and
capable vertical lift aircraft while providing uninterrupted
communications with all required agencies. The Department completed a
Milestone B/C Defense Acquisition Board on January 13, 2005, and on
January 28, 2005, a contract was awarded to LMSI to proceed into SDD
and Pilot Production of the first increment aircraft.
T-45
The fiscal year 2006 budget requests $239 million for six T-45
aircraft. The request also includes funding to start Required Avionics
Modernization Program (RAMP) installations.
sea trial and sea enterprise in action: operation respond
In support of the I Marine Expeditionary Force's (I MEF) return to
Iraq scheduled to begin March 2004, and in support of deployed Marines
in Afghanistan, the Secretary of the Navy established a formalized
process and action team, Operation Respond, to rapidly respond to
technological and materiel requirements generated from deployed
marines. A senior Navy and Marine Corps Team co-chaired by the
Assistant Secretary of the Navy (Research, Development, and
Acquisition) and the Deputy Commandant for Combat Development will
review and coordinate technical and materiel requirements for deployed
units and utilize the technical and engineering expertise throughout
the DON and industry to expedite the best solutions available to
counter rapidly evolving threats. This process served I MEF well in the
initial year of deployment to OIF and OEF. The DON is establishing a
Naval Innovation Lab environment to develop innovative ways to meet
emerging technology problems within the global war on terror. This
effort under the Assistant Secretary of the Navy (Research,
Development, and Acquisition) (ASN (RDA)) will leverage and expand the
current roles and capabilities of our established requirements
generation and materiel development and acquisition commands in order
to better respond to innovative enemy threats.
Counter-Improvised Explosive Devise (IED) Technology, Equipment and
Operations
The Department has reprogrammed over $28.0 million in fiscal years
2004 and 2005 for the testing, assessment and fielding of technology
and equipment to counter and exploit the IED threat. Specific focus
areas include joint, manportable explosive ordnance disposal (EOD) and
intelligence, surveillance, and reconnaissance robots, IED electronic
countermeasures, backscatter X-Ray systems, specialized search dogs and
establishing and maintaining an IED countermeasures group at our Naval
EOD Technical Division, Indian Head, Maryland. This group is
responsible for support to the joint, forward-deployed and continental
United States (CONUS)-based IED exploitation cells, analysis of
tactical and technical IED threats, development and dissemination of
EOD threat advisories and EOD tactics, techniques and procedures, and
provision of technical and training support to EOD operational teams.
The Marine's IED Working Group coordinates closely with Naval EOD
Technical Division, the Army's IED Task Force, and the Joint IED Defeat
Integrated Process Team.
Intelligence, Surveillance, and Reconnaissance (ISR)
The Marine Corps is engaged in initiatives to provide enhanced ISR
capabilities in theater. The Dragon Eye UAV is in full-scale fielding
and the Marine Corps is working to conduct an Extended User Assessment
of the Silver Fox UAV system. The Marine Corps is in the process of
creating requirements for a Tier II UAV system to provide an organic
UAV to the Infantry Regiment. The I MEF Scan Eagle services lease had
codified a capability gap at this echelon and the Marine Corps
Warfighting Lab is coordinating with Marine Corps Combat Development
Command to find a long-term solution. The Marines have also employed
aerostat balloon platforms to provide persistent ISR capability.
Aircraft Survivability Equipment (ASE)
As a result of Army aviation lessons learned, Navy and Marine Corps
aviation Staffs undertook a coordinated rapid fielding initiative of
more than $152 million to upgrade ASE for Marine aviation units,
preparing to deploy to Iraq in 2004. These efforts focused on ASE to
counter infrared man-portable missiles and small arms being employed by
insurgents in more advanced anti-aircraft tactics. As a result of the
focused efforts by our Navy and Marine Corps aviation maintenance teams
and hard-working contractors, every Marine Helicopter engaged in OIF II
is today supporting combat operations with upgraded ASE. All deploying
aircraft receive the ``V2'' upgrade to the AAR-47 Missile and Laser
Warning Set and the new ALE-47 Countermeasure Dispensing systems; AH-1W
aircraft received IR suppressor exhaust modifications to reduce their
signatures; AH-1W, UH-1N, and KC-130 aircraft have been equipped with
the more advanced APR-39AV2 radar detection system; CH-53E aircraft
received interior ballistic armor and new ramp-mounted GAU-21 .50
caliber machine guns; existing IR jamming systems on the CH-46E and KC-
130 aircraft were upgraded. CH-46 aircraft received the M-240 7.62
caliber machine guns, lightweight armor, and lightweight armored
cockpit seats. Marine Aviation still requires $23 million to complete
ASE modernization on its assault support aircraft utilized to fight the
global war on terrorism.
summary
Our mission remains taking the fight to our enemies. The increasing
dependence of our world on the seas, coupled with growing uncertainty
of other nations' ability or desire to ensure access in a future
conflict, will continue to drive the need for naval forces and the
capability to project decisive joint power by access through the seas.
The increased emphasis on the littorals and the global nature of the
terrorist threat will demand the ability to strike where and when
required, with the maritime domain serving as the key enabler for U.S.
military force.
Accordingly, we will execute the global war on terror while
transforming for the future fight. We will continue to refine our
operational concepts and appropriate technology investments to deliver
the kind of dominant military power from the sea envisioned in Sea
Power 21. We will continue to pursue the operational concepts for
seabasing persistent combat power, even as we invest in technology and
systems to enable naval vessels to deliver decisive, effects-based
combat power in every tactical and operational dimension. We look
forward to the future from a strong partnership with Congress that has
brought the Navy and Marine Corps Team many successes today. We thank
you for your consideration.
Senator McCain. Thank you very much,
Admiral Sestak. Thank you.
STATEMENT OF VADM JOSEPH A. SESTAK, JR., USN, DEPUTY CHIEF OF
NAVAL OPERATIONS FOR WARFARE, REQUIREMENTS, AND PROGRAMS
Admiral Sestak. Mr. Chairman, I have no statement, except
to say I'm standing by for your questions.
Senator McCain. Thank you.
General Gorenc.
STATEMENT OF MAJ. GEN. STANLEY GORENC, USAF, DIRECTOR,
OPERATIONAL CAPABILITIES AND REQUIREMENTS
General Gorenc. I, also, have no statement. It's an honor
for me to be here and provide any information that you need, as
far as oversight.
Senator McCain. General Post.
STATEMENT OF BRIG. GEN. MARTIN POST, USMC, ASSISTANT DEPUTY
COMMANDANT FOR AVIATION
General Post. Sir, I have no statement, and look forward to
your questions.
Senator McCain. Well, thank you very much.
Secretary Wynne, I've been briefed that there are
alternative aircraft for intra-theater aircraft missions. Has
an analysis of alternative been completed for intra-theater
aircraft missions?
Mr. Wynne. Well, sir, I believe in the mobility capability
study that's underway, I don't know that there's going to be a
comprehensive analysis of alternatives for completing that. I
think the mobility capability study more addresses what's
available right now. A true analysis of alternatives would have
considered things that might not be available right now. If
your question specifically addresses the C-130J, sir, that was
a decision made in 1996, to proceed, and I'd have to go back
and examine the record.
Senator McCain. What's the cost to terminate the C-130J
program? Do you have an idea of that?
Mr. Wynne. No, sir, although we're getting pretty good at
cancellation, with the Crusader and the Comanche. I know that
there's direct cost for the plant. I can rack up the categories
for you, but I'd be loathe to negotiate with the contractor
here in this meeting.
Senator McCain. Would you, even if it's in a confidential
manner, communicate at least a round number? Because I think
that's going to have some effect on the decision on Congress'
part as to the future of the C-130J.
I just want to mention, there, I have a memo here from Mr.
Mike Reed that was sent to Lee Wayne, who, I take it, are in
Lockheed Martin. ``Wayne, as a result of discussions today with
the C-130J directors, including the director for contracts, I'm
instructing you to withhold all requests for data to the SPO or
anyone else that is considered contractual until requests are
levied by a contracts letter.'' Have you asked for information
from Lockheed Martin concerning the C-130J?
[The information referred to follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Wynne. I have not personally asked them for the
information, sir.
Senator McCain. Has the Air Force?
General Gorenc. No, sir.
Senator McCain. Well, given the fact that it's escalating
in cost, shouldn't we display some curiosity?
Mr. Wynne. Yes, sir. I think the fact of the escalating
costs is somewhat disturbing, and, of course, the issue before
us now is so stark, being a binary decision in the President's
budget 2006, relative to continuation or non-continuation, but
I believe that the insistence on moving forward FAR Part 15 for
changes is a good sign.
Senator McCain. I was just going to mention--Secretary
Harvey announced yesterday that the Future Combat System (FCS)
would now fall under FAR 15. I certainly applaud your decision
to make any further acquisition of C-130Js under those same
parameters. I met with the Chief Executive Officer (CEO) of
Lockheed Martin, and I asked him about the pricing data. He
said he would get back to me. He hasn't bothered to further
communicate. We may have to ask the Committee to subpoena this
information, because I think we need to know it, as we
determine what happened. I don't like to use that, but if
Lockheed Martin continues to stonewall us, I don't see how we
can carry out our responsibilities.
General Gorenc. Yes, sir.
Senator McCain. General Gorenc, you've had to ground some
C-130s, right?
General Gorenc. Yes, sir.
Senator McCain. Possibly, or probably, there's a scenario
of the C-130J being canceled. What can we do to ensure the
capability to provide intra-theater airlift, et cetera?
General Gorenc. Yes, sir. I think obviously we're going to
have to look at it very closely. It's a capability that we
want. It's a capability that we need. As I heard the panel
before me, just to make sure that everything is straight with
the rest of those numbers, there are two C-130Js in the
theater. They are flying missions and have flown missions since
December.
Senator McCain. Aren't those missions only in a permissive
environment?
General Gorenc. Sir, they are doing exactly the same thing
that the other C-130s are doing within the area. So they've
flown well over 413 sorties.
Senator McCain. Do they have airdrop and troop-drop
capability?
General Gorenc. Sir, those are the things that have not
been asked of the other individuals yet. However, they are
working to resolve the long and short variance to make sure
that that is fully tested. As a matter of fact, I have
indications that tests for the drop for the short aircraft, in
fact, has been fully completed. The long version should also be
done very quickly. The Army has come onboard that that is
perfectly safe and acceptable. They have done 75 of 75 heavy
drops right now, and that is full and ready to go, and they
should be released as part of the phase-two report.
So, the point that was made earlier by Mr. Chambliss with
regards to how much effort is really being done by the Air
Force to ensure that all issues are being addressed, I think,
is very valid. The fact of the matter is that it is being done.
Senator McCain. Well, it's not exactly a brand-new
aircraft, and we've gone from 1995, $33 million----
General Gorenc. Yes, sir.
Senator McCain. 1998, $50 million; 2004, $67 million. This
is basically a cargo aircraft--we're getting into one heck of
an expensive airplane, at $67 million a copy for an aircraft
that fundamentally is, what, Secretary Wynne, 30, 40 years old?
Mr. Wynne. Yes, sir, this is a pretty good upgrade, but the
fundamental design.
Senator McCain. Doesn't that raise some red flags with you,
when an aircraft, in 10 years, goes from $33 million to $67
million, and we're not even privy to the basic information,
because it's being advertised as a commercial aircraft, and
there is no commercial market for it. I'm told that Air Gabon
flies two C-130s. No one really realistically expected it, when
the decision was made to list this as a ``commercial
aircraft.''
Do you know, General, of any commercial enterprise,
airline, nation, or anybody who is contemplating buying the C-
130J for commercial purposes?
General Gorenc. Commercial purposes? Sir, I don't know,
personally. But I can say right now that you do have the U.K.
that has 25 that they're flying. You also have Italy that has
22.
Senator McCain. I was talking about commercial purposes.
General Gorenc. Oh, no. Commercial, no. But, sir, may I
also add that capability-wise--and, again, I'm not an airlifter
by trade, but I am aware that, for example, 33 percent increase
in cargo capability, increased speed--it has allowed it, in
some cases, to, in fact, do, in one day, what a C-130E, for
example, in the theater, would take two.
Senator McCain. Well, that's marvelous. What was the cost
of a C-130E, General? Do you remember?
General Gorenc. I don't.
Senator McCain. I can tell you. It was around $5 million to
$10 million. So it does the work of five, at seven times the
price. So, we always have to have some kind of balance here. I
just think the costs have--I've seen testimony before this
subcommittee that never contemplated that kind of price level.
We don't have unlimited dollars. We're going to have to make
tough decisions here, and I, frankly, have great respect for
Secretary Rumsfeld and those decisionmakers in the Pentagon who
had to make some very tough decisions here. So, we're trying to
try to help sort it out, which is part of our responsibility.
Finally, Secretary Wynne, Congress approved $100 million to
be dedicated to the KC-135 replacement fund. You provided
specific and, in my opinion, sound and well-reasoned guidance
as to how the tanker analysis of alternatives was to be
conducted. Presumably the use of the money in the KC-135 tanker
replacement fund will rise from recommendations set forth in
the analysis of alternatives (AOA). In other words, that money
will not be used for an approach to recapitalize other
refueling tankers that's not specifically supported by the AOA.
Is that correct?
Mr. Wynne. I understand, for that $100 million, sir, that
there is specific focus language that surrounds it. What the
Air Force has done in order to respond to my letter is, in
fact, to reprogram a sum amount of money to specifically fill
out the remainder of the AOA. If it would come out differently
than, perhaps, was expected, I would expect that they would
have to reprogram some additional funds in order to follow
those paths.
Senator McCain. I thank you.
Senator Lieberman.
Senator Lieberman. Thanks, Mr. Chairman. Thanks to the
witnesses for being here this afternoon.
Secretary Wynne, since our Subcommittee's hearing last
year, the Air Force has completed initial operating tests and
evaluation for the F/A-22 aircraft, the Raptor, which showed
that the aircraft is operationally effective, which, I take it,
means it basically works as advertised, and potentially
operationally suitable, meaning that it has not yet met the
goals for ease of maintenance and support.
I wanted to ask you whether the test rating of
``potentially operational--operationally suitable'' gives you
concern that the Air Force will be able to meet its goals of
achieving these significant operating and cost savings.
Mr. Wynne. In fact, Senator Lieberman, I'm pleased to
answer that question.
Senator Lieberman. Please.
Mr. Wynne. One of my favorite kinds of people is
maintainers. I think that the testers really should stand in
for the maintenance people, because they're the only people
between them and doing the work.
The ``potentially suitable,'' effectively, was because you
were going to have to have more people in order to achieve the
operational readiness rate that was expected.
Senator Lieberman. Right.
Mr. Wynne. The Air Force is fully committed to essentially
fund through the final operational test and evaluation (FOT&E)
and take another reading during FOT&E, of all of the major
findings for the maintenance and suitability. So, that makes me
feel like SRO they'll be far closer. It may still be a
potential rating, but it will be far closer to what they were
supposed to achieve in the reliability and spares area.
Senator Lieberman. Okay, that's encouraging. I'd like to
keep in touch on that.
On another aspect of the program, Mr. Secretary, in 1997--
so you're not accountable here--the Air Force testified to the
subcommittee that annual operating and support costs of the F/
A-22 would be roughly 47 percent less than those for the F-15C
aircraft that the F/A-22 was intended to replace. The Air
Force, at that time, told Senator Glenn that the 22 would cost
$56.3 million per year to operate. Do you have any idea what
the current estimates are, what the costs will be to operate
the F/A-22?
Mr. Wynne. Sir, I think the only one I know is the
effectiveness comparison. There was--actually, in 1992, there
was an acquisition decision memorandum (ADM) that came out that
specified that the F-22 should be twice as good as the F-15. We
did that comparison test, even against the modern F-15, and it
was far more than twice as good.
Now, your question is against--again, that's
effectiveness--your question is to suitability.
Senator Lieberman. That's right.
Mr. Wynne. I really have not----
Senator Lieberman. Twice as good, in some sense, is as
originally advertised at half the operating cost.
Mr. Wynne. Yes, it was supposed to be at half the operating
cost. We have made some improvements in maintenance, but I have
not calculated the specifics. There is a strange quantification
that I've been familiar with, which is the number of C-17s it
takes to carry the squadron overseas. I have to get back to you
with the specifics on it.
[The information referred to follows:]
Prior to the F/A-22 Full Rate Production Milestone in March 2005,
the Air Force Cost Analyses Agency (AFCAA) updated their comparison of
F/A-22 and F-15C operating and support (O&S) costs. Based on mid-life
costs for the F-15C and estimated mid-life cost for the F/A-22, the Air
Force concluded that the F/A-22 and F-15C O&S costs per flight hour
were almost equal.
Senator Lieberman. I'd appreciate that, if you would, and
that's fine.
General Post, let me see if I can get you into this one,
talking about lift. I want to focus on the Marine Corps
requirements. The Navy and the Marine Corps have decided the
Department should buy new helicopters to replace the existing
CH-53E fleet, rather than re-manufacturing the existing
helicopters. Would this CH-53(X) program meet the Marine Corps
requirements, as you understand them?
General Post. Yes, sir, absolutely. The requirements for
the heavy-lift requirement, HLR, as the program is known, is
validated by both the Marine Corps and the Joint Requirements
Oversight Council (JROC) here, in December 2004. Of course,
there was an AOA done previous to that, that made the
determination that a new-build was the most cost-effective way
to go for that program.
From a requirement standpoint, with the current utilization
of our CH-53 Echo (CH-53E), the high maintainability cost, as
far as joint maintenance man-hours per flight hour, and the
cost per flight hour, of that airplane, and how we're utilizing
that aircraft, about 30 percent of our force is on the ground
in Iraq right now, flying about two-and-a-half times the rate
of normal peacetime utilization. So, when it comes to the
future as we look downrange, especially for our future
warfighting concepts, this is a required capability for the
United States Marine Corps, specifically from a seabasing
standpoint in the future.
Senator Lieberman. As far as you know, there are no other
reasonable alternatives for meeting this requirement than the
53(X)?
General Post. No, sir, not that I'm aware of.
Senator Lieberman. I understand that the Navy is sitting on
some of the current research-and-development funding for the
CH-53(X), and has not signed a contract for the fiscal year
2005 risk-reduction effort. Secretary Young, I wonder if I
could ask you why the Navy has not signed that contract yet?
Mr. Young. Senator, I agreed to release $20 million, and
then I recently, in the last month, agreed to release another
$30 million for the initial design and assessment of what this
program will cost. I'm very concerned that the cost be
reasonable. I understand the requirements are indeed valid, but
at some point we have to rationalize that against finite budget
resources. I have not agreed to let the program have full
green-light approval to proceed until we assess the costs. Over
the last 6 months, the costs on the program have grown
substantially. We're going to have to sit down and have a
serious discussion about requirement versus cost.
Senator Lieberman. Okay. So you accept the requirement,
obviously, and that this is the existing alternative to meet
the requirement. Your hesitation is, at this point, on cost.
But you have let some of that money go.
Mr. Young. Yes, sir.
Senator Lieberman. Okay. We'll keep in touch with you on
that.
Secretary Wynne and Secretary Young, I wanted to go back to
a reference that was made by someone here earlier to a comment
that Secretary England recently made. Of course, now everything
Secretary England said takes on added significance, right? He
was quoted as supporting integration of tactical aviation
across the Department of the Navy and the Department of the Air
Force. Obviously, we, here, are familiar with the integration
efforts that have gone on between the Navy and the Marine
Corps, which involve additional carrier-wing deployments for
Marine Corps F-18 squadrons and other changes in force
deployment that actually did result in reductions in the
numbers of F/A-18 and the Joint Strike Fighter aircraft that
the Navy intends to buy.
I wonder whether either of you, Secretary Wynne or
Secretary Young, have any view of the pluses or minuses that
might be associated with integration, the kind of integration
across the Air Force and Navy that I gather Secretary England
was referring to?
Mr. Wynne. I can only say that we are really fostering a
joint fight. We're fostering an opportunity for the Navy,
Marine Corps, and the United States Air Force to interact not
only with themselves, but also with their coalition partners.
This, frankly, gave rise to an idea that, under restricted
resources, maybe there's some analysis to be performed, which
is probably what Secretary England was talking about.
As a point of fact, I think the initial lay-in for the Navy
and the Marine Corps was essentially based on the reliability
statistics that were extant for their current air fleet.
Senator Lieberman. Right.
Mr. Wynne. The targets that you spoke about for F-22, they
have actually taken tougher targets for the Joint Strike
Fighter reliability, which, in fact, would allow a little bit
of more consolidation of the fleet, just because you're going
to improve your operational readiness rate and maintenance. One
of the larger figures in that consolidation of the United
States Navy and Marine Corps was, in fact, taking advantage of
the reliability statistics and the consolidation there.
We're already starting to think about consolidated training
of pilots. So this is just, if you will, another extension of
it. But I have no idea, sir, as to what he has planned. He, of
course, is prospective, so he can't really plan which we all
know.
Senator Lieberman. Sure.
Mr. Wynne. But we have our ear to the ground and are trying
to figure it out.
Senator Lieberman. Okay.
Secretary Young, what do you think, are there ways to
achieve the missions more efficiently by the possibilities of
integration across technical aviation in these two Services?
Mr. Young. Secretary England is certainly conscious of the
work that Admiral Sestak's team has done that points to our
strike capability that the chairman alluded to earlier.
Secretary England has frequently talked about it. Now, one
plane strikes multiple targets, which, even going back to the
Gulf War, wasn't the case.
Senator Lieberman. Right.
Mr. Young. We have great precision and multiple-target
capability. We did exactly what Secretary Wynne said, that is,
we have improved our maintenance practices to reduce how many
aircraft are in the pipeline for overhaul. We're trying to move
them through more quickly. We reduced the number of aircraft
needed to perform the missions, and better integrated the
assumptions of Navy and Marine Corps jointly performing those
missions. I believe the Secretary thinks that could be looked
at, at a Department level. For the Navy, it paid great
dividends. It was also testified by the first panel, we saved
$35 billion through 2020, and cut 497 planes out of the
program--arguably, planes that would have been hard to fit in
the budget or created opportunities for us to make other
investments.
Senator Lieberman. So there's potential like that, do you
think, between the Navy and the Air Force?
Mr. Young. I think there's no reason not to sit down and
analyze jointly performing the mission.
Senator Lieberman. Admiral Sestak, I didn't realize that
you had worked on this. Do you want to get into this at all?
Admiral Sestak. Yes, sir. What Mr. Young was referring to,
I think, is that over the past couple of years, Admiral Clark
has emphasized bringing to the table analysis based upon
campaigns and modeling, and trying to remove from the table the
weight and strength of personality. Part of this was, in this
TACAIR integration, we didn't even know how to go about it. We
actually had to bring in an outside party. But a lot of it had
to do with the analysis incumbent upon how to take an adversary
by force jointly.
So, what Mr. Young is referring to, I think, is that we are
in a good stead for this, particularly in this QDR year,
because, over the past 2 years, the joint staff, under the new
Joint Capabilities Integration and Development System (JCIDS)
process, has actually gone about a similar process, called the
Analytic Agenda, where they have done a number of scenarios,
watching how the communities, the different communities,
different air forces, have gone about trying to address the
threats out there. So you no longer just take an operational
plan that has been around 5 or 10 years, and it says so many
aircraft are needed in order to address a threat in a certain
country, such as North Korea. What you now have is actual
campaign analysis. So, you can potentially, I think--much as
you had to take two different cultures, the Marine Corps and
the Navy and resolve our tactical aircraft integration--have
something objectively on the table to say, ``Yes, maybe we
could do it with less.'' I think that's what the Secretary was
alluding to.
Senator Lieberman. Thanks.
General Gorenc, in fairness, you should have an opportunity
to speak to this, from the Air Force point of view.
General Gorenc. Yes, sir. I think that that's absolutely
right. There is, actually, a great opportunity here. In a
sense, we actually do this in another forum. For example, air-
to-air missiles, air-to-ground initiatives where we are trying
to get together much more, and get to some of the commonality
issues that we want to work. So I think that this would be a
natural extension. I think it's an idea that has a lot of merit
and a lot of good opportunity.
You're right, sir, at this time, during the QDR, to
initially start bringing up--we do that routinely, truly. It's
just a matter of changing the organization now, if you're going
to do that kind of a routine.
Senator Lieberman. I appreciate the willingness to take a
look at something that, maybe at an earlier time, would have
been unheard of. But it's necessary now. So, thank you.
Thank you, Mr. Chairman.
Senator McCain. Senator Chambliss.
Senator Chambliss. Thank you, Mr. Chairman.
I should have told the other panel this, and I want to make
sure I tell you folks, that we appreciate the difficult job all
of you have to do. We get pretty excited over here, because,
Senator McCain's right, we're running out of money, and we
appreciate the tough job that the OSD has, relative to budgets.
But it's particularly tough on your end to try to come up here
and make arguments, and then have to justify. We want you to
know how much we appreciate you.
Secretary Wynne, first of all, we've had several
conversations with the Pentagon, all the way to Secretary
Rumsfeld, relative to review of the C-130 proposal in the
President's budget. I was told by the Secretary that, while he
hated deadlines, he would put a deadline of April 1 to send an
amended budget up here. Can you tell me where that stands? I've
called and I know my staff has, and we haven't gotten an
answer. Can you update us there?
Mr. Wynne. No, sir, I can't. I can certainly take it for
the record.
[The information referred to follows:]
The Department is reviewing the decision to cancel the C-130J
multi-year contract, based on new information regarding contract
termination costs. I anticipate Secretary Rumsfeld will announce his
decision soon. The Department will come back with a budget amendment if
necessary.
Mr. Wynne. That's really Under Secretary of Defense (USD)
Comptroller action to update and amend that budget.
