[Senate Hearing 109-468]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-468
 
   DEFENSE ACQUISITION ISSUES RELATED TO TACTICAL AVIATION AND ARMY 
                                PROGRAMS

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

                                HEARING

                               before the

                        SUBCOMMITTEE ON AIRLAND

                                 of the

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 15, 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

                    Charles S. Abell, 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

                               __________

                    CHRONOLOGICAL LIST OF WITNESSES

   Defense Acquisition Issues Related to Tactical Aviation and Army 
                                Programs

                           november 15, 2005

                                                                   Page

Hamre, Dr. John J., President and CEO, Center for Strategic and 
  International Studies..........................................     4
Schinasi, Katherine V., Managing Director, Acquisition and 
  Sourcing Management, Government Accountability Office..........    16
Porter, Gene H., Research Analyst, Institute for Defense Analyses    22
Anderson, Frank J., Jr., President, Defense Acquisition 
  University.....................................................    37
Christle, Gary, Senior Project Director, Center for Naval 
  Analyses.......................................................    40

                                 (iii)


   DEFENSE ACQUISITION ISSUES RELATED TO TACTICAL AVIATION AND ARMY 
                                PROGRAMS

                              ----------                              


                       TUESDAY, NOVEMBER 15, 2005

                               U.S. Senate,
                           Subcommittee on Airland,
                               Committee on Armed Services,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:30 p.m., in 
room SR-222, Russell Senate Office Building, Senator John 
McCain (chairman of the subcommittee) presiding.
    Committee members present: Senators Warner, McCain, 
Chambliss, Lieberman, and Reed.
    Committee staff member present: Catherine E. Sendak, 
special assistant.
    Majority staff members present: William C. Greenwalt, 
professional staff member; Ambrose R. Hock, professional staff 
member; Thomas L. MacKenzie, professional staff member; Elaine 
A. McCusker, professional staff member; and Stanley R. 
O'Connor, Jr., professional staff member.
    Minority staff members present: Richard D. DeBobes, 
democratic staff director; Daniel J. Cox, Jr., professional 
staff member; Creighton Greene, professional staff member; 
Peter K. Levine, minority counsel; and Arun A. Seraphin, 
professional staff member.
    Staff assistants present: Micah H. Harris and Jill L. 
Simodejka.
    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, assistant to Senator 
Lieberman.