Senator Chambliss. Right.
Mr. Wynne. I have not seen the action come through.
Senator Chambliss. Well, if you wouldn't mind doing that,
we're going to be into the mark-up here before long on the
authorization bill, and we need to really know what direction
the Pentagon wants us to go, there.
Senator McCain. Could I add one comment, along with what
Senator Chambliss says? If, indeed, there is not, in the
amended proposal, resumption of C-130J, I think we also need to
know what the plans are, since there is clearly a need for
tactical airlift. It seems to me that that--don't you think,
Senator Chambliss?
Senator Chambliss. Absolutely.
Senator McCain. Thank you.
Senator Chambliss. In fact, that's a question that I had
down here for Secretary Wynne. If we do shut this down in 2007,
as proposed, what I'm told is that the only tactical airlift
remaining in production is a French airbus, A-400M. Is that
correct?
Mr. Wynne. I don't know how far that is in production, but,
yes, that would be the one.
Senator Chambliss. So, I think that answers your question.
We'll be buying from the French, Senator, and I'm not sure
we're prepared to do that.
General Gorenc, the previous panel addressed several issues
relative to the capabilities, and lack thereof, regarding the
C-130J, particularly as it relates to its combat readiness.
They did indicate that they think the U.K. has been flying C-
130Js in theater for some time. We know we have two that have
been over there since December, I believe. Would you tell us a
little bit about the operation of those airplanes?
Also, I'm a little surprised that they did not do any more
investigation of other countries that are flying the 130J. As I
understand it, the Australians, the Italians, and the Danish
are also flying those.
General Gorenc. Yes, sir.
Senator Chambliss. Would you tell us a little bit about the
operation of the 130J in theater?
General Gorenc. Yes, sir. I went back, and I looked at
their data and their stats. Interestingly enough, they have
flown there since December 2004, and have accumulated up to
480-some sorties, 600, 700-some hours. Don't call me on that,
specifically. But for sure on the sortie counts.
Surprisingly enough, also, their mission-capable rates were
actually 92 percent, overall, during this period. Now, the
problem with that, of course, is, it's a small fleet, so you
don't want to necessarily use that too much as an indicator.
But the bottom line is that other aircraft in theater, the Es
and the Hs, are generating about the 85 percentile area in the
combat zones; 92 for the J models. The normal fleet, overall,
of course, when they're not in a combat zone, they tend to be
in the mid 70s, which is where the J is, also.
But the bottom line is, as far as mission-capable and what
they're doing there, they are doing exactly what a normal,
straight-up C-130 would be doing. They're doing exactly what
the other individuals have been tasked to do. They're
performing very well.
Senator Chambliss. I saw a statement the other day that
said that our 130Js that are in theater in Iraq today are
performing missions in 1 day that it takes 130 Es and Hs 2 days
to perform.
General Gorenc. Sure.
Senator Chambliss. Is that a fair statement?
General Gorenc. That is a fair statement. I have
confirmation on that also. The funny part about that is, I also
hear of individuals that go, ``Well, geez, all they're doing is
taking one tire from one place to another,'' is the logic tree
of what they're carrying, which, of course, is a statement
that's interesting to me, unless you're the guy on the other
end waiting to get the tire so you can get into the convoy to
get where you need to go. So the point is, everything that they
are doing there is relatively important. But to get it done
twice as fast as the normal aircraft is an interesting point.
Now, here's another aspect, in my view, from having been in
the area of responsibility (AOR) awhile back; I would rather be
having these type of aircraft that can go from one location to
another location without having to air refuel--or, not air
refuel, but to stop along the way. I mean, you can start
considering manportable air defense (MANPAD) issues and other
things that may be problems as you come in and out of airports.
So, it's another aspect to this whole equation, in the truest
sense.
The bottom line is, the guys are in theater; they're doing
the job, just like the other C-130s, and they're doing it with
coalition partners, such as the U.K. individuals, who have
bought aircraft; the Italians, who have bought aircraft;
Denmark, who just recently bought three, if I'm not mistaken.
Overall, it's a pretty good story, depending on, of course,
where you're sitting on it.
Senator Chambliss. Are there any plans to increase the
number of 130Js in the Iraqi theater?
General Gorenc. Sir, I have not heard that. I have not
heard that from the operations side, at this stage.
General Post. Sir, if I may add, the Marine Corps has six
KC-130Js deployed with the 2nd Marine Aircraft Wing in Iraq.
They've been over there for about 30 days. The numbers we're
seeing, the mission-capable rates are well over 90 percent, so
it's performing very well. Of course, our mission for the KC-
130Js is a little bit different from the Air Force C-130
mission, but we're very, very pleased with the performance of
the airplane.
Senator Chambliss. Yes.
General Post, going back to Senator McCain's question,
there, that the Marine Corps has a requirement--I believe it's
51 KC-130Js, is that correct?
General Post. Yes, sir.
Senator Chambliss. Currently, under the proposed budget of
the President, you would have 33, which would leave you 18
short of your requirement. How would you fulfill that
requirement?
General Post. Sir, we would have to maintain those aircraft
as a legacy fleet. Our F models are 42-year-old aircraft. Our R
models are approximately 28 years old. So what we would have to
do is keep the R-model fleet, obviously, longer than we'd like,
and maintain those, and probably do some sort of level of
maintenance to those aircraft to keep them in airworthy
condition.
Senator Chambliss. You haven't considered leasing any
tankers, have you? [Laughter.]
General Post. No, sir.
Senator Chambliss. Good. I just wanted to make sure of
that.
Senator McCain. What's that?
Senator Chambliss. They have not considered leasing any
tankers, Mr. Chairman.
Senator McCain. Oh, thank you. That's good news.
[Laughter.]
Senator Chambliss. Secretary Wynne, I want to go back to
this cost again because the chairman's correct, we have a money
problem that we have to deal with. But the 130J, versus the
older models the 130J is stretched out. Is that correct?
Mr. Wynne. It has elongated, yes, sir. That's why they have
this qualification on the short version, then on the longer
version.
Senator Chambliss. Okay. The former planes, we were buying
at the rate, I believe, of 24 a year, and now we're at 12 a
year. Is that right?
Mr. Wynne. Sir, I would have to take that and say I believe
we are, but I do not know, personally.
Senator Chambliss. Obviously, the more we buy, the cheaper
they are.
Mr. Wynne. It is always that way.
Senator Chambliss. I'm assuming you don't know about any
contractor discounts relative to the earlier models that might
have been given.
Mr. Wynne. I understand that they went through a
significant investment program. At least they certainly told me
that. So I would take that as a early-model discount, if that's
what you mean.
Senator Chambliss. Okay.
General Gorenc, what's the opinion of the Air Force
relative to the operation of the current F/A-22s you're flying?
General Gorenc. Well, sir, I was recently down at Tyndall,
and, obviously, everybody who's flying the machine is, number
one, very impressed with the capabilities. I think that the
guys down there who are training and getting spun-up to become
initial operational capability (IOC) up at Langley, of course,
are very impressed with the aircraft. I think that the
individuals flying out at Nellis are finding the capabilities
that were talked about earlier, as far as how they would match
up against certain fighters, have come to fruition, in the
sense of the aircraft being exactly everything that was said
that it was going to be, which is very much a piece of
machinery that can really handle the job as a weapon system. So
everything is looking good, as far as the aircraft itself and
the employment. The issue is getting the modernization portion
taken care of to make sure that you get the full capability, as
we were talking about a little bit earlier, with regards to
air-to-ground and intelligence, surveillance, and
reconnaissance (ISR) capability.
Senator Chambliss. We talked with the previous panel about
the air-to-ground capability that now was being asked of the F/
A-22. Again, from a tactical-fighter standpoint, it's my
understanding F/A-22 will fire not once, not twice, but three
shots once it's inside enemy lines, without being detected.
General Gorenc. Yes, sir.
Senator Chambliss. Do we have any other tactical fighter
that has that capability?
General Gorenc. Well, sir, let me just say, the bottom line
on this is, it's very difficult to fly air-to-air against
somebody if everybody that you're up against is actually better
than your aircraft. But, obviously, you have the surface-to-air
missiles and things of that sort that you're going to have to
go after to, in fact, open up the corridors and give you the
ability to get through the door and allow some of the other
coalition partners, and even U.S.-capable legacy jets, to get
into the target areas. So, the bottom line is the need there
for an air-to-ground capability that--the sooner the better, as
far as we would like. It needs to be a full-up kit, because the
nature of the threats are such that you just never know whether
you're going to have to shoot an aircraft in the sky or
somewhere else.
Senator Chambliss. Secretary Wynne, there's been recent
testimony characterizing costs of the F/A-22 at a quarter-
billion dollars. Actually, under the current buy, my
calculation of the planes that we now have in acquisition is
$128 million per copy. Is that correct, according to your
numbers?
Mr. Wynne. Well, it's one of those things, sir, that the
cost of an airplane is certainly hard to define and explain,
but I have heard a range of $128 million to $135 million would
encompass all of that. Flyaway cost, by my definition, is, kind
of, the airplane rolling down the runway.
Senator Chambliss. Again, same old story relative to the
more we buy, the cheaper they become. Is that fair to say?
Mr. Wynne. I think there has been some progress in that
regard, over the lots that we've had recent history with.
Senator Chambliss. Okay.
I think that's all I have, Mr. Chairman. Thank you.
Senator McCain. General Gorenc, let's talk just for a
second about what the witness from the Congressional Research
Service talked about, and that's the threat. Now, we can get
into a very classified discussion in a big hurry, but do you
accept the premise that the F-22 was originally designed for
air-to-air combat?
General Gorenc. Yes, sir, I do.
Senator McCain. Then we saw the nature of the world
situation change. We no longer had to worry about new
generations of ``Soviet'' fighters. Now, what, in your view, is
the threat or the scenario that would dictate such a high-
performance fighter--I'm not trying to set you up here.
General Gorenc. I know.
Senator McCain. But clearly, in Afghanistan and Iraq, what
really did the job was airplanes with air-to-ground capability.
Now, some of them came as far away as from bases in the United
States; others were the old A-10, around since the 1970s. We've
tried to retire them three or four times, and then a conflict
comes up, and the old A-10 does a hell of a job. So, give me
the argument, in your mind, that dictates, for the $300 million
airplane, tactical aircraft, given the nature of warfare, the
way that it's changed since the fall of the Soviet Union.
General Gorenc. From my standpoint----
Senator McCain. Because this is what we really have to
grapple with here. Okay.
General Gorenc. This is tricky. I mean, it depends on how
you look at the situation. Personally, I'm not entirely sure
that Afghanistan or Iraq are truly the example of what you may,
in fact, encounter in the future. Let's just say that. Let's
pretend you go with a different scenario and a different threat
that is viable is a China scenario in a few years. The issue is
that once--again, and I know I'm speaking to a well-educated
group, but, for myself----
Senator McCain. Don't assume that, General. [Laughter.]
General Gorenc. From my standpoint, what I see is, you have
double-digit surface-to-air missiles (SAMs) that may be
protecting certain key target areas that will not allow certain
aircraft to get within even 50 to 60, 70 miles to take that
target out. What you need is an aircraft that will allow you to
go in there and destroy that particular hindrance to your
ability to do what you want to do in the immediate target area.
That capability is inherent in the F-22. You're able to get in;
you're able then to allow other aircraft that may not have the
stealth, the supercruise, the technology to identify, to get
through that same corridor and, in fact, start taking out
aircraft. So it's really a complementary system.
Now, from my standpoint, when I talk to folks and think
about it, you go, ``Well, this is strictly a U.S. issue here,
where you want to make sure that everybody can get into the
fight,'' so you have your F-22s, your JSFs, and things of that
sort, and the Navy brotherhood of F-18s. Surely, what we're
talking about is, as we think about it in coalitions for the
future, do I want to have other capable aircraft that may not
have that stealth, that supercruise, to get into that area?
Actually, I would. I want them on the team. The question is,
they may not be holding the ball to start the fight with, but I
want to hand it off and either get my aircraft back into an
area where they are no longer needed for another contingency
and allow those other aircraft to stay. But they've opened up
the door.
So, it's almost a situation, from my standpoint, that, as I
think about the case, it's like the SWAT team that's trying to
get into a house where there is a hostage or someone being held
up. There is this individual, and you always see him after all
the negotiation is done and everything's square, whether he
comes in with this ramrod and maybe one or two of them, and
they, no lie, knock that door in and say, ``Come on in, let's
go.'' You see the rest of the guys, kind of, scurrying up and
doing their thing. That's almost what I see the F-22--is this
thing that allows you to get through that door and allows you
to go in and take care of the situation.
Senator McCain. Look, I accept your scenario, and I think
more and more of us are thinking about the challenge of an
emerging China, without assuming that it is an adversarial one,
but there's no doubt about their superpower status, but does
your argument then convince us that we need large numbers of F-
22s? With your scenario of, these are the ones that kick down
the door, and the rest of the others follow?
General Gorenc. Sir, that's where I think that the QDR and
the future studies here that are going to actually be done in a
very quick fashion are going to prove to very much invaluable.
The issue is, it really just all depends on what the world
situation may evolve to. You may find yourself in a situation
where you have a China and another threat somewhere else.
Hopefully, that doesn't happen, and we would have been able to
say, ``Gosh, you know, we overbought.'' But maybe the fact that
we overbought, in fact, dissuaded or deterred somebody else
from becoming that second axis of potential problems.
The point is, I think we'll certainly carry that debate and
those discussions forward in the Quadrennial Defense Review,
and I think we're going to get some pretty good analysis out of
that for those type of scenarios.
Senator McCain. Yes, but one of our problems is that we're
making some of these decisions before the QDR is out. Then that
presents us with some----
Mr. Wynne. I would say it this way, Senator, that we've
really put aside sea dominance, because we just presume it in
our analysis now. We don't yet assume air dominance. Even when
we were into Baghdad, which we would all recognize now for what
it was; we were not prepared to commit our front-line fighters
without first committing our stealth forces. Some 20 years ago,
we set out to have an all-stealth Air Force. We need to
continue to pursue that, without a doubt. How we get there and
what it is comprised of is the issue and the balance that
you're talking about.
But, in the future, I predict we're going to have a
proliferation of these double-digit SAMs that we're talking
about, because they're far less expensive to produce, if you
will. What we have to find out and balance is the economics of
warfare that we're really faced with; and, frankly, try to make
some of our enemies produce and spend $100, and we spend a
dollar. We used to be able to do it. We're not as proficient at
it right now.
Senator McCain. Well, this discussion needs to be held, not
only in hearings like these, but on the floor of the Senate and
various forums around the country, because the counter to the
comment about the double-digit SAMs is the capability of
extending our standoff capability so that we don't put pilots
and aircraft at risk. So we can go back and forth, but some of
these decisions, I think--and maybe it's our fault for not
being more engaged in it, but a lot of these discussions, I
don't think have been held. Maybe now that we're faced with
some tough decisions, maybe we can do them in a more in-depth
fashion.
Senator Lieberman.
Senator Lieberman. Thanks, Mr. Chairman. I agree with you
totally.
I had one more question, and in some ways it moves directly
off the general subject-matter area, but--the future, which is
about the Joint Unmanned Combat Air System program. I know that
Senator Warner has been very interested in this. I believe
General Jumper has also been very committed to it. It's really
a next-generation program. Since last year, the Department has
transferred management of the program from DARPA to the Air
Force, and removed a billion dollars from the planned budget
resources for the program over the FYDP. I wonder, Secretary
Wynne, why the Department has taken those actions and what
those actions say about the possibility of the program moving
forward in any reasonable time frame.
Mr. Wynne. First, let me describe the Joint Unmanned Combat
Air System and its associated control system as one of the most
exciting ventures we've started out on, frankly.
Senator McCain. It particularly excites the pilots, I'm
sure. [Laughter.]
Mr. Wynne. Fairly actively analyzed by a lot of folks, and
great discussion has erupted, as Senator McCain has indicated,
in his own way.
Senator Lieberman. He has a way with words, doesn't he?
[Laughter.]
Mr. Wynne. In fact, there were some that indicated it would
have a bad spelling in there with the U in there, but at any
rate, I think it has, in fact, taken hold, and has found a
potential place within the construct of manned and unmanned
mixed fleet.
That having been said, the Department is making very
difficult choices in resources. I think last year I talked very
strongly to Secretary Roche about, what was the appropriate
time for the Air Force to take charge of the program? We, in
fact, have actively engaged the Navy. In fact, the Navy is now
considering as to whether or not we could get a carrier-based
Joint Unmanned Combat to essentially do fleet overwatch in the
out years. They are now actively engaged in doing that
analysis.
The Air Force senior leadership and the Navy senior
leadership are trying to decide as to exactly what they want.
We're hoping we do not have to down-select, but we are, in
fact, already taking action to essentially slim down the common
operating system and try to make it simply safety-of-flight and
an open system that I can add on systems to it.
So, it is a difficult resource decision. I think it's one
that you all are contending with, as well. All I can say is, it
was tough when we looked at it, and it's not going to be any
easier when you look at it, sir.
Senator Lieberman. Yes. So you'd say, at this point, the
Department is still committed to the unmanned program?
Mr. Wynne. I would say that the Department is looking at it
very carefully, and I think the question is, just how much can
we afford?
Senator Lieberman. Right.
Secretary Young, just, finally, I was going to ask you what
role the Navy would play now in this program, since it's being
transferred to the Air Force, but maybe Secretary Wynne has
answered. What's the Navy's attitude toward the unmanned combat
system?
Mr. Young. Secretary England and the CNO have been adamant
about the persistent intelligence surveillance and
reconnaissance role this capability would provide off the
aircraft carrier. We are very happy with DARPA's management of
the program, and anxious to see the prototypes perform. We
would hope the program would continue on a path to deliver that
demonstrated capability under Air Force management, and that'll
be our discussion basically with the Air Force. It's to try to
keep pace and get the demonstrators out there. As Secretary
Wynne said, when you have that core aircraft and open operating
system, we can add capabilities to it as we go in a prudent
manner.
Senator Lieberman. Okay. Thank you very much.
Thanks, Mr. Chairman.
Senator McCain. Senator Chambliss.
Senator Chambliss. Just one other question, Mr. Chairman.
Mr. Wynne, the Joint Strike Fighter, which is going to be a
great airplane, depends, to some extent, upon the R&D, as well
as the testing being done on the F-22. Is that correct?
Mr. Wynne. Yes, sir. I believe they have some shared
systems.
Senator Chambliss. If you terminate the production of the
F-22, as proposed in the President's budget, what's going to
happen to the cost per copy of the Joint Strike Fighter?
Mr. Wynne. One of their shared systems is the overhead mix
for the Lockheed Martin Corporation. I would say that they will
also lose a little bit, in the sense that if some of the
componentry is shared between the two airplanes, then that
vendor will obviously lose that volume. I do not have a precise
figure, sir, but it is another piece of the calculation for
both of the airplanes in the Marietta facility.
Senator Chambliss. So, do I understand you to say that the
cost of the Joint Strike Fighter would increase?
Mr. Wynne. I would have to say that there would be some
upward pressure, and I just don't know how much.
Senator Chambliss. Yes.
Thank you.
Senator McCain. Just briefly, Mr. Secretary, we've enjoyed
this hearing. On the issue of UAVs, or unmanned aircraft, I am
convinced that one of the greatest challenges we face in the
war on terror is the protection of our borders, and we're not
going to be able to do it with people. I think that UAVs are a
critical item. I've tried to, and will continue to try to, get
the attention of the Department of Homeland Security, because I
think they can help in the funding, because there is clearly a
use for UAVs on our long extended borders, both to south and
north.
Mr. Wynne. Senator, that's why Australia is very interested
in the Global Hawk. Remember, it made that flight over to
Australia? That really was the intriguing feature. Their
northern border.
Senator McCain. So, I would hope we are funding Department
of Homeland Security extensively, which it should. In my view,
they need to look at high-tech, as well as people. We're all
for 2,000 more border patrol, but you're never going to control
that border without using high-tech equipment, and I would
argue that we've reached a point of maturity now that UAVs can
play a tremendously contributory role in trying to control our
borders.
Anything more?
Senator Lieberman. No, thank you.
Senator McCain. Thank you very much.
Senator Lieberman. Thank you all very much.
Senator McCain. This hearing is adjourned.
[Questions for the record with answers supplied follow:]
Questions Submitted by Senator John McCain
f/a-22
1. Senator McCain. Mr. Bolkcom, you have written extensively on the
Air Force F/A-22 program. In your opinion, what should be the role and
mission of the F/A-22, and how many aircraft do you think would enable
the U.S. to accomplish those missions?
Mr. Bolkom. The number of Raptors that the Air Force indicates it
needs has changed over time. Although the current budget appears to
fund 179 F/A-22s, Air Force leaders have stated they need 381 Raptors.
An argument may be made, however, that no F/A-22s are required to
accomplish the roles and missions for which it is designed.
The Air Force has consistently described the mission for the F/A-
22, and the F-22 before it, as achieving air dominance, or air
superiority. Supporters and critics alike appear to agree that this is
the appropriate mission for the Raptor. On the other hand, the exact
role that the Air Force says the F/A-22 could play in achieving air
dominance has changed over time and is the subject of debate. The
traditional role is to defeat enemy fighter aircraft in air-to-air
combat. However, the F/A-22 appears to be over-designed to achieve air
superiority against the fighter aircraft we face today, and are likely
to face in the near future.
General Gorenc described the contemporary threat environment in his
testimony when he noted ``it's very difficult to fly air-to-air against
somebody if everybody that you're up against is actually burying their
aircraft.'' U.S. dominance in air-to-air combat is so great, that many
adversaries would prefer to run or hide than to stand and fight. Since
1991, the United States has flown in-excess of 400,000 combat sorties,
and lost only one aircraft to another fighter, according to official
Department of Defense (DOD) estimates and Congressional Research
Service (CRS) analysis. Some observers have characterized the need to
procure any F/A-22s based on this historical record as weak.
Air Force officials, including Chief of Staff General John Jumper,
argue that the F/A-22 is needed because future conflicts are not likely
to resemble the permissive air environments of Afghanistan or Iraq. F/
A-22 supporters argue that even though it is difficult to envision a
peer competitor, the Air Force must prepare today for a potential worst
case scenario in the future because it takes decades to develop and
field advanced combat aircraft.
The U.S. success in this combat domain goes well beyond Operations
Enduring Freedom and Iraqi Freedom. The United States faced little or
no air-to-air opposition in Libya, Lebanon, Panama, Grenada, Haiti,
Bosnia, and Kosovo. The United States has faced no air-to-air
opposition in the hundreds of humanitarian and disaster relief missions
it has flown, nor in the numerous military operations other than war
(MOOTW) it has fought in countries like the Somalia, Philippines,
Colombia, and the Horn of Africa. It appears to many analysts, that the
future will look much like Afghanistan and Iraq in terms of achieving
air dominance, and that the potent air threats that General Jumper
predicts, will be few, if they emerge at all.
Perhaps because of this reduced air-to-air threat, the Air Force
has emphasized the F/A-22's potential air-to-ground capabilities,
especially against advanced Russian Surface-to-Air Missiles (SAMs).
This appears to be the role for which the F/A-22 has gained the most
traction. There appears to be a consensus that the combination of these
SAMs, and an advanced, well equipped and maintained air force, could
present the most difficult air dominance challenge in the future, and
might warrant some number of F/A-22s. However, opinions vary on the
number of F/A-22s required to deal with what many see as the most
pressing threat--a potential conflict with China over Taiwan.
The U.S. Navy likely could be the first on the scene to deal with
such a crisis. The Navy, however, has no plans to acquire the F/A-22.
Either the Navy believes that it can adequately deal with China's Air
Force and advanced SAMs with its less sophisticated and less expensive
aircraft, or it is going to depend on the Air Force to ``kick down the
door'' for them. It may be useful to know whether the Navy and Marine
Corps, are prepared for a potential challenge in this area without F/A-
22 support.
2. Senator McCain. Major General Gorenc, in previous testimony, Air
Force Lieutenant General Ronald Keys stated, ``We view the F/A-22 as
our kick-down-the-door force.'' He said the plane would be uniquely
able to reach a threat quickly and neutralize it. In an article
published in ``USAF F/A-22, Air Dominance for the 21st Century'',
Walter Boyne states that ``The combined capability of the Raptor,
Nighthawk, and Spirit [B-2] is startling. Small diameter precision
munitions and a force of only four B-2s and 48 F/A-22s, flying one
sortie each, will be able to smash 380 targets . . . without ever being
detected.'' First of all, the Air Force does not have enough low
density/high demand aircraft such as F-117s, joint surveillance target
attack radar system, and U-2s for every air expeditionary force (AEF).
These aircraft support the AEF based on the requirements of the theater
and contingency. The capability of the F/A-22 and its cost make it a
prime candidate for the same AEF supporting function. Wouldn't a
smaller force of 178 aircraft provide the Air Force with the number of
F/A-22s to ``kick down the door''?
General Gorenc. An F/A-22 force of 179 aircraft increases
operational risk, attrition, and time to gain joint air dominance,
which jeopardizes the Joint Forces Commander's (JFC) ability to ``seize
the initiative'' and gain access to the battle space. Previous analysis
determined the requirement for at least 381 F/A-22s--based on
capability, business case, and sufficiency needed to meet the national
defense strategy with moderate risk. The Air Force is advocating for
more Raptors during the Department's ongoing Quadrennial Defense Review
(QDR) tactical air (TACAIR) analysis of joint air dominance capability
requirements.
joint stand-off weapon
3. Senator McCain. Major General Gorenc, the Air Force backed out
of the Navy led joint stand-off weapon (JSOW) program with the
intention of procuring the extended-range version of the wind corrected
munitions dispenser (WCMD-ER). Now that WCMD-ER is no longer funded in
the budget request, will the Air Force reconsider its decision to
withdraw from the JSOW program?
General Gorenc. The Air Force does not intend to re-enter the JSOW
program. Capabilities, costs, and risk assessments in area-attack
munitions were all considered when the Air Force and Navy jointly
terminated/deferred their participation in JSOW-B as a standoff
delivery method for Sensor Fuzed Weapon (SFW). SFW provides unique and
proven capabilities, and the Air Force is pursuing the continuation of
WCMD-ER to provide only enough kits to match programmed SFW production.
Similar analytical considerations support the Air Force's decision to
terminate JSOW-A. All fiscal and capabilities-based analyses continue
to support WCMD-ER for the delivery of SFW submunitions over the JSOW-
B. WCMD-ER continues to be the Air Force's preferred program to provide
standoff delivery of area-attack munitions.
c-130
4. Senator McCain. Mr. Bolkcom, costs for center wing box repairs
of C-130E/H models could be accomplished for $6 million to $9 million
per aircraft compared to $100 million for a new C-130J. Based on your
significant experience and writings on aging aircraft issues, would you
agree that replacing the center wing box on C-130E/H aircraft is an
appropriate strategy to recapitalize the C-130 fleet compared to the
more expensive strategy to continue acquiring C-130s?
Mr. Bolkcom. Repairing or replacing the center wing sections of C-
130E/H aircraft appears to be a mandatory step to maintain the current
fleet.
The Air Force has not requested funding for this modification in
its $185.6 million fiscal year 2006 budget submission. The center wing
box has long been recognized as an essential, yet vulnerable part of
the aircraft in terms of wear and tear. The Air Force encountered
similar problems with the C-130 center wing box in the late 1960s and
early 1970s. Increased wear and tear on the C-130 fleet due to recent
operational demands might have also been anticipated. In 2001, the Navy
grounded 51 EA-6B Prowler aircraft. These aircraft exhibited high
degrees of center wing section stress due to extensive combat flying in
Kosovo, Afghanistan, and Iraq. The Navy grounded 24 more Prowlers in
2003, when continued high Operations Tempo (OPTEMPO) further stressed
the fleet's center wing sections.
As for recapitalizing the fleet, it is not currently clear that
recapitalization is a necessary step. The first reason that the need to
recapitalize is unclear, is that current and future airlift
requirements have not been determined. The QDR and the Air Force's
Mobility Capabilities Study (MCS) will both contribute to a collective
understanding of future mobility needs. As DOD reshapes itself to
better combat non-state as well as state actors, the type and number of
intra-theater airlift aircraft required could change considerably.
Until these studies are completed, decisions on the number and type of
new aircraft to be procured, if any, appear premature.
The need to recapitalize the C-130 fleet is also unclear because it
has not yet been demonstrated that newer aircraft will perform this
mission more cost-effectively than the current fleet. As its aircraft
age, Air Force leaders have stated that operations and maintenance
(O&M) costs are increasing. Retiring old aircraft (such as the C-130E)
and purchasing new aircraft (such as the C-130J) is a better use of
scarce budget resources, they argue, than continuing to spend money on
aging aircraft.
Studies by the Congressional Budget Office (CBO) and the Government
Accountability Office (GAO) have found, however, that the effects of
age on aircraft O&M costs are not well known, and that the data
supporting the Air Force's position were anecdotal. A 1998 RAND report
on aging aircraft found that there were no effective models to measure
and estimate the cost impacts of aging factors such as corrosion or
engine fatigue. Also, using historic cost estimating relationships to
estimate future costs may not be valid.
In many cases, it may be more cost effective to maintain an older
fleet rather than to purchase a new aircraft. The O&M costs of the UH-
60 Black Hawk and the AH-64 Apache helicopters, for example, have
stayed relatively constant as the aircraft have aged. The U.S. Navy and
the CBO estimate that annual O&M costs for military aircraft increase
by only 1-3 percent for each additional year of age, adjusting for
inflation. So, if a 10-year old C-130 aircraft costs, for example
$100,000 to operate and maintain in fiscal year 2006, an 11-year old C-
130 might cost $103,000 to operate and maintain in the same year.
joint strike fighter
5. Senator McCain. Secretary Young and Major General Gorenc, the
Joint Strike Fighter (JSF) program is the largest weapons buying
program ever. As such, it requires extreme caution as DOD commits
taxpayer funds each year. The program involves three of our Services
and at least eight foreign countries. We have already expended billions
of dollars on development costs, yet still do not have a flying
aircraft. I'm sure I don't have to remind you, a lot of your future
force rides on getting this program right. One area that is beginning
to concern me is the potential cost growth simply due to the large
difference developing between all variants of the aircraft. It seems to
me that the original goal was to build three variants composed
principally of a common airframe. So every time I read statements from
the Pentagon's top weapons tester that say efforts to shed several
thousand pounds from the short-takeoff-and-landing (STOVL) version have
resulted in a loss of commonality between the three F-35 variants, I
get concerned that costs will continue to rise as we begin to build
three different aircraft, rather than one aircraft with three variants.
The STOVL version for the Marine Corps and possibly for the Air Force
looks like it will carry a smaller weapons load out. It may also have
different air refueling systems if it follows the conventional tanking
systems of today. The conventional takeoff version, one for the Air
Force and another for the Navy, will each have a different wing and
landing gear. Yet reports I hear tell me the Navy version, with its
larger wing, should have better performance. I also suspect the
software to run all the systems will be very different in each variant.
What we have here really begins to look like the development of several
very different aircraft. I believe serious consideration should be
given to reduce the development to two variants: one STOVL for both the
Marine Corps and Air Force, and one conventional version capable of
carrier and land field operations. They should also all use the same
air refueling system to enable greater flexibility and commonality with
our allies. What are your thoughts on moving the JSF program toward
just two variants?
Mr. Young and General Gorenc. The current acquisition strategy, for
three JSF variants, remains the best solution to meet the Services'
approved operational requirements and need dates. This approach is
executable and more affordable than revising designs at this advanced
stage of development. Manufacture and assembly of the first flight test
article (CTOL) variant) is underway and going well. The STOVL and CTOL
production designs are nearing completion, and manufacture of the first
STOVL flight test article begins late this year. Carrier version design
is underway.
The warfighters' approved operational requirements cannot be met
with only two variants because Service mission profiles are too
diverse. Performance differences across variants result from optimizing
a given variant for the specific Service mission. For example, the Air
Force Conventional Takeoff and Landing variant is designed to meet
higher `g' limits, faster acceleration, and internal gun requirements.
The Navy's carrier variant needs a larger wing and more rugged landing
structure to accommodate carrier landing constraints and stresses.
Commonality across JSF variants remains significant. Avionics,
mission system software, and the propulsion turbo machinery core are
the same across all variants, and there's high commonality across many
of the high cost structural components. All the variants will be built
on the same production line using flexible manufacturing technology.
While recent weight-related STOVL design changes somewhat lessened
commonality, associated increases to projected Unit Recurring Flyaway
costs are less than 1 percent.
air force tanker program
6. Senator McCain. Secretary Young, whichever future Air Force
tanker is bought, we all understand it will have to have boom
capability. The boom system is required to refuel all of our large
transport and bomber aircraft. We also know that the Navy will always
require probe and drogue systems. Under the previously proposed 767
tanker lease program, emails among the Air Force leadership revealed a
plan to build the first 100 tankers without drogue systems. Were you
aware of this, and would you expect any future tanker program to
require drogue systems on all tanker aircraft?
Mr. Young. I consider it a tremendous joint force multiplier and a
Navy requirement to ensure any future Air Force tanker program retain
the capability to perform boom and probe/drogue refueling on the same
sortie (``Dual'' capability). During discussions involving development
of tanker requirements supporting the tanker lease program, Navy
leadership supported the requirement for the next Air Force tanker to
be ``dual'' capable. As we now move beyond the lease program, we are
confident that we have communicated our requirements clearly.
The Joint Requirements Oversight Council-validated Air Refueling
(AR) Initial Capabilities Document includes language identifying probe/
drogue, and boom AR on the same sortie as a primary mission.
Additionally, the Navy and Air Force agree that ``dual'' capability
(probe/drogue and boom on the same sortie) will be a Key Performance
Parameter in the KC-135 Replacement Capability Development Document.
The Navy will closely follow the progress of the Air Force tanker
program and remain fully engaged in the working groups and document
reviews this summer and fall.
[Whereupon, at 4:33 p.m., the subcommittee adjourned.]
DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
2006
----------
THURSDAY, APRIL 14, 2005
U.S. Senate,
Subcommittee on Airland,
Committee on Armed Services,
Washington, DC.
AIR FORCE ACQUISITION OVERSIGHT
The subcommittee met, pursuant to notice, at 2:35 p.m., in
room SR-232A, Russell Senate Office Building, Senator John
McCain (chairman of the subcommittee) presiding.
Committee members present: Senators McCain, Warner,
Chambliss, and Lieberman.
Committee staff member present: Judith A. Ansley, staff
director.
Majority staff members present: Regina A. Dubey, research
assistant; William C. Greenwalt, professional staff member;
Ambrose R. Hock, professional staff member; and Stanley R.
O'Connor, Jr., professional staff member.
Minority staff members present: Creighton Greene,
professional staff member; and Peter K. Levine, minority
counsel.
Staff assistants present: Alison E. Brill and Andrew W.
Florell.
Committee members' assistants present: Christopher J. Paul,
assistant to Senator McCain; John A. Bonsell, assistant to
Senator Inhofe; Clyde A. Taylor IV, assistant to Senator
Chambliss; and Frederick M. Downey, assisant to Senator
Lieberman.
OPENING STATEMENT OF SENATOR JOHN McCAIN, CHAIRMAN
Senator McCain. Today the committee meets to examine the
management and oversight of Air Force acquisition programs. I
want to welcome our witnesses: the Honorable Paul McNulty,
United States Attorney for the Eastern District of Virginia;
the Honorable Joseph Schmitz, Inspector General for the
Department of Defense; the Honorable Michael Dominguez, Acting
Secretary of the Air Force; Daniel Gordon, Managing General
Counsel for Procurement Law at the Government Accountability
Office (GAO); and Sallie Flavin, Deputy Director, Defense
Contract Management Agency. We greatly appreciate all of you
giving your time for this very important hearing.
Defending our Nation against its enemies is the first and
fundamental commitment of the Federal Government and Congress
must have an eye toward the faithful and efficient expenditure
of every taxpayer dollar. Over the last 3 years we have seen
the most egregious abuse of power from an acquisition official
that I have seen. Darleen Druyun's actions not only disgraced
herself and resulted in her conviction on public corruption
charges, but also disgraced the Air Force, the Department of
Defense (DOD), and the entire defense establishment.
I continue to believe that she is not singly responsible
for this failure and fervently hope that both Congress and the
Department can work together to remove any possibility for
future corruption through major acquisition reform.
Ms. Druyun also admitted that she had similarly harmed the
United States on behalf of Boeing on several other major
defense programs, to include the North Atlantic Treaty
Organization (NATO), Airborne Warning and Control System
(AWACS), C-130 aircraft modernization program (AMP), and the C-
17. How much taxpayers have been fleeced remains to be seen.
I appreciate all the work that you and your staff have done
in working to correct these past problems and I look forward to
the day it is all behind us. Although I appreciate the tenor of
the Air Force witness statements, what is missing is the Air
Force's acceptance of any responsibility for wrongdoing, and
the public denials by senior Air Force officials that anyone
should be held accountable beyond Ms. Druyun.
The body of evidence suggests otherwise. We will hear
testimony today regarding contracting officials who acted
improperly and possibly unethically and illegally. There is a
record of e-mails on personal attacks on me, my staff, and
others who opposed the Boeing 767 deal, Air Force lobbying
against the Senate Commerce Committee and the Armed Services
Committee, exaggeration of the extent of corrosion in the KC-
135 tanker fleet, end runs on the authorizing committees,
obfuscation, delay, and withholding of tanker acquisition
documents.
What is apparent is that the Air Force pulled out all the
stops to get the Boeing tanker deal done and looked the other
way when things were done wrongly, improperly. Similarly, this
was done in the C-130J contract. The Air Force contracting
officials and their leadership should never have acquired the
C-130J using a commercial item acquisition strategy. They did
it and it was done for 10 years.
But this is not just an Air Force problem. The defense
acquisition anomalies go beyond the Boeing 767 tanker scandal
and the C-130J program. Recently, the Army Secretary indicated
that he would convert the ``other transaction authority,''
(OTA) agreement, to a Federal Acquisition Regulation (FAR)-
based contract with provisions typically used to protect
taxpayers' interests and help prevent fraud, waste, and abuse.
For whatever reason, these provisions were not included in the
original OTA.
We need true acquisition reform and recent contract
conversions in the Army and the Air Force are only treating the
symptoms.
I do have some good news on this note. On April 6, 2005,
the Airland Subcommittee of the Senate Armed Services Committee
heard testimony which confirmed that the Air Force acquired the
C-130J heavy lift aircraft as a ``commercial item.'' In so
doing, the Air Force bargained away its ability to get cost and
pricing information that would have assured that it was
acquiring this aircraft at a fair and reasonable price. As a
result, the Air Force obtained an aircraft that failed to meet
contract specifications and was incapable of performing its
intended mission, at a dramatically higher than expected cost.
I am happy that Acting Secretary Dominguez and Chief of Staff
of the Air Force Jumper indicated they shared these concerns
and they informed me that the Air Force would convert the C-
130J ``commercial item'' procurement contract to a traditional
military item procurement contract. I am very pleased that the
Air Force is going to take this action.
I would also point out that the Army's agreement to change
from OTA to the regular procurement procedures is also
laudatory.
We need to examine the whole procurement process as it
works today in the DOD and the recent Air Force scandal is a
glaring example of management and oversight failure, perhaps
oversight failure on the part of Congress. Today's hearing will
help us understand the depth and breadth of the problem and
demonstrate the need for reform.
Senator Lieberman.
STATEMENT OF SENATOR JOSEPH I. LIEBERMAN
Senator Lieberman. Thanks, Mr. Chairman. Thanks for not
only calling this hearing today, but for the decisive role that
you played in bringing to light this series of financial,
management, ethical, and ultimately legal failures associated
with the Air Force tanker lease proposal and other recent
acquisitions. Your tenacity on this issue may have surprised
some in the Air Force, but those of us who have worked closely
with you on other matters know that it was not surprising, but
it is typical of the dedication that you have shown on matters
of national interest, and I congratulate you for what you
uncovered here.
Today we are going to hear from some of the people who are
directly involved or represent the Service directly involved.
Details of the contracts particularly at issue continue to be
the subject of review. I want to focus here on another
question, maybe a broader question, which is what we learned
from this, as you have said in your opening statement, and what
went wrong in the Air Force acquisition process that made it
possible for these abuses to occur.
In this regard, I think it is important to note not only
that Ms. Druyun has been found guilty of illegal behavior,
corrupt practices, but also that she was not solely or even
primarily responsible for many of the significant problems with
the Air Force tanker lease proposal. For example, it was not
Ms. Druyun who reversed the findings of the Air Force's 2001
tanker economic service life study without obtaining new
information or undertaking a new review. It was not Ms. Druyun
who resisted conducting a formal analysis of alternatives, as
the DOD does with other major programs, to determine the best
approach to meeting the Department's tanker needs.
It was not Ms. Druyun who failed to develop required system
engineering documents and testing plans and insisted that
requirements documents be tailored to the aircraft available
from a specific contractor. It was not Ms. Druyun who insisted
on pursuing a leasing approach even when multiple independent
reviews determined that leasing the aircraft would be between
$2 billion to $6 billion more expensive than purchasing them.
These questionable acquisition decisions were all made
higher up within the Air Force. What I find most troubling is
that none of these questionable decisions appear to have met
with any resistance at all from anywhere in the Air Force
acquisition organization. We have an alphabet soup of
independent organizations--Office of Management and Budget
(OMB), Congressional Budget Office (CBO), GAO, Congressional
Research Service (CRS), Institute for Defense Analyses (IDA),
National Defense University (NDU), DOD, Inspector General (IG),
Program Assessment and Evaluation (PA&E)--all of which found
major problems with the tanker lease proposal. Yet, after
reviewing thousands of Air Force e-mails, our staffs have yet
to find a single criticism or concern raised from inside the
Air Force itself. That raises a profound systemic question,
which is, what has happened to the acquisition organization of
the Department of the Air Force? Why is it that this
acquisition organization failed to raise a single criticism or
concern about a proposed tanker lease that every independent
review found to be seriously flawed, and why did that same
acquisition organization acquiesce in Ms. Druyun's decisions to
alter specifications and revise contractor evaluations in a
manner that tainted at least two other major procurements? Has
the Air Force acquisition organization lost the capacity to
exercise independent judgment and raise concerns about
questionable acquisition decisions? I know these are serious
questions, but the facts in these matters demand that those
questions be asked.
Mr. Chairman, we have cut the DOD acquisition workforce by
half over the last 15 years. These cuts continued even after
the procurement holiday of the early 1990s came to an end and
even after the global war on terrorism brought record levels of
procurement expenditures. We have made these cuts, I am afraid,
in a haphazard way, without giving consideration to the
recruitment, training, and career-building needed to ensure the
ongoing vitality of our acquisition organizations.
As a result, I am concerned that we may have stopped
building the kind of strong, experienced senior leaders that we
need to interact with industry and their own leadership when
necessary to protect the interests of the DOD and the taxpayers
of the United States.
This is not a problem that will be easy to address. It
obviously could take some period of time to rebuild the
acquisition expertise for which the Air Force was known a
decade ago. It will take a commitment to human capital
planning, both in the Air Force and perhaps in other Services
as well. Getting it right may require us to re-structure Air
Force organizations and career paths, but we must get it right
if we are going to avoid future abuses and ensure that the
taxpayers' dollars are well spent as we fulfil our
constitutional responsibility to provide for the common
defense.
I look forward to the testimony of our witnesses and again,
Mr. Chairman, I thank you for your leadership.
Senator McCain. Thank you.
Senator Chambliss.
Senator Chambliss. No opening statement, Mr. Chairman.
Thank you.
Senator McCain. Thank you.
I want to thank the witnesses for appearing here today. Mr.
McNulty, it is a little unusual to have a witness such as you
before this committee and I thank you for taking the time from
your busy schedule to be here. I felt that it would be of
interest to the committee to know about your activities in
addressing this issue.
We have Senator Warner here, the distinguished chairman. I
am sorry I did not see him. Would you care to make a statement?
Senator Warner. I would just simply say, Mr. Chairman, I
want to associate myself with your opening statement and that
of the ranking member. I think back to a reprogramming action
that was working its way through Congress. Three committees out
of the four approved it and it landed on my desk, and I
consulted with my colleague Senator McCain and we made a joint
decision that this committee would not go along with that
reprogramming. As a consequence, the events that took place
with regard to this contract we all know well and we are here
today.
Mr. Chairman, I also draw to the attention of the committee
a letter that you and others sent to the Secretary of Defense
in November asking for a review by the Inspector General of all
these matters. I would hope today that perhaps he could comment
on the timing of that work that we requested.
I join in welcoming my friend Mr. McNulty, the United
States Attorney for the Eastern District of Virginia--a Warner
appointee, I might add. But he and I have been discussing the
work that he is doing independently of Congress and it is a
very valuable inquiry into the overall procurement process.
I thank the chairman.
Senator McCain. Your testimony is already tainted, Mr.
McNulty. [Laughter.]
Thank you for appearing with us and thank you for the
effort that you are making in helping us address these
situations that have arisen. Please proceed.
STATEMENT OF HON. PAUL J. McNULTY, UNITED STATES ATTORNEY FOR
THE EASTERN DISTRICT OF VIRGINIA
Mr. McNulty. Thank you, Senator. I appreciate this honor to
be here today to describe what is going on in Eastern Virginia.
It is especially nice to be here with my home State Senator and
someone who has been very influential in my opportunity in the
Eastern District of Virginia.
I would be remiss if I did not thank this committee for its
work with regard to procurement fraud and government contract
fraud and waste. For those of us in law enforcement, you have
set a standard that has helped us a great deal. It has brought
issues to the attention of investigators. It has raised the bar
and kept it high. That kind of atmosphere makes it much easier
for us in law enforcement to pursue these cases. So thank you
for the efforts and again for the honor to be here.
I want to describe very briefly the Eastern District of
Virginia's Procurement Fraud Working Group. The Procurement
Fraud Working Group is the result of two realities that have
come into sharper focus in recent months. The first reality is
that at this critical time in the life of our country our
national defense and homeland security resources are especially
precious, and criminals who cheat must be identified, stopped,
and punished. Frankly, more procurement means more opportunity
for fraud. We must ensure that our fighting men and women are
getting well-made weapons and equipment and that the taxpayers
are getting their money's worth when government buys goods and
services. Our recent prosecution of former Air Force official
Darleen Druyun and former Boeing Chief Financial Officer
Michael Sears indicated to me, as well as many others, how
strongly the public feels about this issue.
The second reality is that Eastern Virginia is home to an
ever-increasing number of government contractors providing
highly beneficial goods and services to the Federal Government.
In addition, many of the government's national security assets
and contracting offices and agencies are located in Eastern
Virginia. We are the home of the Pentagon and the Central
Intelligence Agency (CIA) and the extensive naval interests
down in the Tidewater region.
The law enforcement community in this region must do all it
can to strengthen the integrity of the procurement system. An
energized and well-coordinated law enforcement effort that
includes a broad group of investigative agencies is critical.
For these reasons, we established an initiative to promote
the early detection, prosecution, and prevention of procurement
fraud. In partnership with various law enforcement agencies and
inspector general offices, I have formed the Procurement Fraud
Working Group. This working group will concentrate on Federal
law enforcement efforts to combat procurement fraud.
Now, the focus, Mr. Chairman, is on investigating and
prosecuting, and by doing that, achieving deterrence. I was
talking to a friend the other day who is a government
contractor and he said to me, ``Congratulations on this recent
prosecution; we have all taken notice of it and have reviewed
what we are doing.'' This is an area where deterrence really
does make a difference.
Procurement fraud is a broad term. It is a broad concept
and it includes product substitution, defective pricing or
other irregularities in the pricing and formation of contracts,
misuse of classified or other sensitive information, labor
mischarging, accounting fraud, fraud involving foreign military
sales, bribery, kickbacks, and ethical violations.
Now, briefly on the Procurement Fraud Working Group. Some
of the principal players on the working group are the Defense
Criminal Investigative Service (DCIS), Naval Criminal
Investigative Service (NCIS), National Reconnaissance Office
IG, Department of Homeland Security (DHS) IG, Department of
State and Department of Transportation IGs, and other agencies
I have listed in my written testimony.
The working group provides a novel and much needed
mechanism to encourage and facilitate the sharing of strategic
information or strategies to prevent and detect procurement
fraud. Some of the strategies the investigative agencies are
using, are listed in my testimony as well. I wanted to mention
two examples.
NCIS, they are placing investigators, criminal
investigators, in their contracting offices. They are embedding
these agents in the contracting offices in order to help
contracting officials identify fraud more quickly and also to
train them to do a better job themselves, but to also alert
investigators to those signs so the investigations can begin
more quickly. That is a good practice and it is the kind of
practice that our working group has been able to facilitate
spreading to other agencies.
Another strategy is something that the Defense Criminal
Investigative Service is doing: the enforcement efforts to
detect ethical violations of conflict of interest by current
and former agency officials. They call this their Senior
Official Project and it grew out of the Darleen Druyun
circumstance. They are looking at those who have held
significant positions involving contracting and what kind of
recusals and contracts they handled and where they went after
they left. That practice is something that other agencies I
know have already modeled or repeated because they were
impressed with the proactive nature of that investigative
tactic.
Now, also, this working group is assisting in coordinating
investigations. Some of the members of the working group
historically have operated independently and without any formal
means of sharing information relevant to procurement fraud
enforcement. It is not unusual, for example, for two agencies
to be pursuing the same target of a procurement fraud
investigation without each other's knowledge. The working group
will encourage both the concentration of law enforcement
resources and, in appropriate cases, the adoption of a task
force approach to investigate the criminal or civil cases.
We recently had our first working group meeting. At that
meeting a number of ongoing investigations were identified and
agencies that had a similar case spoke up and said, ``Well, let
us get together and work on that, let us see if we can combine
our resources, let us compare notes.''
The working group will meet periodically to facilitate this
exchange of information and coordination. We will continue to
expand our membership to maximize the impact we can have on the
procurement process. As I said, we have already had our first
meeting. That first meeting went very well. There was an
enthusiastic response from the agencies and it was very well
attended. So I am encouraged by the response I received to this
new initiative.
So in conclusion, let me say, Mr. Chairman and members of
this subcommittee, it is our hope that with the increased
communication among the participating agencies there will be
greater collaboration in investigating this type of crime and
there will be increased prosecutions of procurement fraud in
the Eastern District of Virginia. An energetic and substantial
attack on this criminal activity will send a strong message of
deterrence to government officials and the private sector.
Thank you, Mr. Chairman.
[The prepared statement of Mr. McNulty follows:]
Prepared Statement by Paul J. McNulty
Mr. Chairman and members of the subcommittee: As the United States
Attorney for the Eastern District of Virginia, it is my privilege to
appear before you today to discuss the initiative that my office has
undertaken to increase the prevention and prosecution of fraud in the
Federal procurement process. This is obviously an extremely important
topic, and I commend you, Mr. Chairman, for holding this hearing.
i. introduction
At this critical time in the life of our country, our national
defense and homeland security resources are especially precious, and
criminals who cheat the Government must be identified, stopped and
punished. It is imperative that we take action to detect, prosecute and
deter those unscrupulous government contractors and corrupt government
officials whose theft of critically needed resources threaten America's
safety and defense. We must ensure that our fighting men and women are
getting well-made weapons and equipment and that the taxpayers are
getting their money's worth when the Government buys goods and
services.
Eastern Virginia is home to a large number of government
contractors providing highly beneficial goods and services to the
Federal Government. In addition, many of government's national security
assets and contracting offices and agencies are located in Eastern
Virginia. The law enforcement community in this region must do all it
can to strengthen the integrity of the procurement system. An energized
and well coordinated law enforcement effort that includes a broad group
of investigative agencies is critical, especially because the Federal
Bureau of Investigation (FBI), which traditionally has played a
significant role in combating procurement fraud, has shifted its
resources away from this type of white collar crime since the events of
September 11, 2001.
For these reasons, I have established a procurement fraud
initiative to promote the early detection, prosecution, and prevention
of procurement fraud. In partnership with various Federal law
enforcement agencies and Inspector General (IG) offices, I have formed
the Procurement Fraud Working Group. This working group will
concentrate on Federal law enforcement efforts to combat procurement
fraud. Through collaboration and exchange of ideas, the working group
will make law enforcement more effective in defeating, prosecuting and
deterring procurement fraud.
ii. background
The Challenge
Part of the cost of keeping America safe from terror and combating
threats at home and abroad is increased procurement. Many of the
Government's contracts are negotiated, signed or processed in Eastern
Virginia because it is home to large procurement offices, including,
among others, the Pentagon and Norfolk Naval Base, the largest navy
base in the world. Moreover, many defense contractors and
subcontractors are located in Eastern Virginia or have offices here. In
addition to increasing DOD contracts, these businesses are expanding
operations to acquire and service contracts from the State Department,
Department of Homeland Security (DHS), and other Federal agencies. For
example, the President and Chief Operating Officer of one of DHS's top
10 contractors recently announced the company's intent to grow 15
percent each year. With increased procurement, including a rise in the
outsourcing of particular services, there is also the potential for an
increase in procurement fraud, which includes product substitution,
defective pricing or other irregularities in the pricing and formation
of contracts, misuse of classified or other sensitive information,
labor mischarging, accounting fraud, fraud involving foreign military
sales, bribery, kickbacks and ethical violations.
As the potential for procurement fraud has increased, however, the
agencies responsible for investigating this crime remain relatively
small. Defense Department investigative agencies, Inspectors General,
and the Postal Inspectors are assigned enforcement responsibility for
large geographical areas but have a limited number of agents. As I
mentioned earlier, the FBI's comparatively large resources are now
principally devoted to counter-terrorism efforts. This circumstance
places a greater burden on the United States Attorney's offices to
provide leadership and encourage greater law enforcement cooperation.
The Eastern District of Virginia Track Record
The Eastern District of Virginia (EDVA) has a proven track record
of fighting contract fraud.
Last year alone, our office obtained at least 15 convictions in
cases involving procurement fraud. Dating back almost 20 years, our
office played a pivotal role in ``Operation Ill Wind,'' which uncovered
a major procurement fraud scandal. ``Operation Ill Wind'' resulted in
about 70 convictions, including the convictions of half a dozen major
defense contractors, some smaller defense contractors, employees,
consultants and approximately a dozen Government officials. Most were
given sentences of incarceration. The highest-ranking Government
officials were an Assistant Secretary of the Navy, a Deputy Assistant
Secretary of the Navy and a Deputy Assistant Secretary of the Air
Force. The defendants paid significant fines, restitution and civil
settlements. Since ``Operation Ill Wind,'' EDVA has continued to
prosecute major DOD fraud and corruption cases, including:
Darleen Druyun: She was a senior Air Force official,
who obtained jobs with Boeing for her daughter, her daughter's
fiance, and herself while negotiating contracts with Boeing on
behalf of the Air Force. Druyun claims to have given Boeing a
``parting gift'' by agreeing to a higher price than she
believed appropriate for Boeing's tanker aircraft. Boeing's
former Chief Financial Officer, Michael Sears, also pleaded
guilty for his role in this scandal.
Robert Lee Neal, Jr., and Francis Delano Jones, Jr.,
were convicted of extortion, bribery, money laundering and
other crimes in 2003. Neal and Jones were senior DOD officials
who used their official positions to obtain bribes, extortion
payments and gratuities.
Kevin Hawkins: He accepted over $47,000 in bribes for
his participation in a scheme to use DOD International Merchant
Purchase Authority Card (IMPAC) credit cards to make over
$200,000 in fictitious purchases for the Pentagon.
Bobby Gilchrist: He received over $200,000 in bribes
for his participation in a credit card scheme, resulting in
$400,000 in Government losses.
The Ebersole dog case, focused on fraudulent
procurements involving untrained bomb detection dogs used by
the Internal Revenue Service (IRS), State, Federal Reserve, and
Federal Emergency Management Agency (FEMA).
The case against Jeffrey Bochesa, and several others,
involved $300,000 in gratuities and a $1.33 million fraud
committed by Bochesa and his company in connection with a
National Reconnaissance Office subcontract.
The Dutta case involved more than $800,000 in
overcharging on United States Agency for International
Development (USAID) contracts.
The Photogrammetrics case involved more than $500,000
of overcharges on major Department of Transportation (DOT) road
projects in Northern Virginia.
Northrop Grumman paid $60 million in connection with
defective pricing on a major DOD contract in Norfolk.
III. Description of the Initiative
In an effort to address the problem of procurement fraud, the
United States Attorney Office (USAO) in EDVA, in partnership with a
large segment of the Federal law enforcement community, has formed the
Procurement Fraud Working Group. Some of the principal players on the
Working Group are the Defense Criminal Investigative Service, Naval
Criminal Investigative Service, National Reconnaissance Office-IG, DHS-
IG, Department of State-IG and Department of Transportation-IG.\1\ This
working group will provide a novel and much needed mechanism to
encourage and facilitate the sharing of strategies to prevent and
detect procurement fraud and information associated with targets of
procurement fraud investigations. Some members of the working group
historically have operated independently and without any formal means
of sharing information relevant to procurement fraud enforcement.
Indeed, it is not unusual, for example, for two agencies to be pursuing
the same target of a procurement fraud investigation, without the other
agency's knowledge. The working group will encourage both the
concentration of law enforcement resources, and, in appropriate cases,
the adoption of a ``task force'' approach to investigating criminal and
civil cases.
---------------------------------------------------------------------------
\1\ Notwithstanding its shift in priorities towards counter-
terrorism, the FBI will participate on the task force in a limited
capacity. Other agencies that will participate on the working group
include the National Science Foundation-OIG, Department of Treasury-
OIG, Coalition Provisional Authority-OIG, IRS, Air Force Office of
Special Investigations, NASA-OIG, Department of Education-OIG,
Department of Interior-OIG, General Services Administration-OIG, Army-
CID, Department of Commerce-OIG, CIA-OIG, and Department of Veterans
Affairs-OIG, among others.
---------------------------------------------------------------------------
In addition, the working group will assist participant agencies in
developing new strategies to combat procurement fraud. Some of the
working group participants already have adopted strategies that we
believe must be shared. Examples of these strategies include the
following:
Collaboration between special agents and prosecutors
at early stages of procurement fraud investigations to assure
successful prosecutions and civil recoveries.
Education of Government contracting officers, program
managers and other agency personnel on issues relating to the
detection and prevention of procurement fraud.
Placement of agency investigators at major procurement
offices to work with agency employees who are directly involved
in the negotiation of Government contracts.
Use of computer data-mining and other programs to
uncover and detect procurement fraud.
Enhanced efforts to detect ethics violations and
conflicts of interest by current and former agency officials.
Improved training of special agents and auditors to
assist them in conducting investigations of procurement fraud,
bribery and conflicts of interest.
The working group will meet periodically to facilitate exchange of
information and ideas. The working group also will continue to expand
its membership to maximize positive impact on the procurement process.
iv. conclusion
In short, it is our hope that with increased communication among
the participant agencies, there will be greater collaboration in
investigative efforts and increased prosecutions of procurement fraud
in the Eastern District of Virginia. An energetic and substantial
attack on this criminal activity will send a strong message of
deterrence to Government officials and the private sector.
Again, Mr. Chairman, we appreciate your support in this endeavor. I
would be pleased to answer any questions you may have. Thank you.
Senator McCain. Thank you very much.
Mr. Schmitz, welcome back.
STATEMENT OF HON. JOSEPH E. SCHMITZ, INSPECTOR GENERAL,
DEPARTMENT OF DEFENSE
Mr. Schmitz. Thank you, Mr. Chairman, Senator Lieberman,
Chairman Warner, Senator Chambliss. Thanks for another
opportunity within a week to testify before the subcommittee
and to address your questions regarding Air Force acquisition
oversight. I will also discuss briefly today our related work
on commercial contracting practices for defense system
procurement, which I understand is of concern to the
subcommittee as well. I would ask that my complete statement be
introduced.
Senator McCain. Without objection.
Mr. Schmitz. On March 29, 2004, we issued a report on the
acquisition of the Boeing KC-767 Alpha tanker aircraft, in
which we concluded, among other findings, that at the time, the
proposed tanker contract, as negotiated, was not a good deal
for the DOD or for the American taxpayers. It was our judgment
that the Air Force used a procurement strategy that
demonstrated neither best business practices nor prudent
acquisition procedures to provide accountability for the
expenditure of $23.5 billion for the KC-767 tanker program.
Therefore, we recommended that the Under Secretary of Defense
for Acquisition, Technology, and Logistics not proceed with the
program until he resolved the issues pertaining to the
procurement strategy, acquisition procedures, and statutory
requirements.
The criminal investigative component of the Office of
Inspector General, known as the Defense Criminal Investigative
Service (DCIS), has led the investigations of Darleen Druyun,
the former Principal Deputy Assistant Secretary of the Air
Force for Acquisition and Management, and Michael Sears, the
former Boeing Chief Financial Officer, together with the
Federal Bureau of Investigations (FBI) and the U.S. Attorney.
Both of these officials have since pled guilty to various
Federal crimes associated with conflicts of interest. Ms.
Druyun's admissions implicated several other Air Force
contracts and we continue to assist the U.S. Attorney for the
Eastern District of Virginia, to my right, and Department of
Justice with the criminal and civil litigation aspects of this
ongoing matter.
On November 19, 2004, Senate Armed Services Committee
Chairman Warner, Ranking Member Levin, and Senator McCain
requested that my office conduct an accountability review of
the KC-767 Alpha Tanker Program to determine ``what happened,
who was accountable, and what actions must be taken to prevent
this situation from happening again.''
To determine what happened, when, and what individuals were
in key positions, we developed a time line with an accompanying
narrative that shows significant events for the tanker lease
proposal before and after Ms. Druyun ended her employment with
the Air Force in November 2002. To determine who made or should
have made decisions on the Tanker Program, we are reviewing
program documentation, including e-mails, from the Office of
Secretary of Defense, Department of the Air Force, Office of
Management and Budget, Congressional Budget Office, and the
Boeing Company.
In addition, we have conducted 93 interviews with military
and civilian officials involved with the Tanker Program. We
plan to report out by the end of this month. At that time, we
will include our recommendations.
In the February 11, 2005, memorandum, Michael Wynne, at the
time the acting Under Secretary of Defense for Acquisition,
Technology, and Logistics, referred to us for further review
eight Air Force contracts which had involved Ms. Druyun. We
identified two additional contracts for review and, in
addition, we are reviewing two classified contracts previously
referred to us by the acting Under Secretary.
In July 2004 we reported that the Air Force conditionally
accepted 50 C-130J aircraft at a cost of $2.6 billion even
though none of the aircraft met commercial contract
specifications or operational requirements. This was the
subject of my testimony last week. As a result of our initial
report, the government fielded C-130J aircraft that could not
perform the intended mission. That was our finding. This was
the subject, as I said in my testimony last Wednesday and I
will not belabor it any further today.
In April 2004, we reported that Ms. Druyun and other senior
Air Force managers did not use appropriate contracting
procedures, as specified in the Federal Acquisition
Regulations, to determine price reasonableness when they
negotiated a $1.3 billion NATO AWACS contract with Boeing in
September of 2002.
A January 1993 DOD Inspector General report titled
``Government Actions Concerning McDonnell Douglas Corporation
During 1990,'' identified five Air Force officials, including
Ms. Druyun, as culpable for improper progress payments to
McDonnell Douglas on the C-17 program. Resulting ``improper
contracting actions reduced financial risk on the C-17 program
by $1.6 billion and created the false appearance of program
success.'' The Air Force subsequently disciplined all of the
officials identified in my predecessor's report except for Ms.
Druyun.
We began an audit of the Air Force source selection process
for the small diameter bomb in June 2004 in response to a
referral from our investigators. On November 10, 2004, Lockheed
Martin filed a protest with the GAO relating to the small
diameter bomb development and demonstration contract award to
Boeing, and in a decision issued on February 18, 2005, GAO
sustained the Lockheed Martin protest. That contract will now
be recompeted.
We have two related ongoing audits of Air Force procurement
practices. However, both audits have been suspended because of
ongoing base realignment and closure support work and other
operational priorities. The first audit, when we resume it,
will evaluate the adequacy of management oversight exercised by
each Service Acquisition Executive over major acquisition
programs. The second audit will evaluate commercial contracting
practices for procuring defense systems and will determine
whether or not procurement officials have been complying with
Federal Acquisition Regulations when procuring defense systems
or other subcomponents.
This concludes my oral statement. I will be happy to answer
any questions you may have.
[The prepared statement of Mr. Schmitz follows:]
Prepared Statement by Hon. Joseph E. Schmitz
Mr. Chairman and members of the Airland Subcommittee: Thank you for
the opportunity to appear before the committee today and to address
your questions regarding Air Force acquisition oversight. I will also
discuss related work on commercial contracting practices for major
Defense system procurements which I understand is of concern to the
committee.
audit of the acquisition of the boeing kc-767a tanker aircraft
We conducted an audit of the Air Force's planned acquisition of
Boeing KC-767A Tanker Aircraft, and--based on the audit findings I am
about to explain--recommended that the Under Secretary of Defense for
Acquisition, Technology, and Logistics, either:
proceed with the sole-source acquisition of 100 or
fewer tanker aircraft, but only after implementing audit
recommendations to resolve contracting and acquisition issues;
initiate a new major defense acquisition program based
on the results of the ongoing analysis of alternatives for
military tanker aircraft; or
implement a mix of the first two options.
Section 8159 of the Department of Defense Appropriations Act for
Fiscal Year 2002, authorized the Air Force to make payments under a
multiyear pilot program to lease general purpose Boeing 767 aircraft in
commercial configuration. Because of concerns over the cost to lease
100 tanker aircraft, Congress then authorized the Air Force in Section
135 of the National Defense Authorization Act for Fiscal Year 2004 to
lease no more than 20 tanker aircraft and purchase no more than 80
tanker aircraft.
Using the congressional authority, the Air Force finalized
negotiations with Boeing in December 2003 to lease 20 KC-767A tanker
aircraft and procure 80 tanker aircraft using noncompetitive fixed-
price commercial contracts. Because of revelations by The Boeing
Company (Boeing) in November 2003 concerning apparent improprieties by
two of the company's executives, the Deputy Secretary of Defense placed
the Boeing KC-767A Tanker Program on hold until our review and two
other studies were completed. On March 29, 2004, we issued Inspector
General Report No. D-2004-064, ``Acquisition of the Boeing KC-767A
Tanker Aircraft,'' in which we concluded, among other findings, that at
the time, the proposed Boeing KC-767A tanker contracts as negotiated
and the acquisition strategy were not a good deal for the Department of
Defense (DOD), or for the taxpayers.
Commercial Item Procurement Strategy
Strongly encouraged by Air Force management including Ms. Druyun,
the Air Force contracting officer decided to use a commercial item
procurement strategy for the sole-source Boeing KC-767A Tanker Program
with Boeing. However, contrary to the Air Force interpretation, we
found that a military tanker aircraft is not a commercial item as
defined in section 403 of title 41, United States Code. The Air Force
contracting officer, in making the commercial item determination,
inappropriately determined that modifications of the Boeing 767
aircraft were of a minor type not customarily available in the
commercial marketplace. The modifications made to develop the Boeing
767A tanker aircraft were not minor, were for unique military-specific
purposes, and cost 65.8 percent of the base commercial aircraft price.
In addition, the modifications significantly changed the aircraft's
primary purpose and function from that of transporting people and cargo
in a civil context to that of a military tanker. Furthermore, there is
no commercial market to establish reasonable prices by the forces of
supply and demand. The commercial item procurement strategy also
required that the Air Force use a fixed-price type contract rather than
a more appropriate mix of cost and fixed-price incentive type
contracts. The commercial strategy also exempted Boeing from the
requirement to submit cost or pricing data (Truth in Negotiations Act
[section 2306a of title 10, United States Code]), which places the
Government at high risk for paying excessive prices and profits and
precludes good fiduciary stewardship and oversight of congressionally
appropriated DOD funds.
The Air Force stated that Federal Acquisition Regulation (FAR) Part
16.202-2 provides that use of a firm-fixed-price contract is suitable
for acquiring commercial items or for acquiring other supplies or
services on the basis of reasonably definite functional or detailed
specifications when the contracting officer can establish fair and
reasonable prices. Price reasonableness under FAR 16.202-2 can be
established by a number of different methods including reasonable price
comparisons with prior purchases of the same or similar supplies or
services. FAR 16.202-2 permits the use of fixed-price contracts
notwithstanding performance uncertainties as long as the performance
uncertainties can be identified and reasonable estimates of their cost
impact can be made, and the contractor is willing to accept a firm
fixed price representing assumption of the risks involved.
We believe that by using fixed-price contracts, the Air Force
created a high-risk procurement strategy for the development,
modification, procurement, and logistics support of the Boeing KC-767A
Tanker Program. As to the Boeing KC-767A Tanker Program, a fixed-price
commercial contract may be appropriate for the basic Boeing 767-200ER
aircraft, but a cost or fixed-price incentive contract would be more
appropriate for the initial Boeing KC-767A tanker aircraft development,
modification, and logistics support efforts.
Using the commercial item procurement strategy, the Air Force did
not have sufficient data to make multi-billion dollar decisions for the
Boeing KC-767A Tanker Program and could not demonstrate the level of
accountability needed to conclude that the prices negotiated represent
a fair expenditure of DOD funds.
Acquisition Strategy
The Air Force used Section 8159 of the Department of Defense
Appropriations Act for Fiscal Year 2002 as its acquisition strategy for
the Boeing KC-767A tanker aircraft. The focus and goal of using this
informal acquisition strategy was to expeditiously lease 100 Boeing KC-
767A tanker aircraft. By not treating the acquisition of the Boeing KC-
767A tanker aircraft as an acquisition program, the Air Force
disregarded best business practices, prudent acquisition procedures,
and compliance with statutory provisions for testing. Without a
disciplined acquisition strategy, the Air Force cannot assure the
warfighter that Boeing will deliver KC-767A tanker aircraft that will
satisfy operational requirements.
Specifically, the operational requirements document (ORD) for the
tanker did not require that the first 100 Boeing KC-767A tanker
aircraft acquired meet requirements in the Mission Needs Statement for
``Future Air Refueling Aircraft.'' Instead, the Air Force planned to
address the requirements through an evolutionary acquisition strategy
in three spirals. In doing so, the negotiated contract for the first
100 tanker aircraft did not include the key performance parameter for
interoperability. By not including the interoperability key performance
parameter in the negotiated contract, the Air Force may not achieve the
objectives of the remaining key performance parameters because of their
dependency on interoperability requirements. In addition to not meeting
tanker aircraft interoperability requirements, the first 100 tanker
aircraft would not have met warfighter requirements for:
refueling multiple aircraft simultaneously;
conducting secondary missions, such as combined cargo/
passenger transportation and aeromedical evacuation;
self-protective measures (including armor protection);
and
electromagnetic pulse protection.
Also, systems engineering requirements were not fully developed.
Among the systems engineering requirements not fully developed were:
a performance metric for verifying the satisfaction of
the 40-year service life requirement while operating 750 hours
per year;
inclusion of corrosion prevention and control
requirements in the system specification; and
inclusion of ORD requirements for interoperability,
combat identification, and secure communications in the system
specification.
Further, Air Force plans for conducting operational and
survivability testing of the Boeing KC-767A tanker aircraft did not
comply with statutory requirements in sections 2366 and 2399 of title
10, United States Code. The statutes require that systems under
development may not proceed beyond low-rate initial production,
normally 10 percent of the total production quantity, before
operational tests determine the effectiveness and suitability of the
system (section 2399 of title 10) and survivability testing of the
system (section 2366 of title 10) are completed. As planned, the
dedicated operational and survivability testing of the Boeing 767A
tanker aircraft would not occur until 3 years after the award of the
contracts for the lease of 20 tanker aircraft and the procurement of 80
tanker aircraft. The Director, Operational Test and Evaluation has also
taken the position that the required testing should be accomplished
before the Air Force proceeds with the full-rate production decision
for the 80 tanker aircraft.
boeing kc-767a tanker lease criminal investigation
The criminal investigative component of the Office of Inspector
General, known as the Defense Criminal Investigative Service (DCIS),
has led the investigations of Darleen Druyun, the former Principal
Deputy Assistant Secretary of the Air Force for Acquisition and
Management and Michael Sears, the former Boeing Chief Financial
Officer, both of whom have since pled guilty to Federal crimes
associated with conflicts of interest. As the result of interviews
conducted with Ms. Druyun during the course of the investigation, Ms.
Druyun also admitted to improperly influencing other contracts and
stated she was not objective while negotiating several Department of
Defense programs. These admissions implicated the C-17 Multi-Year
Procurement, a North Atlantic Treaty Organization (NATO) Airborne
Warning and Control System (AWACS) equitable adjustment, the Small
Diameter Bomb contract, the C-130 Avionics Modernization Program, and
the proposed KC-767 tanker lease. Several of these admissions were
incorporated into Ms. Druyun's supplemental statement of facts and
resulted in an increase of her sentence guidelines range. We continue
to assist the U.S. Attorney for the Eastern District of Virginia and
Department of Justice with the criminal and civil litigation aspects of
this investigation.
DOD Office of the Inspector General (OIG) has also led and
continues to participate in the investigation of the theft of Lockheed
Martin Corporation proprietary documents relating to the evolved
expendable launch vehicle (EELV) program by persons who later went to
work for Boeing and delivered the documents to Boeing managers. Three
Boeing divisions were suspended from Government contracting for a
period of time by the Air Force as a result of our EELV investigation.
kc-767a tanker program accountability review
Request from the Senate Armed Services Committee
On November 19, 2004, Senate Armed Services Committee Chairman
Warner; Ranking Member Levin; and Senator McCain sent a letter to the
Secretary of Defense requesting that the DOD IG conduct an
accountability review of all members of the DOD and the Department of
the Air Force, both military and civilian, who participated in
structuring and negotiating the proposed lease contract for the KC-767A
tanker aircraft program, including the then-Secretary of the Air Force
and the then-Assistant Secretary of the Air Force (Acquisition).
Specifically, the accountability review should determine ``what
happened, who was accountable, and what actions must be taken to
prevent this situation from happening again.''
We plan to issue our report by April 30, 2005. At that time, we
will include recommendations.
dod oig review of contracts referred by acting under secretary of
defense for acquisition, technology, and logistics
In a February 11, 2005, memorandum, Michael Wynne, Acting Under
Secretary of Defense for Acquisition, Technology and Logistics,
referred eight Air Force contracts involving actions of Darleen Druyun
to DOD OIG for review. Mr. Wynne had previously referred to us two
unidentified classified contracts for review. All of these contracts
are Air Force contracts that were identified during the course of an
internal study commissioned by the acting Under Secretary in November
2004. A selected team led by Sallie Flavin, Deputy Director, Defense
Contract Management Agency conducted the internal study. This team
reviewed specific acquisition actions involving Ms. Druyun over the
course of the time that she was Principal Deputy Assistant Secretary of
the Air Force for Acquisition and Management. The acquisition actions
identified for review were source selection decisions, Acquisition
Strategy Panel (ASP) decisions, revisions to Acquisition Strategy
Reports during or after ASP approvals, award fee determinations,
equitable adjustments, actions involving contested payments to
contractors, contract restructures, contract extensions, and contract
litigation. Excluded from the study were acquisition actions already
under review by another Government body.
Specifically, 407 acquisition actions were reviewed that Ms. Druyun
had been involved with from 1993 through 2002. These actions included
approvals of Justification and Approvals for other than full and open
competition, source selection decisions, negotiation decisions, and
award fee determinations. As a result of this review, eight actions
were identified as requiring additional scrutiny. Specifically, these
eight actions are:
National Polar-orbiting Operational Environmental
Satellite System--Conical Microwave Imager Sensor (Contract
F04701-01-C-0502);
C-5 Avionics Modernization Program--(Contract F33657-
98-C-007/006);
Financial Information Resource System (FIRST)--
(Contract FA877-01-C0-0020);
C-22 Replacement Program (C-40)--(Contract F33657-00-
C-0056);
60 K Tunner Program;
KC-135 Programmed Depot Maintenance (Contract F42620-
98-D-0054);
F-16 Mission Training Center (Contract F33657-99-D-
2025); and
C-40 Lease & Purchase Program (Contract F33657-02-C-
0017).
We have identified an additional procurement action on the Joint
Primary Aircraft Trainer System (J-PATS) program. We are in the process
of reviewing the detailed documentation obtained by the study team on
each of the contracts identified. Our auditors are currently
coordinating with our investigators on the eight contracts because of
the nature of the issues involved and will be assigning internal
responsibility for addressing those issues. We are also reviewing
additional items associated with the C-130J program.
c-130j aircraft
In July 2004, we reported that the Air Force conditionally accepted
50 C-130J aircraft at a cost of $2.6 billion even though none of the
aircraft met commercial contract specifications or operational
requirements. As a result, the Government fielded C-130J aircraft that
could not perform the intended mission.
The Air Force initially contracted for two C-130J aircraft in 1995
through a modification to a 1990 contract for C-130H aircraft. The Air
Force undertook to buy the C-130J as a commercial item, which limited
cost oversight by the Government. Further, FAR Part 12.208 ``Contract
quality assurance'' requires that contracts for commercial items shall
rely on contractors' existing quality assurance systems as a substitute
for Government inspection and testing before tender for acceptance. As
of the time of our audit, the contractor had been unable to deliver a
specification compliant aircraft.
The Air Force's commercial justification included, in part, that
there was a 95 percent commonality between the C-130J and the civilian
commercial version of the plane and that modifications from the
commercial version would be minor. The Air Force could not provide
evidence supporting its claims. In fact, the Air Force acknowledged
that the C-130J included features not customarily available in the
commercial marketplace including aerial delivery (cargo and paratroop),
defensive systems, secure voice communication, night vision imaging,
and satellite communication. The Air Force also acknowledged at the
time of the audit that no commercial version (L-100J) of the C-130J
currently existed and no sales of the L-100J had been made to the
public. A web site cited by the Air Force in its comments to a draft of
our report showed that the L-100 J ``would be a commercial derivative''
of the C-130J.
nato awacs mid-term modernization program ``global solution''
In April 2004, we reported that senior level Air Force managers did
not use appropriate contracting procedures as specified in the Federal
Acquisition Regulation when they negotiated the NATO AWACS Global
Solution with the Chief Executive Officer of Boeing Integrated Defense
Systems in September 2002. The report identified those senior level
managers as Darleen Druyun, who at the time was Principal Deputy
Assistant Secretary of the Air Force for Acquisition and Management;
the Chairman of the NATO Airborne Early Warning and Control Program
Management Agency Board of Directors); and the NATO Airborne Early
Warning and Control Program Management Agency General Manager.
Specifically, Ms. Druyun and other managers did not determine whether
the $1.32 billion NATO AWACS negotiated price was fair and reasonable
because they did not use an independent Government cost estimate, did
not use: (1) an integrated product team to analyze the Boeing proposed
statement of work, including a technical evaluation of labor hours and
labor mixes; (2) audit assistance to review direct and indirect labor
rates; and (3) weighted guidelines to establish reasonable profit and
share ratios.
druyun actions on the c-17 program
A January 1993 DOD OIG report, ``Government Actions Concerning
McDonnell Douglas Corporation During 1990,'' identified five Air Force
officials, including Ms. Druyun, as culpable for improper progress
payments to McDonnell Douglas on the C-17 program. The report
recommended that the Secretary of the Air Force take appropriate
disciplinary action against Ms. Druyun and the others relating to
actions to implement an Air Force ``plan of action to provide financial
assistance to [McDonnell Douglas Corporation (MDC)] during August
through December 1990.'' Resulting ``improper contracting actions
reduced [MDC] financial risk on the C-17 program by $1.6 billion and
created the false appearance of [program] success. . . .''
The Air Force subsequently disciplined four of those officials, but
exonerated Ms. Druyun. Further review by the Secretary and Deputy
Secretary of Defense ``concluded that punishment of Mrs. Druyun was not
appropriate.'' A 1993 letter from Senator Grassley to then Secretary of
Defense Aspin objected to the purported Air Force exoneration and
promotion of Druyun ``1 month after the [DOD] Inspector General
recommended that she be disciplined for improper or illegal behavior,''
in response to which then Under Secretary of Defense Deutch responded
to Senator Grassley, ``You may be assured that we would not retain Mrs.
Druyun in her present position if we felt it would jeopardize the
integrity of defense acquisition.''
small diameter bomb
We began an audit of the Air Force source selection process for the
small diameter bomb (SDB) (Project No. D2004CH-0164) in June 2004 in
response to a DOD OIG investigative referral.
On November 10, 2004, Lockheed Martin filed a protest with the
Government Accountability Office (GAO) relating to the SDB System
Development and Demonstration (SDD) contract award to Boeing (RFP No.
F08635-03-R-0038).
In regard to that procurement, Lockheed Martin protests: (i)
the Air Force's evident intention to reinstate a particular
scope of work (known as Phase II) to a Boeing contract where
the scope was removed from the SDB SDD competition under [the
former Principal Deputy Assistant Secretary of the Air Force
for Acquisition and Management's corrupt direction], as well
as; (ii) the underlying award of the SDB contract because it
now appears that the work scope for the SDD competition was
defined not by the Agency's legitimate needs but through [the
former Principal Deputy Assistant Secretary of the Air Force
for Acquisition and Management's] corrupt dealings with Boeing.
In a decision issued on February 18, 2005, GAO sustained Lockheed
Martin's protest because:
the record showed that Darleen Druyun was involved in the
decisionmaking process that culminated in changes made to
evaluation factors--including deletion of specific technical
requirements. The record further showed that the Air Force
currently intends to amend Boeing's contract on a sole-source
basis to add those previously deleted requirements. GAO
recommended that, rather than making this sole-source addition
to Boeing's contract, the Air Force conduct a competition for
those requirements.
related ongoing audits
Audit of Service Acquisition Executives Management Oversight and
Procurement Authority for Acquisition Programs
The audit objective will be to determine the adequacy of each
Service Acquisition Executive's management oversight procurement
authority over major acquisition programs. Specifically, the audit will
evaluate the program management and procurement decision process used
by the Service Acquisition Executives and the Program Executive
Officers.
Audit of Commercial Contracting Practices for Procuring Defense Systems
The overall audit objective will be to determine whether
procurement officials are complying with Federal Acquisition Regulation
Part 12, ``Acquisition of Commercial Items,'' and Part 15,
``Contracting by Negotiation,'' when procuring defense systems or their
subcomponents. Specifically, we will evaluate the justifications used
to determine whether major systems or subsystems meet commercial item
criteria and evaluate the adequacy of the basis for establishing price
reasonableness.
Both audits have been suspended because of audit support for Base
Relocation and Closure and other operational priorities.
Senator McCain. Thank you very much.
Secretary Dominguez, thank you for performing the tasks
that you do, including the additional tasks as Secretary of the
Air Force. We thank you for your dedicated service. Thank you
for appearing today.
STATEMENT OF HON. MICHAEL L. DOMINGUEZ, ACTING SECRETARY OF THE
AIR FORCE
Mr. Dominguez. Thank you, sir. Mr. Chairman, Senator
Lieberman, and distinguished members of the committee: Thank
you for this opportunity to discuss Air Force acquisition and
ethics.
I take any breach of integrity and trust seriously. I am
deeply concerned that Air Force leaders and our acquisition
officials have lost the confidence of the members of this
committee. I intend to address these issues forthrightly.
Unethical behavior by any member of our team is an affront to
the honest, hard-working members of the Air Force and a breach
of trust with the American people. We must take all necessary
steps to avoid abuses of trust, such as those committed by
Darleen Druyun.
We are working closely with Michael Wynne, the Under
Secretary of Defense for Acquisition, Technology, and
Logistics, to pursue what he called ``aggressive action to
understand what may have contributed to this situation and how
to protect against such problems in the future.''
Air Force leaders are now cooperating fully with 48
different investigations by 8 different agencies. I welcome
independent assessments of our acquisition processes and
procedures and will take quick and appropriate action on their
recommendations.
We have not waited for all those to be completed before
taking corrective measures. We are improving our acquisition
oversight to guard against this type of abuse. We are
restructuring decisionmaking authority so that no one person
exercises consolidated authority without effective oversight.
In addition, we have adjusted procedures to ensure critical
acquisition decisions are made in a more collaborative
environment and every acquisition professional is required to
complete new ethics training specifically geared to issues
raised in Ms. Druyun's case. The Air Force has a unique values-
based ethics program that transcends mere compliance. Our
training emphasizes our Air Force core values. The conduct of
our airmen must be consistent with those values whether there
is an applicable rule or not. Our approach goes beyond the
consequences of not following the rules and emphasizes the
broader approach to effective decisionmaking. We want our
airmen to commit to ethical behavior out of a strong
understanding of how their conduct relates not only to the law,
but also to the Air Force culture and the Air Force mission.
The men and women of our Air Force Acquisition Corps,
indeed of our entire Air Force, are outstanding professionals,
committed to the Air Force's core values of integrity, service,
and excellence. It is sad that Ms. Druyun deviated from this
path and put personal gain over the needs of the Air Force and
our country.
Mr. Chairman, Senator Lieberman, and distinguished members
of the committee, thank you again for the opportunity to
discuss Air Force acquisition and our responses to recent
events. I am committed to restoring the bond of trust and
confidence we have enjoyed in the past and I look forward to
your questions.
[The prepared statement of Mr. Dominguez follows:]
Prepared Statement by Hon. Michael L. Dominguez
Mr. Chairman, members of the subcommittee, I appreciate this
opportunity to discuss the status of Air Force acquisition oversight.
In the wake of Ms. Darleen Druyun's illegal activities, which were an
affront to the entire Air Force community, it is important for you to
know that the Air Force takes this breach of integrity very seriously.
We are working closely with Michael W. Wynne, the Under Secretary
of Defense for Acquisition, Technology, and Logistics, to pursue what
he described as ``aggressive action to understand what may have
contributed to this situation and how to protect against such problems
in the future.'' Air Force leaders are currently cooperating fully with
48 different investigations--many of which we asked for--by 8 different
agencies. I welcome independent assessments of our acquisition
processes and procedures and will take quick and appropriate action on
their recommendations.
internal and external reviews
In December 2003, as the Department of Defense Inspector General
(DOD IG) investigation of Ms. Druyun was ramping up, the Air Force
initiated internal investigations on all major contract actions awarded
to The Boeing Company in which Ms. Druyun participated during the 2
years leading up to her retirement. We realized it had been a mistake
for a single person to determine the acquisition strategy, wield the
source selection authority for major contracts, and conduct the
management and oversight of contract executions. We were in the process
of correcting that situation when Ms. Druyun chose to leave Federal
service.
As a result of that internal review, the Secretary of the Air Force
asked the DOD IG to review the contract restructuring on the North
Atlantic Treaty Organization (NATO) Airborne Warning and Control System
(AWACS) modernization program. In April 2004, the DOD IG concluded that
the production and retrofit phase option negotiations did not follow
correct business and contracting procedures. Based on this finding, in
January 2005 the Air Force and The Boeing Company completed
renegotiations for the price for this program.
Based on admissions in Ms. Druyun's sentencing statement, the Air
Force expanded its internal review to include her nearly 10-year tenure
as Principal Deputy Assistant Secretary for Acquisition and Management.
A special group designated by the Commander of Air Force Materiel
Command (AFMC) supervised dedicated investigative teams of program
management, contracting, and legal personnel; reviewed their findings;
and made final recommendations to the Air Staff. When it became clear
that the investigation's scope exceeded what could reasonably be
accomplished without the appearance of conflict of interest, the Air
Force asked the Office of the Secretary of Defense (OSD) to accomplish
an unbiased external review.
The OSD-directed team, led by the DCMA Deputy Director, Ms. Sallie
Flavin, reviewed 407 contract actions at various locations, including:
Los Angeles, Vandenberg, Patrick, Peterson, Kirtland, Maxwell, and
Bolling Air Force Bases; the Aeronautical Systems, Electronic Systems,
Space and Missile Systems, and Air Armament Centers; and Warner-Robins,
Ogden, and Oklahoma City Air Logistics Centers. Air Force personnel
provided materiel support and assistance to this multi-service/agency
team. The team found a few anomalies: their investigation identified
eight new contract actions that were subsequently referred to the DOD
IG. Most of these actions occurred during the last few years of Ms.
Druyun's tenure; however, one occurred in 1998. We await the final
reports of the DOD IG investigations, but early indications suggest
these actions did not involve any criminal activity.
additional reviews
Air Force internal reviews were also completed for the following
programs: Evolved Expendable Launch Vehicle Program Restructure; Global
Positioning System Block IIF Single Prime Initiative contract
modification; and the Wideband Gap Filler source selection. After
discussions with OSD staff, we are preparing to refer them to the DOD
IG to review the programs and the Air Force's findings. We are doing
this to ensure absolute objectivity in the final reviews.
We are continuing to review contract modifications Ms. Druyun
negotiated on the C-17 program and the NATO AWACS Mid-Term Engineering
and Manufacturing Development (EMD) settlement. We completed a
preliminary review of the negotiations on the C-17 program. With
respect to NATO AWACS, the Air Force and The Boeing Company have agreed
to reexamine the $100 million settlement on the EMD contract later this
year when development efforts come to closure.
The DOD IG is now investigating specific actions, identified
through the above reviews, to identify serious problems or abuses.
Additionally, the DOD IG is performing an audit of Service Acquisition
Executives' management and oversight procurement authority for
acquisition programs.
In the wake of Ms. Druyun's sentencing statement, the Air Force
received several contract protests from parties that had lost source
selection competitions to The Boeing Company. These competitions
included the small diameter bomb (SDB), C-130 Avionics Modernization
Program (AMP), and two classified programs. To ensure these
investigations were completely fair and impartial, the Air Force
encouraged protesting parties on the SDB and AMP source selections to
protest directly to the Government Accountability Office (GAO). As has
been well publicized, the protests were upheld in both cases because
Ms. Druyun admitted to bias toward one bidder. The Air Force intends to
comply fully with the GAO's rulings and recommendations issued thus
far, which we believe strike the proper balance between providing what
the warfighters need and protecting the interests of the taxpayers.
Finally, a Defense Science Board (DSB) Task Force was established
to address the adequacy of management and oversight processes for
acquisition organizations DOD-wide. They are evaluating the systems to
ensure proper checks and balances exist and determine if acquisition
simplification could improve efficiency and oversight efficacy. The
task force has completed their initial investigations, and the Air
Force eagerly awaits their report.
conclusion
The Air Force continues to work closely with organizations
reviewing and investigating acquisition actions Ms. Druyun completed
while she was the Principal Deputy Assistant Secretary for Acquisition
and Management. We will review their findings and take appropriate
actions based on their recommendations, including renegotiating fair
and reasonable prices as well as recompeting certain contracting
actions.
The Air Force started to realign our program executive office
reporting structure before Ms. Druyun left Federal service; that change
strengthened the lines of accountability and decentralized program
execution decisionmaking. Recently, we have refocused our attention on
values-based ethics training: every acquisition professional is now
required to complete new ethics training specifically geared to issues
raised in Ms. Druyun's case.
Our acquisitions--indeed, everything we do in service to the
Nation--begin with the expectation of integrity. It is unfortunate that
Ms. Druyun, in the waning years of her tenure, was corrupted by the
power given to her and put her own interests before those of the Air
Force and the Nation. My deepest regret about this incident is how her
actions stained the reputations of the over 700,000 Active Duty, Guard,
Reserve, and civilian airmen who are dedicated to Excellence and who
daily uphold our other two Core Values of Integrity First and Service
Before Self. The men and women of the Air Force--inside and outside the
acquisition corps--are outstanding professionals. I appreciate the
opportunity to be here today on their behalf, and I am committed to
restoring public confidence in our Air Force and its leadership.
Thank you again for giving the Air Force the opportunity to discuss
these recent events.
______
Supplement to SASC Testimony Concerning AF Position on C-130 AMP and
Small Diameter Bomb Protests
This submission supplements testimony provided to the Airland
Subcommittee, Senate Armed Services Committee at the April 14, 2005,
hearing on the fiscal year 2006 defense budget concerning the Air Force
position on protests filed with the Government Accountability Office
(GAO) on the C-130 Avionics Modernization Program (AMP) and Small
Diameter Bomb (SDB) Program.
It is significant that the Air Force took the lead in directing the
protesters to the GAO. All of the protests on these two important
procurement programs were initially filed with the Air Force as agency-
level protests. The Air Force declined to decide the protests, instead
urging the protesters to file with the GAO. The Air Force did so
because it wanted a full, open, and independent review of the potential
impact of Ms. Druyun's admitted bias toward Boeing on these
procurements.
The source selection decision for the SDB contract challenged in
the protest was not made by Ms. Druyun, but by another senior
government official, more than 9 months after Ms. Druyun left the Air
Force. In addition, Air Force personnel who worked on the SDB source
selection at issue testified before the GAO that Air Combat Command
developed the technical requirements for the SDB, not Ms. Druyun.
Although the GAO decision cites to the fact that at least one
requirement (specified accuracy) changed as a result of an independent
analysis Ms. Druyun directed to be performed, the key is that the
analysis was independent. Ms. Druyun did not specify or pre-determine
the results of that analysis. Based on these factors, the Air Force
position during the protests was that Ms. Druyun, having already
retired from government service over 9 months before the source
selection decision, did not play a material role in the challenged
source selection decision and did not improperly influence the SDB
procurement. Notwithstanding the evidence presented by the Air Force,
the GAO concluded that Ms. Druyun had participated materially in the
SDB acquisition. Given Ms. Druyun's participation, the GAO ruled that
the Air Force failed to demonstrate that the protester was not
prejudiced by Druyun's admitted bias toward Boeing. The Air Force, by
letter of April 15, 2005, advised the GAO that it will comply with
GAO's recommendation for further competition on this program.
The Air Force position on the C-130 AMP protest was based on
evidence that the underlying technical evaluations were not tainted by
Ms. Druyun's bias. Ms. Druyun, as the Source Selection Authority (SSA)
for the C-130 AMP procurement, clearly did play a material role in the
award of that contract. As the SSA, she personally selected Boeing over
other competitors for award. She also signed the source selection
decision document, ostensibly setting out her reasons for her award
decision. Unfortunately, as we now know from admissions made in
connection with her later prosecution and conviction for ethical
violations, she was biased toward Boeing.
The Air Force acknowledged that Ms. Druyun's decision to select
Boeing for the wrong reason--her personal bias--was clearly improper.
However, the key question posed by the protest was whether that
acknowledged bias impacted only Ms. Druyun's own decision as the SSA or
whether she used that bias to improperly influence the evaluations
conducted by others of the competing proposals. Air Force officials
serving on the evaluation teams testified that although Ms. Druyun
certainly raised questions during the course of the competition that
caused them to make sure their evaluations were accurate and well
documented, she did not direct the results of those evaluations.
Rather, the evaluators rated each proposal accurately and honestly
based on their own assessments of the strengths and weaknesses of those
proposals. As a result, the evaluators believed that the technical
ratings of the proposals submitted to Ms. Druyun for decision were
accurate and that, in the minds of the evaluators, Boeing's proposal
presented the best overall value for the government. Based on this
evidence, the Air Force position during the protest was that Ms.
Druyun's admitted personal bias toward Boeing did not improperly taint
the underlying proposal evaluations and that, on the strength of those
evaluations, another, unbiased source selection authority reasonably
could have selected Boeing to receive award of the C-130 AMP contract.
Notwithstanding the evidence presented by the Air Force, the GAO ruled
that the Air Force failed to demonstrate by compelling evidence that
Druyun's bias in favor of Boeing did not influence the evaluation or
selection of Boeing.
The Air Force recognizes the harm caused to these procurements by
Ms. Druyun. Her illegal conduct did untold damage to the integrity of
the Air Force procurement process and created literally hundreds of
millions of dollars in extra costs to the American taxpayer. However,
her criminal actions are an indictment of her alone. They do not
reflect the values of the Air Force as a whole or the values of the
thousands of Air Force procurement professionals who honestly and
zealously work hard every day to buy the best products and services
needed to support the Air Force mission. The Air Force remains
committed to that principle and to restoring congressional faith in the
integrity of our procurement system.
Senator McCain. Thank you very much.
Mr. Gordon, welcome.
STATEMENT OF DANIEL I. GORDON, MANAGING ASSOCIATE GENERAL
COUNSEL FOR PROCUREMENT LAW, GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Gordon. Thank you, sir. Mr. Chairman, Senator
Lieberman, Senator Chambliss: My name is Dan Gordon. I am the
head of the bid protest unit at GAO. I am honored to be here at
your request to testify about two bid protest decisions that
GAO recently issued sustaining protests filed in connection
with the admissions of bias in favor of the Boeing Company by
Darleen Druyun, formerly the Air Force's Principal Deputy
Assistant Secretary for Acquisition.
Mr. Chairman, I have a brief statement I would like to make
orally, but I would ask that my more detailed written testimony
as well as the two bid protest decisions be entered into the
record.
Senator McCain. Without objection.
Mr. Gordon. As the members of this committee may know,
GAO's bid protest function is quite different from our
traditional and more common audit review. Our bid protest
function hears challenges, usually filed by disappointed
offerors, pursuant to the Competition in Contracting Act of
1984, a statute that this committee played a key role in
developing. Acting as a quasi-judicial forum, GAO produces
decisions within 100 days of when a protest is filed that
address whether contracting agencies have violated procurement
law and regulation in awarding contracts.
The two protest decisions at issue here involve different
Air Force programs, the small diameter bomb and the C-130
avionics modernization program, but the central question
presented in both cases was the same: whether Darleen Druyun's
admitted bias tainted the procurement decision at issue. In
both cases we concluded that it did.
There was no dispute about Druyun's bias. As part of her
criminal plea in October of last year, she admitted that she
had asked Boeing to arrange a job for her daughter and for her
daughter's boyfriend, and she admitted that she felt indebted
to Boeing for arranging those jobs. In defending against the
protests, which were brought to our office by the companies
that had lost the competitions to Boeing, the Air Force did not
deny that Druyun was biased. Instead, the Air Force argued that
Druyun had not played a material role in the decisions at issue
in the protests.
After GAO reviewed the documents and convened a multi-day
hearing in each protest, we found considerable evidence of
Druyun's participation and influence in the decisionmaking
process for both of the procurements. For example, in the C-130
avionics procurement Druyun summoned the evaluators to
Washington, DC, to discuss the status of their evaluations
before they had even completed reviewing initial proposals from
the competing companies. Because of her demanding and
intimidating manner, one witness at the hearing before us at
GAO spoke of ``blood on the floor after the meeting.'' That
meeting was subsequently referred to by one participant as the
``15 September massacre.''
As the very specific examples set out in our bid protest
decision show, the record we developed demonstrated that
Darleen Druyun influenced the evaluation from beginning to end.
In the small diameter bomb procurement as well, Druyun took
an active part in the decisionmaking process. It is true that
Dr. Marvin Sambur, who at the time was Druyun's boss, the
Assistant Secretary of the Air Force for Acquisition, was the
source selection authority in name. But our review led us to
conclude that it was Druyun, regardless of formal titles, who
was de facto the leading acquisition official. To offer just
one example, although we have a good number set out in our
decision, the companies competing for the contracts made
presentations to Darleen Druyun.
As required by the Competition in Contracting Act, our
decision sustaining the protests recommended corrective action
that we think the Air Force should take. The statute gives the
Air Force 60 days to implement our recommendation or to advise
us that they will not be following our recommendation and,
since our decisions were issued in mid to late February, we
expect to hear from the Air Force within the next 2 weeks.
Mr. Chairman, that concludes my prepared statement, but I
would be honored to answer any questions that you or the
members of the subcommittee may have.
[The prepared statement of Mr. Gordon follows:]
Prepared Statement by Daniel I. Gordon
Mr. Chairman and members of the subcommittee: Thank you for the
opportunity to be here today to discuss the bid protest decisions
recently issued by the Government Accountability Office (GAO) in
response to protests challenging the actions of the Air Force under two
programs--the C-130 avionics modernization upgrade (AMP) program and
the small diameter bomb program. The protests were based on information
disclosed by Darleen Druyun, formerly the Air Force's Principal Deputy
Assistant Secretary for Acquisition, in connection with her October
2004 criminal conviction for violation of the statutory conflict of
interest provisions codified at 18 U.S. C. Sec. 208(a) (2000).
The Competition in Contracting Act of 1984 (CICA) provides
statutory authority for GAO's bid protest function. GAO has issued
implementing regulations establishing the procedural framework for our
bid protest forum in Title 4, Part 21, of the Code of Federal
Regulations. GAO provides an objective, independent, and impartial
forum for the resolution of disputes concerning the awards of Federal
contracts. Our procedures provide all interested parties--the
protester, the awardee and the contracting agency--an opportunity to
present their positions prior to GAO's resolution of the protest.
GAO's bid protest decisions differ from the reports GAO issues in
connection with its program audits and reviews. In this regard, our
protest decisions do not address broad programmatic issues such as
whether or not a weapons program is being managed effectively or
consistent with best practices; instead, our bid protest decisions
address specific allegations raised by unsuccessful offerors
challenging particular procurement actions as contrary to procurement
laws and regulations. Our protest decisions are necessarily limited to
the record as we developed it, largely shaped by the allegations raised
by the protesters and the responses but forward by the agency and
awardee.
With that background, my testimony today will summarize our two
recently issued decisions concerning allegations of improper influence
by Darleen Druyun. Our testimony is based on the public version of our
decisions. A limited amount of information that is proprietary to the
protesters, source selection sensitive, or law enforcement sensitive
has been redacted from these decisions, but none of the redacted
information is critical to understanding the decisions.
the protest decision regarding the c-130 avionics modernization program
(amp)
Background
As was widely publicized, in October 2004 Darleen Druyun pled
guilty to violating the conflict of interest provisions of 18 U.S.C.
Sec. 208(a) based on the fact that she engaged in employment
negotiations with The Boeing Company while she was negotiating on
behalf of the Air Force for the lease of 100 Boeing KC 767A tanker
aircraft. In addition to her employment negotiations, documents
submitted by Druyun in connection with the criminal proceedings
establish that, in 2000, Druyun contacted Boeing personnel to request
that Boeing provide employment for both Druyun's daughter and the
daughter's boyfriend (who subsequently became Druyun's son-in-law). In
response to these requests, Boeing created a position for Druyun's
daughter and hired both her daughter and future son-in-law in the fall
of 2000. In the documents filed in the criminal proceedings, Druyun
further states that her decisions in matters affecting Boeing were
``influenced by her perceived indebtedness to Boeing for employing her
future son-in-law and daughter,'' and that with regard to the contract
awarded in the C-130 AMP procurement, ``an objective selection
authority may not have selected Boeing.''
Following Druyun's disclosures in October 2004, agency-level
protests were filed at the Air Force by the three offerors who
unsuccessfully competed for the C-130 contract: Lockheed Martin
Aeronautics Company, L-3 Communications Integrated Systems, (the
successor-in-interest to Raytheon Company Aircraft Integration
Systems), and BAE Systems Integrated Defense Solutions, Inc. The
Assistant Secretary of the Air Force for Acquisition subsequently
advised each of the protesters that ``the Air Force is of the opinion
that the protest is more appropriately considered by the Government
Accountability Office,'' and that ``the Air Force will not decide the
protest.'' Each of the companies subsequently filed protests with our
Office maintaining that Druyun's recently disclosed bias in favor of
Boeing, along with the information previously disclosed to the
protesters regarding the agency's purported bases for rejecting their
proposals, demonstrated that their proposals were not evaluated in a
fair and unbiased manner.
In response to the protests, the Air Force argued that
notwithstanding Druyun's acknowledged bias in favor of Boeing, the
award to Boeing was proper because ``there is no evidence that Mrs.
Druyun influenced the SSET [source selection evaluation team]'' and
that, overall, ``the evaluation process was conducted properly and in
accordance with the evaluation criteria.''
The Legal Standard
The Federal Acquisition Regulation (FAR), Sec. 3.101-1, provides
that:
Government business shall be conducted in a manner above reproach
and, except as authorized by statute or regulation, with complete
impartiality and with preferential treatment for none. Transactions
relating to the expenditure of public funds require the highest degree
of public trust and an impeccable standard of conduct. The general rule
is to avoid strictly any conflict of interest or even the appearance of
a conflict of interest in Government-contractor relationships.
Where, as was the case here, the record establishes that a
procurement official was biased in favor of one offeror, we believe
that the need to maintain the integrity of the procurement process
requires that we sustain the protests unless the agency demonstrates
that the bias did not affect the contract award decision--in legal
terms, that the bias did not prejudice the protesters.
GAO's Review of the Record
As discussed above, the documents supporting Druyun's criminal
conviction establish that she was biased in favor of Boeing. In
reviewing the protest allegations, GAO conducted a 3-day hearing on the
record during which testimony was provided by nine government
witnesses. The record developed by GAO, including the hearing
testimony, established the following key points. First, Druyun
functioned as the lead procurement official throughout this procurement
and employed a forceful management style. In this particular
procurement, she left no doubt about who was in control from the
outset. Before the evaluators had even completed their initial proposal
review, Druyun requested that they come to Washington, D.C. to discuss
the ``status'' of their evaluations; this meeting was subsequently
referred to as the ``15 September massacre.'' From September 15, 2000,
through the first request for final proposal revisions in February
2001, Druyun had the evaluators come to Washington five times to brief
her on the ongoing evaluations; during these briefings, Druyun
expressly or implicitly directed multiple changes to the evaluators'
ratings, many of which favored Boeing. In our decision, we identify
specific examples of Druyun's directions regarding each of the
offerors' proposals.
Also, the record shows that following the request for final
proposal revisions, but before the source selection process was
complete, the contracting officer sent an e-mail to a recipient list
that included virtually everyone involved in the source selection
process, directing that the recipients ``clean up'' and ``delete''
various portions of the evaluation record. Specifically, this e-mail
directed the recipients to ``delete any comments where evaluators/
advisors have suggested ratings,'' explaining that ``[i]f the rating
doesn't match the suggestion, we have protest fodder.'' The e-mail also
specifically directed the evaluators to ``[d]elete any derogatory or
exceedingly glowing comments.''
The first round of final proposal revisions was submitted on March
2. On March 9, the contracting officer reopened discussions and
requested a second round of proposal revisions. At the GAO hearing, the
contracting officer unambiguously testified that discussions were
reopened to permit Boeing to ``take care of'' a ``problem'' in its cost
proposal, explaining that, at that point, Boeing's proposal failed to
comply with instructions the agency had previously given the offerors.
No substantive questions were asked of any other offeror during these
discussions. Nonetheless, during the GAO hearing, agency witnesses
identified specific aspects of the protesters' final proposals that
should have been brought to their attention, including aspects of the
protesters' proposals that appear very similar to the ``problem''
Boeing was permitted to ``take care of.''
The second round of final proposal revisions was submitted on March
19. Thereafter, the source selection evaluation team briefed Druyun on
the evaluations of final proposals. During this briefing the cost team
was directed to review their analysis to ``assure its accuracy.'' Upon
receiving that direction, the cost team reduced Boeing's evaluated
price and increased Lockheed's evaluated price. Additionally, in a
subsequent meeting with Druyun, the source selection evaluation team
described a specific approach to performance that Boeing had proposed
as one ``which tends to induce problems.'' Druyun directed that this
description be crossed out of the evaluation record and replaced with
the words: ``Boeing will work out details post award.''
Based on the record discussed above, we rejected the Air Force's
assertion that there was no evidence that Mrs. Druyun influenced the
source selection evaluation team. Similarly, in light of the failure to
treat offerors fairly regarding discussions, we rejected the Air
Force's assertion that the evaluation process had been conducted
properly. Finally, because the contracting officer directed the
evaluators to destroy various portions of the evaluation record and the
agency failed to conduct meaningful discussions with all of the
offerors, along with the evidence of Druyun's influence throughout the
source selection process, we could not reasonably determine which of
the four proposals should have been selected for award. We concluded
that the record failed to establish that any one of the protesters was
not prejudiced by the various procurement flaws. Accordingly, we
sustained the protests.
Recommendation
Ordinarily, where our Office finds fundamental flaws in an agency
procurement, we will recommend that the agency reopen negotiations with
all competitive range offerors, conduct meaningful discussions, request
final revised proposals, and evaluate those proposals in a fair and
unbiased manner. Here, however, the contract was awarded more than 3
years ago, and performance has been ongoing since that time. In the
course of developing the protest record, the Air Force reported that
while recompetition of the installation phase of the contract is
feasible, recompetition of the entire contract would not be in the best
interests of the taxpayer or consistent with national security
concerns.
Based on the Air Force's acknowledgment that recompetition of the
installation phase of the contract was feasible, we recommended that
the agency recompete those requirements. In light of the broader
concerns raised by the Air Force, we were reluctant to recommend
recompetition of the entire contract effort. Nonetheless, we had some
concern that the Air Force's position regarding recompetition of the
entire effort was forged in the heat of litigation, and may not reflect
a completely objective review. Accordingly, we recommended that the
agency conduct and document a thorough analysis of the competing
concerns and provide that analysis to our Office. In the event the
agency ultimately determines that the broader concerns preclude
recompetition of the entire contract effort, we recommended that each
of the protesters be reimbursed the costs incurred in preparing and
submitting their proposals. We also recommended that the protesters be
reimbursed for their costs of filing and pursuing the protests.
the protest decision regarding the small diameter bomb
We turn now to the Air Force's award of a contract to Boeing under
the small diameter bomb program. Lockheed Martin Corporation was the
only competitor for this effort, and following the October 2004
disclosure of Druyun's bias, filed a protest alleging that Druyun
improperly manipulated certain program requirements and the related
evaluation factors in a manner that favored Boeing.
In addition to Druyun's feeling of ``indebtedness'' to Boeing due
to Boeing's employment of her daughter and future son-in-law, the
record we developed, which included a hearing at GAO during which five
government witnesses and one Lockheed Martin witness testified,
established the following key points. The small diameter bomb program
initially contemplated an evaluation of offerors' capabilities against
both fixed and moving targets; early in the procurement process (during
the first few months of 2002), Lockheed Martin was perceived as having
a ``strength'' with regard to the moving target requirements and Boeing
was considered ``weak'' in this area; in May 2002, most of the
requirements associated with moving targets and the associated
evaluation factors were deleted; thereafter, Boeing was selected for
award without consideration of its capabilities regarding the deleted
moving target requirements. At the time our decision was issued, the
Air Force was in the process of adding the previously deleted
requirements to Boeing's contract on a sole-source basis.
The Agency's Position and GAO's Conclusion
In responding to Lockheed's protest, the Air Force maintained that
Druyun ``did not play any significant role'' in the decision to change
the small diameter bomb's technical requirements and, therefore,
Lockheed was not prejudiced by Druyun's acknowledged bias in favor of
Boeing.
Contrary to the agency's assertion, the contemporaneous record
established that Druyun was significantly involved in the
decisionmaking process that culminated in the May 2002 changes to the
technical requirements and deletion of the related evaluation criteria.
As discussed in our decision, Druyun was the de facto lead acquisition
official during the period in which the changes were made. In that
capacity, she received briefings from the competing offerors, directed
the source selection evaluation team to perform various activities,
directed an independent technical review of Lockheed Martin's
technology applicable to moving targets, was directly involved in other
changes made to the requirements for fixed targets, and contacted
Raytheon to request that Raytheon communicate with Boeing. Following
Druyun's contact, Raytheon provided support to Boeing in its efforts to
meet the small diameter bomb requirements.
On the basis of our review of the protest record, we rejected the
Air Force's assertion that Druyun was not materially involved in the
process culminating in the May 2002 changes to the technical
requirements.
The Legal Standard and Conclusion
As discussed above, the FAR provides that procuring agencies must
strictly avoid conflicts of interest or even the appearance of
conflicts in Government-contractor relationships and, where, as here,
the record establishes that a procurement official was biased in favor
of one offeror, the need to maintain the integrity of the procurement
process requires that we sustain the protest unless the agency
demonstrates that the bias did not prejudice the protester. In light of
Druyun's acknowledged bias in favor of Boeing and our determination
that she was materially involved in the decisionmaking process
culminating in deletion of the moving target requirements, along with
the fact that Lockeed Martin was perceived as having a ``strength'' and
that Boeing was ``weak'' regarding the deleted requirements, we
concluded that the record failed to establish that Druyun's bias did
not prejudice the protester. Accordingly, we sustained the protest.
Our Recommendation
At the time our decision was issued, the Air Force had not yet
amended Boeing's contract to add the previously deleted requirements
regarding moving targets. Accordingly, we recommended that the Air
Force conduct a competitive procurement to meet those requirements.
Consistent with the provisions of CICA, we also recommended that
Lockheed Martin be reimbursed its costs of filing and pursuing the
protest.
Finally, Lockheed requested that we recommend reimbursement of the
proposal preparation costs Lockheed incurred in competing for the
contract awarded to Boeing. As discussed in our decision, we deferred
ruling on that request, pending the Air Force's review of certain
concerns regarding potential conflict of interest issues relating to a
former Brigadier General who, after leaving the Air Force, was involved
in Lockheed's proposal preparation efforts.
Mr. Chairman, this concludes our prepared statement. I would be
happy to respond to any questions regarding our bid protest decisions
that you or other members of the subcommittee may have.
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[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator McCain. Thank you very much.
Ms. Flavin, welcome.
STATEMENT OF SALLIE H. FLAVIN, DEPUTY DIRECTOR, DEFENSE
CONTRACT MANAGEMENT AGENCY
Ms. Flavin. Thank you. Mr. Chairman, members of the Airland
Subcommittee: I am Sallie Flavin, Deputy Director of the
Defense Contract Management Agency (DCMA). Thank you for the
opportunity to appear before you today to talk about the recent
study chartered by the acting Under Secretary of Defense for
Acquisition, Technology, and Logistics.
During the week of November 8, 2004, Michael Wynne, Acting
Under Secretary of Defense for Acquisition, Technology, and
Logistics, chartered a multi-service agency team, which he
asked me to lead, to conduct a review of the Air Force
acquisition actions involving Ms. Darleen Druyun. This team
reviewed specific acquisition actions executed during the
tenure of Ms. Druyun, 1993 to 2002, as the Principal Deputy
Assistant Secretary of the Air Force for Acquisition and
Management.
The objective of the study was to determine if the
decisions Ms. Druyun executed or influenced were consistent
with DOD standards of integrity and sound business practices.
The acquisition actions identified for review were source
selection decisions, acquisition strategy panel decisions,
revisions to acquisition strategy panel reports, award fee
determinations, equitable adjustments, actions involving
contested payments to contractors, contract restructures,
contract extensions, and contract litigations.
The team reviewed 407 actions and approximately 8,000
documents between 6 December 2004 and 28 January 2005. As a
result, eight actions were identified where the acquisition
process appeared irregular or abnormal and where the results
may not have been in the best interests of the government. We
called these actions ``anomalies.'' The Acting Under Secretary
of Defense, Acquisition, Technology, and Logistics, has
referred these eight actions to the DOD Inspector General for
further review.
The ground rules for the Druyun study included the
following considerations. At the time Mr. Wynne chartered the
study, some of Ms. Druyun's actions had already been identified
as problematic. Any such actions already identified and under
review by other government bodies were excluded from the study.
The study was to be concluded by late January, early February
2005. The study was strictly limited in scope to identifying
actions requiring further review. Accordingly, the results are
qualified to the extent that they must be reviewed by an
investigative agency in detail to determine whether an action
is in fact a problem or whether it is a reasonable action in
light of further details.
The study team consisted of 40 people in disciplines of
contracts, technical, audit, legal counsel, and staff support.
Representatives from the Navy, the Army, the Defense Contract
Management Agency, the Defense Contract Audit Agency, the
General Services Administration were sought for the team.
Expert level representatives in Grades 13 to 15 were requested
to ensure that members would be capable of making informed
judgments based on a relatively small amount of information
combined with discussions with knowledgeable individuals.
In order to expedite the study, I decided to send the study
team members to the Air Force locations where pertinent
documents were maintained rather than to have the documents
forwarded to one location. Analysis of the Air Force structure
indicated there were four primary contracting locations where
the bulk of the documents would be located. These four
locations were Wright-Paterson Air Force Base, Los Angeles Air
Force Base, Warner Robins Air Force Base, and Hanscom Air Force
Base.
The field activities soon revealed some acquisition
documentation was located at sites other than the four
previously noted. To capture the entire list of actions
provided by the Air Force, visits were also made to Vandenberg
Air Force Base, Hill, Peterson, Kirtland, Tinker, Eglin,
Patrick, Maxwell, Bolling, and the Department of Commerce in
Maryland.
The Druyun study team identified eight acquisition actions
over and above those already under review by other government
bodies that Ms. Druyun was involved in during the period 1993
to 2002 where the acquisition process appeared irregular or
abnormal and where the results may not have been in the best
interests of the government.
A list of the anomalies we found are attached to my
statement. Would you like me to repeat them at this time, sir,
or do you have that list?
Senator McCain. I have that, thank you.
Ms. Flavin. Thank you.
Although the study results are not conclusive as to
wrongdoing, there is sufficient concern in each case to warrant
a recommendation that the anomalies be reviewed further.
In closing, thank you for the opportunity to appear before
this committee.
[The prepared statement of Ms. Flavin follows:]
Prepared Statement by Sallie H. Flavin
introduction
Mr. Chairman, members of the committee, thank you for the
opportunity to appear before you today to talk about the recent study
chartered by the acting Under Secretary of Defense for Acquisition,
Technology, and Logistics. During the week of November 8, 2004, Michael
Wynne, Acting Under Secretary of Defense for Acquisition, Technology,
and Logistics, chartered a multi-service/agency team, which he asked me
to lead and to conduct a review of the Air Force acquisition actions
involving Ms. Darleen Druyun. This team reviewed specific acquisition
actions executed during the tenure (1993-2002) of Ms. Druyun as the
Principal Deputy Assistant Secretary of the Air Force for Acquisitions
and Management. The objective of the study was to determine if
decisions Ms. Druyun executed or influenced were consistent with the
Department of Defense (DOD) standards of integrity and sound business
practices. The acquisition actions identified for review were source
selection decisions, Acquisition Strategy Panel (ASP) decisions,
revisions to Acquisition Strategy Reports during or after ASP
approvals, award fee determinations, equitable adjustments, actions
involving contested payments to contractors, contract restructures,
contract extensions, and contract litigations. The team reviewed 407
actions and approximately 8,000 documents between December 6, 2004 and
January 28, 2005. As a result, eight actions were identified where the
acquisition process appeared irregular or abnormal and where the
results may not have been in the best interest of the Government. We
called these actions anomalies. The Acting Under Secretary of Defense
(Acquisition, Technology, and Logistics) has referred these eight
actions to the DOD Inspector General for further review and or
investigation.
methodology
The ground rules for the Druyun Study included the following
considerations:
(1) At the time Mr. Wynne chartered the study, some of Ms.
Druyun's actions had already been identified as problematic.
Any such actions already identified and under review by other
Government bodies were excluded from this study.
(2) The study was to be concluded by late January/early
February 2005, although additional time could be requested if
needed in the interest of quality of information.
(3) The study was strictly limited in scope to identify
actions requiring further review. Given the time constraints
for this initial review, it specifically was not intended as a
definitive review of an issue or specific contract action.
Accordingly, the results are qualified to the extent they must
be reviewed by an investigative agency in detail to determine
whether an action is, in fact, a true problem or whether it is
a reasonable action in light of further details.
To assess the magnitude of the study, I worked with the Air Force
and the Director of Defense Procurement and Acquisition Policy to
develop a data call of all acquisition actions that Ms. Druyun played a
significant role in during the 1993-2002 timeframe. As the data was
being collected and based on preliminary information from the Air Force
showing a field of about 250 actions, the study team was established.
It consisted of 40 people in the disciplines of contracts, technical,
audit, legal counsel and staff support. Representatives from the Navy,
the Army, the Defense Contract Audit Agency (DCAA), the General Service
Administration (GSA), and the Defense Contract Management Agency (DCMA)
were sought for the team. Expert-level representatives in grades 13-15
were requested to ensure members would be capable of making informed
judgments based on a relatively small amount of data, combined with
discussions with knowledgeable individuals. The final team composition
included 40 individuals, 23 from DCMA, 7 from the Navy, 4 from the
Army, 5 from DCAA and 1 from GSA.
In order to expedite the study, I decided to send study team
Members to the Air Force locations where pertinent documents were
maintained, rather than have the documents forwarded to one location.
Analysis of the Air Force structure indicated there were four primary
contracting locations where the bulk of the documents would be located.
Those four locations were: Wright-Patterson Air Force Base (AFB), Los
Angeles AFB, Robins AFB, and Hanscom AFB. Study team members were
divided into five units, one for each primary Air Force location and
one headquarters unit to provide support to the other four. Each
primary location had a definite product focus (Wright-Patterson--
Aircraft, Los Angeles--Space and Missiles, Warner Robins--Air
Logistics, and Hanscom--Electronics). Therefore, unit assignments were
made as much as possible on the basis of comparable product experience,
as outlined in the resumes received from team members. Some level of
product knowledge of the units was expected to make the document
analysis more efficient and effective.
Assembling the study team and issuing the data call required
approximately 1 month. Following that, the week of December 6-10, 2004,
was used as a general orientation for all team members. Initial
information briefings were provided, team and sub-team introductions
were made, and detailed work planning at the sub-team level began. One
day was devoted to briefings by the Air Force on the Air Force
acquisition organization. Time was also spent discussing how the Air
Force conducts source selections in order to acquaint team members with
any differences between their parent organizations' procedures and
those of the Air Force. During this week, the team members contacted
Air Force points of contact at each location to schedule entrance
briefs, to request applicable documents, and to schedule interviews
with involved acquisition personnel. The field activities soon revealed
some acquisition documentation was located at sites other than the four
previously noted. To capture the entire list of actions provided by the
Air Force, visits were also made to Vandenberg AFB, Hill AFB, Peterson
AFB, Kirtland AFB, Tinker AFB, Eglin AFB, Patrick AFB, Maxwell AFB,
Bolling AFB, and the Department of Commerce in Maryland.
Upon completion of data collection in the field, each sub-team
completed documentation of any anomalies. Anomaly summaries from each
team were reviewed in a plenary session of all sub-teams to ensure
overall study team concurrence with the subject and content of the
anomaly. Senior Air Force acquisition officials were advised of the
anomalies and were offered an opportunity to comment on them. Finally,
the anomalies were presented to a Blue Ribbon Panel of General Officer
and Senior Executive Service acquisition officials from the Navy, the
Army and the DCAA for a final confirmation that they warranted further
review.
actions needing further review
The Druyun Study Team identified eight acquisition actions (over
and above those already under review by other Government bodies) that
Ms. Druyun was involved in during the period 1993-2002 where the
acquisition process appeared irregular or abnormal and where the
results may not have been in the best interest of the Government. It is
important to note the qualifiers in the previous sentence--the process
``appeared'' irregular and the results ``may'' not have been in the
best interest of the Government. These qualifiers are in keeping with
the charter of this study, which was to review a broad segment of data
and to identify actions in that field of data which warrant further
review. This study did not conduct a detailed review of anomalies
found. For that reason, after a detailed review is conducted, some or
all of the anomalies reported may subsequently be found to be both
reasonable and in the Government's best interest. A list of the
anomalies identified during the study is provided at Enclosure 1.
conclusion
The Druyun Study Team identified eight new acquisition actions that
Ms. Druyun was involved in during the period 1993-2002, where the
acquisition process appeared irregular or abnormal and where the
results may not have been in the best interest of the Government. In
closing, thank you for the opportunity to appear before this committee.
Although the study results are not conclusive as to wrongdoing, there
is sufficient concern in each case to warrant a recommendation that the
anomalies be reviewed further.
The Acting Under Secretary of Defense for Acquisition, Technology,
and Logistics referred eight anomalies to the Department of Defense
Inspector General's office for further detailed review and analysis on
February 8, 2005.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator McCain. Thank you very much.
[Additional information inserted for the record by Senator
McCain follows:]
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Senator McCain. Mr. Gordon, I am struck by one of the
conclusions in your report. It says: ``The contracting officer
directed the evaluators to destroy portions of the evaluation
record.'' This is concerning the C-130J, right?
Mr. Gordon. The C-130 avionics modernization program,
sir.\1\
---------------------------------------------------------------------------
\1\ As was made clear later in the hearing, the contracting
officer's direction referred to the evaluation record in the avionics
modernization program.
---------------------------------------------------------------------------
Senator McCain. Could you elaborate on the circumstances of
that?
Mr. Gordon. We had the contracting officer as a witness in
the hearing before us. We learned that she had sent written
instructions to the evaluators to ``clean up'' the evaluation
record, to use the phrase she used, but it involved essentially
deleting and destroying part of the evaluation record, in
particular things that would be inconsistent with the final
ratings. We were very troubled by that instruction.
Senator McCain. Who was that contracting officer?
Mr. Gordon. I do not have her name, sir. We could get that
for you.
Senator McCain. This was a civilian employee?
Mr. Gordon. She reported to Darleen Druyun.
Senator McCain. Mr. McNulty, from what you have been able
to gather in the course of your involvement in these issues, do
you think that there is a systemic problem here or this is just
an isolated incident? Or do you not have an opinion?
Mr. McNulty. Are you referring more specifically to the Air
Force matters associated with Darleen Druyun or generally in
procurement fraud? More broadly on procurement fraud?
Senator McCain. Not confined to one person.
Mr. McNulty. It is hard to have a sense of whether or not
the problem is increasing. We are seeing, on an anecdotal
basis, a wide range of procurement fraud activity, the ethical
issues that are being described here today, as well as just the
good old-fashioned false billing and so forth.
I would also say that the criminal agencies we are working
with in the working group are reporting a sense of increased
concern and they are expanding their resources and they are
doing things to gear up to be more aggressive. That is not very
precise, but that is my best read on the scope of the problem;
that there is pressure as well on speed or efficiency in
procurement because of the circumstances we are in. Some
special procedures are being followed and that also might make
us more vulnerable to certain fraud.
Senator McCain. Mr. Gordon, the 15 September massacre as
you have described in your statement, that Ms. Druyun called
the evaluators and made some changes, directed them to make
changes in their evaluations, and you identified some specific
examples. Did others in the Air Force know this was going on?
Mr. Gordon. Yes, Mr. Chairman. In fact, those matters were
coming up in conversations and in e-mails back and forth
between her and others. One of the examples I thought might be
worth mentioning in that regard is at one point the contracting
officer testified at our hearing that at Darleen Druyun's
direction there was language crossed out that had described
Boeing's approach to a particular technical matter as something
that ``tends to induce problems,'' and at Darleen Druyun's
direction the contracting officer had those words crossed out
and replaced with the words ``Boeing will work out details
post-award.'' Clearly that was a matter known to someone beyond
Darleen Druyun. She was directing others to do it.
Senator McCain. In your prepared statement when you said
``The Air Force asserted that Ms. Druyun did not influence the
source selection evaluation team,'' is that statement credible?
Mr. Gordon. The record did not support the Air Force's
position.
Senator McCain. Is that your conclusion, Mr. Schmitz?
Mr. Schmitz. Sir, that was--I do not have any reason to
dispute it, sir.
Senator McCain. Mr. Schmitz, Mr. Dominguez states in his
testimony: ``Early indications suggest in the accountability
review in your investigation of the program referred by the
Defense Contract Management Agency (DCMA) as well as others you
are looking into suggest that no criminal activity occurred in
these procurement actions by any Air Force individuals.'' What
indication did you give Mr. Dominguez or the Air Force that no
criminal activity occurred in these procurement activities by
any Air Force individuals?
Mr. Schmitz. I think what you are asking is how do we prove
a negative.
Senator McCain. Yes.
Mr. Schmitz. We do not typically try to prove a negative,
Mr. Chairman. I think that what my staff probably conveyed was
that we did not see any immediate need to open up a criminal
investigation. We are in fact taking a look at those matters
right now and we at any point could open up a criminal
investigation.
Senator McCain. Mr. Dominguez, in 1995 the price for the
basic C-130 was $33 million. In 1998, the price had risen to
$50 million. The 2004 contract price for the C-130J stretch
aircraft is $67 million, and certain warfighter-specific
mission aircraft are pushing the price near $100 million.
Now, at least up until yesterday, it was a commercial item
acquisition strategy. So we really have no way of getting at
the cost data of the C-130J, do we, because it is a commercial
contract and the Lockheed Martin has the right to keep that
information private? Is that right?
Mr. Dominguez. For the commercial aspects of the aircraft.
For any specific mods that are done under the Federal
Acquisition Regulation Part 15--there are some pieces of it--we
do have cost and pricing data. But for the core aircraft which
you are talking about, Senator, you are exactly right.
Senator McCain. So I guess my question is, how are we
supposed to examine how this rather dramatic cost increase has
taken place?
Mr. Dominguez. Senator, I think I have concluded, as
General Jumper has concluded, that we are not able to
appropriately defend the taxpayers' interests here in this
particular contract structure and so we are going to try and
change it.
Senator McCain. Do you think that this committee should
have that cost and pricing information?
Mr. Dominguez. Sir, I guess I am not in a position to----
Senator McCain. That is not a fair question and I
apologize. But it just is a bit frustrating when we see this
dramatic cost increase and because of the way the contract was,
the specifications of the contract, unless we subpoena that
information, which I guess we will have to have discussions
with Senator Warner and other members of the committee about,
we will not know.
So I think we ought to look at that.
Mr. Dominguez. Senator, if I might.
Senator McCain. Yes, go ahead.
Mr. Dominguez. A minor point. The substance of your concern
is absolutely on target and I share that concern. It is
important to note that the J-model aircraft is a much different
airplane and a much more capable aircraft than the
predecessors. I think that baseline price is probably the C-
130H. So there is some escalation associated with its
capability.
But again, we cannot dissect that for you and explain that
to the American people. So the substance of your point is right
on target.
Senator McCain. I thank you for making that point. For all
I know, there may be very legitimate reasons for these
additional costs, but it is hard for us to exercise our
oversight responsibilities if we do not have access to the
information.
Mr. Gordon, during your investigation on the small diameter
bomb you interviewed a Lockheed Martin employee and former Air
Force Brigadier General Bigum, who testified before he retired
from the Air Force he received a letter regarding post-
employment restrictions from the Air Force Staff Judge
Advocate. In the General's testimony he states he was
subsequently advised by the Staff Judge Advocate, ``not to
worry about it;'' post-employment restrictions were only put
into the letter to ``cover their butt;'' and he was advised
that these provisions on post-employment had no application to
him.
Did you find that interesting?
Mr. Gordon. We did, sir. It was because we were troubled by
what we heard that one of our recommendations was that the Air
Force review that matter and report back to us. We are
awaiting, as I said, their report in that matter.
Senator McCain. I guess I would like to ask Mr. Schmitz,
Mr. Gordon, and Ms. Flavin the same question. Do you think that
this is, from what you have seen, that this is an individual
problem of one rogue elephant that got a tremendous amount of
authority, or do you think that there are some systemic
problems here that need to be addressed? Mr. Schmitz?
Mr. Schmitz. Sir, there is a March 20, 2005, article in the
Washington Post by a reporter by the name of Carrie Johnson.
The title of the article was ``Fraud's Many Helpers.'' I think
Ms. Johnson hits the nail on the head. In these types of
situations where you have one individual who is very
charismatic and very powerful and that person is then held
accountable, usually what we find out is that charisma sort of
permeates the entire organization and it in fact does not
happen by itself. When you take on the one individual and you
hold that charismatic individual accountable, you end up
finding that there were a lot of other people that helped along
the way.
Senator McCain. Mr. Gordon, Mr. Sambur alleged that he
asserted his authority. He had seen that she had too much power
and he had reasserted his authority and responsibilities over
her as far as acquisition is concerned. Have you seen any
evidence of that?
Mr. Gordon. Mr. Chairman, what we saw, as we explained in
the decision, was that he held authority as source selection
authority on paper, but that in practice during the very
specific period we were investigating in early 2002, I believe,
from February 2002 to May 2002, he was technically on paper the
source selection authority; Darleen Druyun continued to play an
important role, sometimes without Dr. Sambur's knowledge.
Senator McCain. Ms. Flavin, have you in your course of your
examination seen a systemic problem here?
Ms. Flavin. What we found when we went out and talked with
the community, because we did a lot of interviews when we were
conducting our review, there was virtually no one who did not
think that Darleen Druyun when she was operating was doing the
right thing. She had a way about her and she had built a
persona that represented the best that was for the Air Force.
I think what that tells us is, even when you see something
like that, you have to be prepared to apply certain oversight
milestones, schedules, something, to every once in a while
check back in, even when you have someone with the reputation
of a Darleen Druyun, just to make sure what is going on there.
Nobody expected, thought, or had any idea that she was
doing the kinds of things that she apparently was doing.
Senator McCain. But there are like 500 inspectors or
auditors over there, right?
Ms. Flavin. Yes, sir.
Senator McCain. She fooled all 500 of them?
Mr. McNulty, please.
Mr. McNulty. Mr. Chairman, this relates to another issue we
are confronting, that Mr. Schmitz's investigators at the
Defense Criminal Investigative Services (DCIS) have talked to
us about. That is, in looking at these conflicts of interest
and post-employment cases, they have to go back to ethics
adviser's records because obviously one of the defenses will
be: I sought advice, I got advice, I was told I could work on
this contract. We have to have good records to use if we are
going to actually enforce the law in this area.
We have found, at least the investigators are finding,
these records are not the quality that they should be. They are
not documenting these discussions adequately, and therefore it
is a point of frustration in trying to nail down whether or not
someone has acted properly and has followed the rules of the
game.
Senator McCain. Well, I do not know if it is your charter.
I do not know if this is Mr. Schmitz's or Mr. Gordon's or maybe
this committee's charter. But in the tanker saga, odyssey,
every time we turned around we saw basically some kind of a
conflict of interest. Somebody who had worked for the
corporation was back in the DOD or vice versa, or sometimes two
or three times had bounced back. They were going to have Rand
do a study on the tanker issue. We find out that the Air Force
is paying Rand $25 million a year or something like that. Then
we had members of the Defense Advisory Board, one of whom had a
financial relationship with Boeing.
Every time we turned around, we had great difficulty in
finding, with the exception, very honestly, of the Inspector
General and the GAO an objective evaluator of the situation
that went on. One of the reasons why I think it took us as long
as it did was because I think we have a problem perhaps that
President Eisenhower warned us about in his farewell address,
because there are so many internecine connections here that it
is hard to get objective and honest evaluations.
The operational requirements document (ORD) was clearly
skewed in favor of Boeing, supposedly by objective evaluators.
We all know that now, particularly as far as refueling
capability, etcetera.
So it seems to me that what this committee needs to do is
look at the whole procurement issue and see if there are
sufficient safeguards. This C-130J contract has been out there
for what, 10 years? Ten years ago they decided to let a
contract to a major defense contractor on the basis that it
would be a commercial enterprise. I wonder how long it took to
figure out there was nobody, no airline, that was going to buy
a C-130 to fly passengers around in. Yet for now more than 10
years, until yesterday, we have been operating under a
commercial contract.
The OTA was--and I quoted. I do not have the exact language
here, but at the last hearing I quoted exactly what the
intended purpose of an OTA was, and that was for a small,
outside, independent contractor that was not familiar with the
labyrinth of the Pentagon to get a small and specific contract.
The Future Combat System (FCS) was let for $113 billion cost,
and what was the effect of it was a lack of accountability for
the cost and pricing.
So to conclude my questions, I would, since all witnesses
have had some experience with this, I would like to hear a
response, beginning with you, Mr. McNulty.
Mr. McNulty. Well, I think that you raise very good
concerns about how we are going to try to more systematically
get at this. I mentioned in my opening statement about the DCIS
Senior Official Project, and I think that is certainly one good
start and it probably will send a good message to those who are
on the government side of this business, not the contractors
but on the government side, as to just how there is increased
scrutiny and with that more attention being paid to who is
doing what.
Our case has looked at all the evidence we have to date
with regard to the Darleen Druyun matter and I think we have
put out in the public record what we have in terms of criminal
information. But we are always waiting for or available to work
with the investigators on anything further. I think we are
probably making progress in this area because of the attention
this is getting.
Senator McCain. Mr. Schmitz.
Mr. Schmitz. With regard to your comments about conflicts
of interest, sir, I would just--I share your concerns. What we
typically have in the Pentagon, in the industrial complex, is a
lot of potential conflicts and what we try to do is to set up
firewalls or safeguards, checks and balances, to prevent the
potential conflicts from becoming actual conflicts.
What we have proposed--it is not our responsibility as the
independent IG to set up those safeguards. In fact, we really
cannot do that ourselves because then we will not be able to
investigate or audit them. That is a fundamental rule of audit
independence. But we have been encouraged by the receptivity of
the Air Force and the DOD to review the safeguards that are in
place to help prevent the potential conflicts from becoming
actual conflicts and leading to these type of sagas.
But no matter how good the structure is, of course, it all
comes down to individuals having to live within those
structures. So it is equally important that we work with U.S.
Attorneys and other folks and when we find people that have
obviously screwed up we hold them accountable, and we will
continue to do that as well, sir.
Senator McCain. Secretary Dominguez. Again, I want to thank
you for the decision that you and the Chief of Staff of the Air
Force made yesterday.
Mr. Dominguez. Thank you, Senator.
I think we ought not to discount the expertise that we do
get when we bring accomplished people from industry into the
government to help us understand. There is some real benefit
that we get out of that as a Nation.
Mr. Schmitz is exactly correct in saying that the trick is
to try and create structures and firewalls that protect the
government's interests from the potential for conflict of
interests which is then inherent in that. Clearly there are
things we can do better. I am excited at the prospect of taking
the recommendations from these people that are sitting here and
working with Under Secretary Wynne in trying to do better.
My personal opinion is that a system with a lot more
openness, with a requirement to put and document all of the
different views, when you bring people together to talk about
decisions to document and record those, record dissenting
opinions and forward them up, so a much more open process that
is available to checks and balances, and it is clear about why
decisions were made is one I think where we can balance these
two interests, protect ourselves and accomplish what we need to
do.
Senator McCain. Thank you very much.
Mr. Gordon.
Mr. Gordon. Mr. Chairman, the phenomenon of the revolving
door can sometimes have benefits for both sides. But it is
clear from what we saw in this case that there can also be
risks to the government and to the public interest associated
with it.
I would also say that the phenomenon of organizational
conflicts of interest is a growing one. We have seen it in our
bid protest work over the last 2 years, in particular
associated with the consolidation in the defense and
information technology (IT) industries. It is an issue that
needs to be faced.
I do think that the transparency that we are able to get
through the bid protest process, as well obviously as other
processes, that transparency is extremely important for
preserving and protecting the public interest in procurement.
Senator McCain. Ms. Flavin?
Ms. Flavin. There were a couple of things the team and I
came up with when we looked at the situation, not official DOD
positions by any stretch, but a couple of ideas that we thought
could help this kind of situation. One of them was to limit the
tenure within key civilian positions, not necessarily the
political ones because they already move in and out pretty
quickly, but your career civilian positions, key positions. To
stay in one position for 10 years, as Darleen did, can be quite
dangerous.
In her case there were a number of instances when Darleen
moved in and out of various other positions as other people
left. She would take over as a Project Executive Officer (PEO)
when they were between PEOs, this kind of thing. That takes
away from the checks and balances that are currently built into
the system, and I think a hard look needs to be made at how do
we keep that from happening, how do we maintain those checks
and balances even as people come and go from positions?
Senator McCain. Thank you. I thank the witnesses.
Senator Lieberman.
Senator Lieberman. Thanks, Mr. Chairman. Thanks to all the
witnesses, too.
Mr. Gordon, I thought parts of your report were actually
shocking and I suppose from our point of view as
representatives of the public, infuriating. The general picture
of Ms. Druyun that one gets from all we have heard is that she
was a very powerful person, by some accounts, including yours,
too powerful. Yet, in the C-130 matter you rejected an Air
Force assertion that there was no evidence that Ms. Druyun
influenced the source selection evaluation team.
In the case of the small diameter bomb protest, the
position of the Air Force--and I am reading from your
conclusion, your report--was that ''the protester was not
prejudiced by Ms. Druyun's acknowledged bias in favor of Boeing
because ``she''--and I quote from the Air Force here--``did not
play a significant role in the decision to change technical
requirements.''
You rejected both of those assertions by the Air Force,
finding in the latter case, the small diameter bomb case, that
the record showed that Ms. Druyun was significantly involved in
the decisionmaking process that culminated in changes to
technical requirements and the deletion of related evaluation
criteria.
You have seen these protests come along. How do you explain
the position that the Air Force took in defense of these
decisions?
Mr. Gordon. Senator Lieberman, I cannot explain why the Air
Force took the position that it took. You would have to ask the
Air Force that. I will tell you that our protest process,
because we do have this quasi-judicial function, was an
opportunity for us to hear every side. Where we need to hold a
hearing, as we did here in both of these matters, we hold a
hearing. Each hearing lasted 2 full days. We were able to hear
from a good number of Air Force witnesses.
Their argument certainly got a hearing.
Senator Lieberman. Right.
Mr. Gordon. But we concluded that it was simply not
consistent with the record.
Senator Lieberman. Were those assertions on behalf of the
relative lack of involvement by Ms. Druyun made before you by
superiors or subordinates of hers?
Mr. Gordon. Both, Senator Lieberman. That is to say, Dr.
Sambur, for example, told us in the small diameter bomb matter
that Darleen Druyun was not involved in the change to the
requirements at issue there, and of course her subordinates as
well.
We noted in a footnote--I think it is in that decision, the
small diameter bomb decision, Senator Lieberman--that we found
it an inconsistency between the Air Force witnesses telling us
as a general matter that they were quite sure Darleen Druyun
was not involved, but then when during the hearing we showed
them documents--e-mail messages, memoranda--that were from that
time period, showing that she was involved, they had no
recollection.
Senator Lieberman. Well, it obviously raises a lot of
questions about the testimony, including by Dr. Sambur as her
immediate superior. It is a sad and really unseemly story.
I want to go to you, Secretary Dominguez, and I want to say
clearly that this is the first hearing our subcommittee has
held on Air Force acquisition since the departure of Secretary
Roche and Assistant Secretary Sambur. You are now the top-
ranking official in the Air Force, but I understand that you
played no role at all in this controversial tanker lease
proposal; is that correct?
Mr. Dominguez. That is correct, Senator. I was and still am
the Assistant Secretary for Manpower and Reserve Affairs.
Senator Lieberman. Right. That you were not involved in the
other two matters that Mr. Gordon ruled on?
Mr. Dominguez. No, Senator, I did not do anything connected
to acquisition.
Senator Lieberman. Right. I wanted to say that just to
clarify your role and to say, nonetheless, that because you are
here as the Acting Secretary I want to ask you some questions
more generally. It is whether you would say at this point that
the leadership of the Air Force is prepared to acknowledge that
the problems with the tanker lease acquisition and indeed the
other two went beyond the role that Darleen Druyun may have
played in the pricing of the acquisition?
Mr. Dominguez. Senator, I have to acknowledge the work that
Mr. Schmitz did on it and that we have accepted the findings
and recommendations of the Inspector General, and I have to say
that this was not an episode in which we covered ourselves with
glory and I really hope there are many lessons for us to learn
and I intend to learn them and to lead the Air Force beyond
them, and hopefully with your assistance.
Senator Lieberman. Let me try to clarify a little bit what
my question was by going back to a nomination hearing last
fall, when General Gregory S. Martin was asked several
questions about the Air Force acquisition organization and the
oversight that it provides. General Martin testified that in
the 1990s ``not only did we go through a very serious
restructuring of our forces in drawdown, but we also went
through a major acquisition reform that took much of the
oversight, too much of the checks and balances out.''
General Martin then testified that ``we may have gone too
far in the pendulum.'' He also testified that, although he had
served as top uniformed acquisition official in the Air Force,
he was ``not an expert in contracting'' and ``did not get into
the business of understanding'' what Darleen Druyun was doing.
So, Secretary Dominguez, I want to ask whether you agree
with General Martin on the general point that when the Air
Force downsized its acquisition organization and took out much
of the oversight it may have gone too far?
Mr. Dominguez. Senator, I think we clearly did. I would
like to point out that this was a government-wide endeavor.
Commercial business practices were much in vogue, so
experiments to try to streamline and speed acquisition and just
do things faster, there were many things going on. So it was
not us alone.
A lot of the structure, the rigor, the discipline, the
checks and balances, did in my view come out of the Department,
and it looks pretty clearly like we did go too far.
Senator Lieberman. Ms. Flavin, I understand that your
career has largely been in acquisitions.
Ms. Flavin. Yes, sir.
Senator Lieberman. I wonder, therefore having some history
of service in the government in that regard, what your reaction
is to the statements that General Martin made. Did we go too
far and are we lacking the oversight necessary now in the
acquisition process?
Ms. Flavin. Yes, sir, in my opinion we have gone a little
too far. We have removed some of the checks and balances that I
think are important. I recall in earlier days there used to be
some fairly stringent boards we would have to go through for
different kinds of major acquisition actions. You do not see
those very often any more and I think they served a very useful
purpose.
I would not want to go, return to the good old days of
yesteryear entirely because it can get carried to an extreme as
well.
Senator Lieberman. Right.
Ms. Flavin. I think we need to find the right balance. But
I do believe it has probably gone outside the balance area now.
Senator Lieberman. Would it be your personal conclusion
that the problem is a lack of an adequate number of personnel
in acquisition? Is it inadequate training of the personnel?
Ms. Flavin. That is a really good question, sir. I do
believe that for a very long time we have not been hiring
people. It is a different issue than adequate number of people,
but we have not been hiring people, and what you have is a
cadre of individuals, fairly small, getting to a small cadre of
very knowledgeable people, and we are bringing in now some very
young people who do not have the kind of experience you would
like to see.
So there is a dearth of experience up and down the
acquisition workforce at this stage, yes, sir.
Senator Lieberman. Well, that is a serious statement.
Mr. Schmitz, in your work as Inspector General have you
seen enough to draw any conclusions about whether there are
systemic deficiencies in the acquisition process that go beyond
the crimes that Darleen Druyun committed?
Mr. Schmitz. Sir, I tried to address that question in my
earlier statement about our reviews and our working with the
Department to take a look at the internal controls, the checks
and balances that exist now to avoid potential conflicts
becoming conflicts. It is a very serious challenge that has
been exacerbated, frankly, over the last decade or so by the
shrinkage of the number of defense contractors, major defense
contractors out there. It has exacerbated a system that has
been there all along and I think that in the post-Enron era it
would behoove the Department to focus very, very closely on
these internal controls that are designed to provide these
checks and balances that appear to have been lost.
Senator Lieberman. Both internal checks and balances and
the ability to effectively negotiate and contract and interact
with what I presume are fairly sophisticated people working for
the defense contractors?
Mr. Schmitz. Yes, sir.
Senator Lieberman. Secretary Dominguez, will you commit the
Air Force to work with us to restore the strength of your
acquisition organization and ensure that you have the kinds of
checks and balances that you need for future acquisitions?
Mr. Dominguez. Absolutely, Senator.
Senator Lieberman. I appreciate it. Let me ask you this
question. I noted in my opening statement that the Air Force
long resisted conducting a formal analysis of alternatives, as
the DOD does with other major programs, to determine the best
approach to meeting the Department's tanker needs. Last summer
the Air Force finally agreed to perform this analysis of
alternatives.
It was originally due in November, then December, then
January. The Air Force has now announced that the initial
analysis of alternatives was inadequate and it needs another 6
months to complete the job.
Is the difficulty that the Air Force has had in conducting
this analysis of alternatives an indication of the complexity
of this issue and an indication that the Air Force would have
been well advised to conduct this analysis of alternatives 3
years ago, before it started down the road on the tanker lease
arrangement?
Mr. Dominguez. Sir, I can say that it is a complex issue
and it does require some careful thought. The analysis that we
did was subjected to some scrutiny by the independent reviewing
agencies in the Department, found wanting, so they sent us back
to go work at it some more, which we are happy to do.
With respect to what should have gone before, I am really
not the right one to give you an assessment of that. I can say
that I am happy we are doing one now. I am confident we will do
one that stands up to the tests and guides us toward the right
decision.
Senator Lieberman. I appreciate that, Secretary Dominguez.
Then I would ask this question: Would you agree as a matter of
general policy that in the future the Air Force should conduct
an analysis of alternatives before initiating an acquisition of
this complexity, even if it is not required by a strict reading
of the regulations?
Mr. Dominguez. Well, I would like to leave ourselves some
wiggle room to respond to specific situations, because the
acquisition policies and practices do allow it to be waived.
But that is a kind of decision that ought to be made carefully
and in consultation with lots of affected parties.
Senator Lieberman. Let me try to make it easier for you.
Would you agree that, based on what you have learned in this
case, that the burden of proof ought to be on the Air Force if
it decides to not go ahead with an analysis of alternatives
(AOA)?
Mr. Dominguez. Absolutely, absolutely, Senator.
Senator Lieberman. Thanks.
Mr. Schmitz, I was troubled by something you said at the
very end of your statement. You mentioned the ongoing audits
and you are at some state of development of these two audits,
which look like they go to me as I read them to some of the
systemic problems with the acquisition process that we have
been talking about today, that come out of the lessons learned
from the tanker lease Druyun case. But then at the bottom, as
you well know, you say ``Both audits have been suspended
because of audit support for Base Relocation and Closure (BRAC)
and other operational priorities.''
Mr. Schmitz. There are statutory requirements and so, as
much as we would like to do, we have to satisfy the statutory
requirements under BRAC.
Senator Lieberman. So you are statutorily required to
provide audit staff to the BRAC process?
Mr. Schmitz. Well, I am not sure if it says that my office
has to provide it. The Department has to do the work that leads
up to the Base Realignment and Closure Commission
recommendations and I have approximately half of my 600
auditors that are working with the Department to make sure that
the data going into that process is in fact accurate to allow
for intelligent decisions.
Senator Lieberman. It is a real shame that you had to
suspend these two audits because they are critically important.
How soon do you think you will be able to get back to them?
Mr. Schmitz. I think we are planning to restart them this
summer. Let me see if my deputy has a better--that is when we
plan to redevote the energy to them. So it is just a temporary
delay, but we definitely plan on continuing these audits.
Senator Lieberman. Because there are a lot of members of
Congress with bases in their districts who would like you not
to supply adequate staff to the BRAC process. [Laughter.]
Mr. McNulty, you had an unusual sort of third party
opportunity to look in on this system and to the extent that
you are comfortable and appropriate for you to say so. I wonder
if you drew any conclusions from what you saw beyond the
specific case about the acquisition process and how it was
conducted in the Air Force?
Mr. McNulty. Well, certainly things have been said so far
about Darleen Druyun and the way in which she operated that we
saw pretty clearly during our investigation. The level, the
amount of her independence and influence, the nature of the
process where you have a career person who stays there with
that kind of authority and yet other people are coming and
going over time because they are political appointees or
whatever and therefore there is an institutional knowledge that
exists in one person that others do not have. We saw all that
certainly in the facts that were gathered for the
investigation.
We were looking at it from a rather narrow perspective of a
conflict of interest investigation and therefore, while we saw
things, they were not particularly relevant to what we were
doing. I would say overall, Senator, as well in terms of the
system, ferreting out the fraud and the criminal activity is
hard work and it takes a lot of time, a lot of paperwork. Some
of the criminal investigative agencies that are in the center
of the game here do not always have the auditing capacity.
So for example, NCIS has to rely upon other auditors to
come in and work with them. They have some of their own
capacity, but they have to rely upon auditors from other
resources within the DOD.
I think that both personnel and also some technology that
allows them to do certain things with the information they do
have or to track information better would make them more
effective. I know that money is tight everywhere, but certainly
our investigations in many cases wait while the investigators
have to get the resources to plow through these documents, just
as I am sure you see when you conduct congressional
investigations.
Senator Lieberman. Just one final question. In your pursuit
of this case, did you find any shortcomings in the law that
Congress should look at, in other words with regard to the
conflict of interest laws particularly?
Mr. McNulty. Well, on a different kind of ethical issue,
that is more of the quid pro quo question--has someone taken
action in exchange for some benefit? The bar is pretty high in
the law and that goes back to a Supreme Court decision on how
you enforce that or how you interpret the current gratuities
type of laws on the books. That is a pretty complicated
subject.
Conflict of interest law, that is easier to use. The
penalties are not very high. So in the case of Darleen Druyun,
she received a longer sentence because of some false statements
she made. In the course of her work with the government she was
debriefed and as a result of her lack of cooperation the judge
gave her an enhancement, so she got 9 months in prison and then
9 months of home confinement.
But Michael Sears got 4 months, which we were actually
pleased with, given the fact that the maximum sentence under
the law is 6 months, that is under the sentencing guidelines.
So I think that we have to keep an eye on the question of
adequacy of penalty to make sure that deterrence is sufficient.
Senator Lieberman. I appreciate that answer. Perhaps we in
Congress should take a look at that as well.
I thank you all very much. Thanks, Mr. Chairman.
Senator McCain. Secretary Dominguez, we have been told the
President's budget came over canceling the C-130J and
apparently that decision is being reviewed somewhere within the
Pentagon. Senator Chambliss has been involved in that issue
more than I am. But I was startled to hear that if the C-130J
was canceled that would therefore drive up the cost of the F-
22. Is that true?
Mr. Dominguez. There are lies, damn lies, and statistics,
Senator. I think that that is likely to be true, the way the
system works now, that there is overhead costs that are shared
across all the products of the manufacturer of these aircraft
and then when they lose one of their product lines the overhead
does not shrink proportionately, so that there is a marginal
effect in the other product lines of this shared overhead.
It is a cost accounting issue and a distribution issue. I
have no knowledge about what that price effect is likely to be,
and it would be negotiable in any case.
Senator McCain. Lockheed Martin people tell us it could be
about $383 million would be the termination costs. I am asking
these questions and I need the answers because we need to mark
up our legislation and it matters as to what the termination
costs and what the effect on the F-22.
Mr. Dominguez. Sure.
Senator McCain. It seems to me it is just bizarre that if
we cancel one program therefore it drives up the cost of
another. If we are negotiating contracts that allow such a
thing, then we had better go back and look at procurement
again. This means that we could really never make financial
sense out of canceling any program, if it is going to drive up
the costs of other programs, or only give one contract to each
corporation, which obviously, since we do not have that many--
but there is something fundamentally wrong that if we cancel
one program that it drives up the cost of a cargo aircraft and
the other is a fighter aircraft, and how those two should be
connected is beyond me.
I very much want, before we start our markup, which is in
about 3 weeks, the exact cost penalties associated with
cancellation of the C-130J and the cost effects that it would
have on the F-22. I think we need that in the decisionmaking
process that we are required to do as we mark up our
subcommittees bill.
So would you get that for me?
Mr. Dominguez. Yes, sir. If I could, I have talked to Mr.
Krieg, who is the Director of Program Analysis and Evaluation,
and he is doing that assessment right now for the Secretary of
Defense about the C-130J contract. So he understands very
clearly that he, through Secretary Rumsfeld, owes you that
information before you go to markup.
Senator McCain. Thank you very much, Mr. Secretary.
Senator Chambliss.
Senator Chambliss. Thank you, Mr. Chairman. You and I have
talked about this previously, and it is one of the more
frustrating parts of dealing with procurement acquisition at
the DOD. I do not know what the answer to this is, but again
you and I have talked about once we get through this that we
need to do some significant oversight into that issue, not
necessarily the weapons systems themselves, but in the
procurement and acquisition issue, because there has to be a
better way to do it. I think it is fairly safe to say that we
are spending way too much tax money on things that we ought not
to be spending it on.
I appreciate your leadership and I concur with Senator
Lieberman: Were you not as strong, positive, and I could use a
lot of adjectives in describing your antics.
Senator Lieberman. Many people have.
Senator Chambliss. But again, you have had a very positive
result and I appreciate it.
I can tell you the answer to that question. The costs of
the F-22 are going to go up, and it all has to do with that
industrial base that is located at that one plant where these
two weapon systems are manufactured. I do not know what the
cost would be, but I just know it has to be there because of
the overhead, as the Secretary has said.
I am sorry that Chairman Warner is not here. It is true he
nominated Mr. McNulty over there, but I have known him for many
years and was part of the Judiciary Committee that confirmed
him last year. I wanted to take some of the credit because he
has done an outstanding job. If you had not done as good a job
as you have done, Paul, I might let Warner take all the credit.
I do not want to beat a dead horse relative to this
commercial contract issue, Mr. Chairman, and I appreciate the
fact that the Air Force has come in and we are now operating in
a different atmosphere relative to that. But some statements
have been made, particularly in testimony last week by Mr.
Schmitz, that I think need correcting in the record.
Mr. Schmitz, you stated in your testimony before this
committee last week that the predecessor to the C-130J, the C-
130H, was never used for commercial purposes, is that correct?
Mr. Schmitz. I do not recall exactly what I said last week,
but if you are reading from my testimony I will----
Senator Chambliss. If you do not remember, let me refresh
your memory, then, and this is from your written statement:
``The Air Force contracting officer's statement that the
aircraft evolved from a series of Lockheed Martin Development-
produced commercial aircraft configurations is contradicted by
the fact that the prior version of the aircraft, the C-130H,
was only used for government purposes.''
Now, Mr. Schmitz, have you ever heard of the L-100H
aircraft?
Mr. Schmitz. No, sir.
Senator Chambliss. The L-100H aircraft is in fact a
commercial version of the C-130H which was sold to numerous
commercial transport companies who have been operating them
since the 1970s. Southern Air Transport operated 21 L-100H's
worldwide for decades as a commercial version of the C-130H.
Linden Air Cargo in Alaska still flies these aircraft today.
Mr. Schmitz, are you familiar with the fact that in the
early 1990s that Congress encouraged DOD to pursue commercial
contracting?
Mr. Schmitz. Yes, sir.
Senator Chambliss. In fact this committee, the Senate Armed
Services Committee, helped pass legislation in 1994 which is
known as the Federal Acquisition Streamlining Act, which
expanded government procurement authority for acquisition of
commercial items. Are you familiar with that?
Mr. Schmitz. Yes, sir.
Senator Chambliss. Mr. Schmitz, are you familiar with the
fact that former Under Secretary for Acquisition and Logistics,
Paul Kaminski, approved the C-130J program as a ``regulatory
pilot program'' to explore the use of commercial contracting in
a September 1995 memorandum?
Mr. Schmitz. I am not familiar with that exact memorandum,
sir, but I will take it as true.
Senator Chambliss. I have a copy of the memorandum here,
Mr. Chairman, which I would like inserted in the record.
Senator McCain. Without objection.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Chambliss. Mr. Schmitz, are you aware that this
memo stated, ``As a regulatory pilot program, the C-130J will
demonstrate the application of commercial practices''?
Mr. Schmitz. I was not aware, but I will take it as record.
Senator Chambliss. Mr. Schmitz, are you aware that the Air
Force's determination and finding regarding the approval of the
C-130J program as a commercial item was reviewed for legal
sufficiency and approved by the Air Force Contract Law Center,
which is not subordinate to the Secretary of the Air Force-
Acquisition (SAFAQ) or to Ms. Druyun?
Mr. Schmitz. I was not familiar, but I will take it as the
record.
Senator Chambliss. Well, Mr. Schmitz, my point in making
this argument is that there was in fact justification for
approaching the C-130J program as a commercial product based on
Congressional and DOD direction, previous commercial sales of
the C-130H, and market research showing a commercial market for
the C-130J. As I have stated earlier, and I think you and the
chairman and I are all in agreement on this, we can and should
ask the question today of whether or not a commercial contract
was and is appropriate. However, the fact remains that the
decision at the time was not made on a whim nor was it a
unilateral push by Lockheed Martin. It was made for some good
reasons which even this committee endorsed at the time.
Now, I think it is significant that the DOD announced
yesterday that they will begin the process of transitioning
this contract from a commercial to a traditional acquisition
project, and I think that is the right approach. I think it
confirms the fact that there are some inherent challenges with
commercial contracts and that they are probably not the best
vehicle for large-scale procurements like the C-130J.
However, the point is that we have learned that through
this process. Again, were it not for the leadership of the
chairman that simply would not have happened. As far as I know,
there has been no malfeasance or illegal behavior regarding
this program and I would be very surprised if we found any. So
I think we need to draw a line between saying ``Yes, there is a
better way to do this and we have learned that during this
process;'' and saying, ``This is a case of a contractor
cheating the government or the government being
irresponsible,'' because there is absolutely no evidence that
that is the case.
Now, Mr. Schmitz, you stated in your testimony before this
committee that you understood based on hearsay that C-130Js may
currently have an operational role and that there may be some
operational C-130Js now. You later went on to say that you
understood that the C-130J had extremely limited operational
use in theater thus far. Again, is that still your
understanding of the fact?
Mr. Schmitz. That is my understanding.
Senator Chambliss. Well, let me ask you to consider this,
and this is based on testimony which followed yours last week
and I assume was available to you had you asked for it. To
date, C-130Js in Iraq have flown over 400 missions with a
mission capable rate of 93 percent and have performed all
assigned missions successfully. C-130Js have transported over
5,000 passengers, 1,600 tons of material, and flown 1,329
hours. KC-130Js have flown 789 hours in Iraq with mission
capable rates in excess of 95 percent. In total, KC-130Js have
flown 11,000 hours and, according to the Marine Corps, the KC-
130J performance is superior to the legacy fleet of the KC-
130s. In addition to the U.S. planes, there are seven C-130Js
in U.S. Central Command (CENTCOM) being operated by our
coalition partners.
Now, I am not sure what your definition of ``extremely
limited'' is, but very honestly I think that is more than an
extremely limited use of a weapon system.
If you have any comment, I want to give you a fair
opportunity to say anything you wish to about that.
Mr. Schmitz. If I misspoke in my testimony about the
commercial use of the C-130H, I will correct the record
forthwith, and I will retract my use of the adjective
``extremely.''
Senator Chambliss. That is all I have. Thank you.
Senator McCain. Thank you, Senator Chambliss, and I thank
you for your involvement in this issue, and I know how
important it is to you and your constituents. I would just
point out that the GAO testified the following: ``GAO rejected
the Air Force's assertion that the evaluation process had been
conducted properly because: one, the contracting officer
directed the evaluators to destroy portions of the evaluation
record; two, the agency failed to have meaningful discussions
with all of the offerors; and three, the evidence showed
Druyun's biased influence throughout the source selection
process,'' which is why the GAO recommended that the Air Force
recompete the installation phase of the C-130 contract and
recommended that the Air Force conduct a thorough analysis of
the possibility of recompeting the entire contract effort.
So there is evidence that, including destruction of records
concerning the C-130J, that is very serious allegations made by
Mr. Gordon.
Senator Chambliss. Mr. Chairman.
Senator McCain. Yes.
Senator Chambliss. Let me correct something there now. What
you have reference to is not the contract for the procurement
of the C-130J airplane. What you have reference to is to the
contract for the--was it avionics?
Mr. Gordon. Avionics modernization program.
Senator Chambliss. Avionics modernization package for the
C-130, that actually Lockheed Martin was not involved in.
Boeing was the winner of that contract, and that is what you
have reference to, not what we were talking about in my
questions to Mr. Schmitz.
Senator McCain. Okay, maybe we are talking about different
things.
I want to thank the witnesses and I appreciate their time
and effort, and this has been a very helpful hearing for the
committee. Thank you very much.
[Questions for the record with answers supplied follow:]
Questions Submitted by Senator John McCain
boeing tanker lease
1. Senator McCain. Mr. McNulty, as you of course know, I've been
actively investigating the Boeing tanker lease proposal for more than 2
years. During the course of our investigation, the Department of
Defense's (DOD) production of documents responsive to congressional
requests has been marked by disruption, prevarication, and delay.
Despite that we finally have the tanker replacement program on the
right track and have, consequently, saved taxpayers at least $6
billion, the DOD's production of documents has been unacceptable. I
conveyed my concerns directly to White House Counsel Harriet Miers just
last week. Have you been comfortable with the degree to which the
Pentagon has been producing documents to you in your investigation?
Mr. McNulty. Our office has conducted the investigation with the
assistance of the Defense Criminal Investigative Service (DCIS). All of
our requests for information and documents from DOD have been directed
through DCIS, and we have been completely satisfied with their
responses to our requests.
costs of c-130j
2. Senator McCain. Secretary Dominguez, in 1995, the price for the
basic C-130J aircraft was $33 million, but by 1998, the price had risen
to $50 million. The fiscal year 2004 contract price for the C-130J
Stretch aircraft is $67 million and certain warfighter specific mission
aircraft are pushing the price near $100 million. Because the Air Force
is acquiring C-130Js using a Federal Acquisition Regulation, Part 12,
commercial-item acquisition strategy, the Air Force has established a
position that it cannot require Lockheed Martin to provide certified
cost or pricing data. Without the cost and pricing data, we cannot
verify or discover why the aircraft cost has increased so dramatically.
Do you have any idea why the costs have risen so much?
Mr. Dominguez. Using the active C-130H production contract in 1995,
Lockheed Martin introduced the first two C-130Js to the Air Force at
the existing, lower, C-130H price of $33.9 million. Several factors
account for the increase in aircraft unit cost, which currently stands
at $66.5 million (fixed price for the 2003 to 2008 multi-year
contract). First, the C-130Js currently on contract feature substantial
performance improvements not reflected in the initial H-model price,
including a 40-percent larger cargo compartment. Second, current C-
130Js include enhancements like a Global Digital Map and the enhanced
cargo handling system. Third, the production rate has significantly
decreased--from 30 aircraft per year in 1995, to the present, in which
the price is based on a production rate of 16 aircraft per year.
Finally, inflation has also contributed to the price increase.
joint primary aircraft trainer system
3. Senator McCain. Mr. Schmitz, in your statement you identified
potential problems with the new joint primary aircraft trainer system
for the Navy and Air Force. I understand Darleen Druyun was involved in
the acquisition. Do you have any information that may identify that
Navy acquisition officials also acted improperly in the acquisition of
this aircraft? If so, please elaborate.
Mr. Schmitz. The Office of the Inspector General has not performed
any audit or investigative work that would indicate Navy acquisition
officials acted improperly in the acquisition of Joint Primary Aircraft
Trainer System (JPATS) aircraft.
______
Questions Submitted by Senator James M. Inhofe
acquisition timeline
4. Senator Inhofe. Secretary Dominguez and Ms. Flavin, overall, I
am very concerned about the length of time it takes for our country to
deploy a new weapon system. Too often it takes so long for a new system
to go from the cradle of development to the operational field that the
world has changed dramatically. We see the challenge for which the
weapon system was originally designed is no longer the threat that it
was. Or the enemy's application of current technology makes the system
less lethal than it would have been had the system rolled off the line
sooner. I know that DOD sees this problem as well, and the Pentagon has
identified processes to streamline acquisitions. To improve the
process, Congress has authorized such programs as fast track, spiral
development, and commercial item purchase. How do we get more fully
operational weapons systems into the hands of the warfighter in a
quicker and still cost effective manner, and what do we need to do to
make this happen?
Mr. Dominiguez. Everything we do in the Air Force drives toward the
goal of getting an operationally safe, suitable, and effective product
of best value to the warfighter in the least amount of time. The Air
Force has fully embraced the concept of Evolutionary Acquisition that
the DOD has identified as the preferred approach to satisfying
operational needs. Evolutionary Acquisition is an acquisition strategy
that rapidly acquires and sustains a supportable capability for the
warfighter and incrementally inserts technology or additional
capability to ultimately meet the warfighter's final requirements. We
have also emphasized that spiral development is the process to execute
the Evolutionary Acquisition strategy. Spiral development is the
preferred process to be used for acquisition programs except in those
cases where it is possible to field a full capability in a very short
period of time. Spiral development processes work toward getting a
``core capability'' into the warfighter's hands as quickly as possible,
while continuing development during subsequent increments to add
capability once the system is fielded. A critical part of the
development of evolutionary acquisition strategies is the generation of
approved, time-phased capability needs matched with available
technology and resources. The Air Force has codified this evolutionary
acquisition approach in recent updates to Air Force Policy on
acquisition, requirements development, and test so as to provide the
best and most current direction available to meet user requirements.
Additionally, these policies address intelligence integration to ensure
early, and continuous threat analysis that defines the immediate and
future environment in which the system will operate.
In order to make all of this happen, we need to ensure that
programs can count on the funding and requirements stability to see
these evolutionary acquisition strategies through to completion.
Perturbations in funding can cause the best-made plans and acquisition
strategies to fail because the needed resources were not available when
needed. We also need to ensure our internal requirements and
acquisition processes are consistent to facilitate critical and timely
decisionmaking on all our programs. With your continued support, we
have great confidence that we will continue to deliver to the
warfighter what they need when they need it.
Ms. Flavin. To get more fully operational weapons systems into the
hands of the warfighter in a quicker and still cost effective manner, I
recommend we examine how we have implemented spiral development. Spiral
development offers significant benefits in both time and attention to
cost issues, but only if it is operated in a highly-disciplined manner
with full engagement by the government in the technical aspects of the
effort. Discipline is needed to establish firm, interim baselines and
resist the temptation to ``tinker with'' or ``improve'' the current
iteration. It also requires a strong partnership between the requiring
community and the acquiring community so that the requirer understands
and agrees with the iterative plan. Technical involvement by the
government is crucial to success. The government must have the right
expertise resident in-house to understand where the optimum breakpoints
are and to ensure those breakpoints are not eroded through ignorance
during the process.
commercial item purchase strategy: c-130 purchase
5. Senator Inhofe. Secretary Dominguez, Mr. Gordon, and Ms. Flavin,
as a Congress, we authorized that DOD could implement a commercial item
procurement strategy, which is outside the regular defense procurement
process. This was the basis of the purchase of the C-130J, though the
aircraft did not meet commercial contract specifications or operational
requirements. Now, I believe the findings in the upcoming mobility
capability study will show that there is a need for more tactical
airlift. Looking at the stress on tactical airlift since September 11,
and the recent groundings and restrictions of 90 C-130 Es and Hs, I am
sure it will be proven that there is a need for additional tactical
airlift aircraft. However, we need to ensure that DOD follows an
authorized process in procuring them. Was the C-130J procured
correctly? If not, what was the best way to handle the purchase of this
new airlift requirement, one that I believe we need?
Mr. Dominguez. The Federal Acquisition Streamlining Act (FASA) of
1994 emphasized using commercial acquisition to deliver weapons systems
faster and more cheaply. The Air Force and the Office of the Secretary
of Defense (OSD) agreed that the C-130J was an appropriate candidate
for a commercial acquisition. In September 1995, OSD designated the C-
130J a pilot program under provisions of FASA, affording the program
regulatory relief, and the first C-130J 5-year option commercial
contract was signed. However, when this large, complicated system began
experiencing difficulty in meeting desired performance parameters in
uniquely-military missions, the limits of the commercial contract
became significant. In particular, the commercial contract precludes
access to the cost and pricing data essential to restoring confidence
in the program and our management of it.
Mr. Gordon. The procurement of the C-130J and the question of the
appropriate way to handle future procurements of tactical airlift
aircraft go beyond the scope of my testimony, which was limited to
addressing the decisions issued by the Government Accountability Office
resolving the bid protests related to the bias of Darleen Druyun, the
former Air Force Principal Deputy Assistant Secretary for Acquisition.
Accordingly, I do not have a view to offer on the other matters raised
in this question.
Ms. Flavin. I am not comfortable with continuing a commercial
purchase strategy for the C130J. The earlier decision to use a
commercial purchase strategy was made during a time when the entire
government was interested in exploring the limits of that approach.
Subsequent information leads me to believe it is a flawed approach for
the C-130J. I would recommend a normal acquisition process that allows
full identification of technical issues, risks, and costs by both the
government and the contractor.
c-130j procurement reconsideration
6. Senator Inhofe. Secretary Dominguez, as I have stated, I believe
we have been quite shortsighted in the cancellation of the C-130J based
on my earlier comments. I think the Air Force and the DOD is being
``penny-wise and pound-foolish,'' with regard to this program.
Secretary Teets, just prior to his retirement, testified before this
committee and stated that there would be a review of this cancellation.
Please give us a status on DOD's review of the C-130J program. When
will we have a decision and what will be the basis of that decision? If
we are to re-implement this program, how will it be funded?
Mr. Dominiguez. Senator Inhofe, thank you for the opportunity to
update you on the status of DOD's review of the C-130J cancellation.
The Air Force is working closely with DOD to determine the best course
of action; meanwhile, we are continuing to support the warfighter's
requirement with the legacy fleet of combat delivery C-130Es and Hs and
at least two C-130Js. The 2005 Quadrennial Defense Review will help
refine combatant commanders' intra-theater airlift requirements and the
Joint Staff Intra-theater Airlift Study that U.S. Transportation
Command recently requested, will review contributions from current
aircraft as well as future, evolving programs. If these studies
indicate acquisition of more aircraft is necessary, we will make
programming decisions within fiscal realities.
kc-767a tanker contract accountability review
7. Senator Inhofe. Mr. Schmitz, in your prepared statement you very
thoroughly discuss the KC-767A tanker program. I agree with the data
you have presented--that the planned lease and purchase of this
aircraft was not in the best interest of the American taxpayer. I
believe it is important to point out that we have to find a way to
recapitalize our tanker fleet. This low-density, high-demand aircraft
gives our military global reach capability. However, the contract's
negotiation--from leasing all 100 aircraft to a mixture of leases and
purchases to using the commercial item procurement strategy--was a very
bad idea. I know this committee has requested your office conduct an
accountability review. From your statement, I understand that this
review will be issued in a report by April 20, 2005. Specifically, we
should expect this report to include: 1) what happened, 2) who was
accountable, and 3) how do we prevent this situation from happening
again. Looking long term, I believe the most beneficial part of this
report will be the prevention of such occurrences in the future. I
would gather that being 2 weeks out, you have pretty much completed
your investigation and have arrived at your findings, with only the
report writing still in work. Preliminarily, how can we prevent a
similar situation in the future?
Mr. Schmitz. Our ``Management Accountability Review of the Boeing
KC-767A Tanker Program'' was issued on May 13, 2005. Copies of the
report have been provided to the Senate Armed Services Committee.
Attached for the record is Part III of the report, ``What Actions Must
Be Taken to Preview a Situation Like the Tanker Lease From Happening
Again?''
The information follows:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
8. Senator Inhofe. Secretary Dominguez, this budget calls for
drastically cutting the number of F/A-22 aircraft. After the initial
operational testing and evaluation that was conducted recently, the
evaluators' report stated that the aircraft was ``overwhelmingly
effective'' and that the weapon system further ``dominated all
adversaries, air and surface.'' Because of this cut, we will now have
to rely longer on the older airframes and capabilities of the F-15 and
F-16, some of which are approaching 30 years, to meet our mission
requirements. Even with the Joint Strike Fighter in the pipeline, we
determined that both weapons platforms were needed in sufficient
numbers to meet the future threat. If we want to upgrade the F-15s and
F-16s to approach the capability of the F/A-22 we will then have
aircraft that cost about as much as the F/A-22 without the full
capability. The next F/A-22 will cost about $197 million, as I
understand, now that the initial development costs have been paid for.
Given your best judgment, please comment on whether the Air Force can
guarantee air supremacy for the next 30 years without a sufficient
number of F/A-22s?
Mr. Dominiguez. The proliferation of modern, ``double-digit''
surface-to-air missiles ought to be of significant concern to us all,
as they will threaten the air dominance we have enjoyed for 50 years.
Without sufficient numbers of F/A-22s, the joint force will incur
increased operational risk, attrition, and time to gain/maintain air
and surface dominance. Additionally, the Joint Force Commander's
ability to ``seize the initiative'' and gain access to the battlespace
for joint forces will be critically jeopardized in the future. The
department's ongoing Quadrennial Defense Review analysis on joint air
dominance capabilities will re-assess future tactical aircraft force
structure risks and requirements. I am confident we'll make the case
for continuing production of F/A-22s beyond fiscal year 2008.
acquisition process corrective actions
9. Senator Inhofe. Secretary Dominguez, the various statements
submitted by this panel to the committee all mention Ms. Darleen Druyun
and variously discuss the severe impact of her actions on the Air Force
acquisitions process. I am sure we all agree that her dearth of
personal integrity and professional ethics will unfortunately cast a
long and dark shadow over this process for years to come. In your
statement, you say, ``We realized it had been a mistake for a single
person to determine the acquisition strategy, wield the source
selection for major contracts, and conduct the management and oversight
of contract executions.'' As you look to correct this situation, what
actions will you be taking, and what kind of oversight will be in place
to ensure that these newly enacted measures will prevent such an
occurrence in the future?
Mr. Dominguez. Actions already taken include the Air Force
restructuring the contracting and program management decision authority
accrued to Ms. Druyun's previous position, moving key decisions
appropriately up to the Service Acquisition Executive (SAE) level while
at the same time disseminating execution authority out to field
organizations. The Program Executive Officers (PEO) for all aircraft,
weapons, and command and control program have been moved to field
product centers, allowing for program oversight by the SAE (centralized
control) with execution accomplished by the field organizations
(decentralized execution). To facilitate oversight, PEOs submit monthly
reviews on each Acquisition Category (ACAT) program depicting a number
of program parameters that describe program health. There are also bi-
annual reviews of key programs with the major command commanders.
In addition, we have reviewed the draft Defense Science Board's
recommendations and are already implementing several of their
recommendations. Completed actions include placing additional emphasis
on acquisition integrity and directing ethics training of all members
of the acquisition corps. We also plan to incorporate an ``Ombudsman''
for all acquisitions so offerors have another avenue to voice any
concerns. We are revising our source selection procedures so that the
Source Selection Evaluation Teams will always provide the Source
Selection Authority (SSA) with a written source selection
recommendation. Previously, this was an option at the discretion of the
SSA. We are also removing the ability of the SSA to be the contract
clearance authority and will be placing that role with an independent
party separate from the source selection team. As we receive additional
information from the various reviews, we will continue to analyze the
recommendations and incorporate those ideas that will improve our
acquisition system.
10. Senator Inhofe. Secretary Dominguez, is there any estimate of
the potential costs or a cost range that the U.S. Government will incur
as a result of the illegal actions of Ms. Druyun as we look at the
companies that were not given a fair opportunity to compete for
contracts?
Mr. Dominguez. The Air Force presently does not have an estimate of
the total costs the government will incur as a result of Ms. Druyun's
admitted bias.
[Whereupon, at 4:15 p.m., the subcommittee adjourned.]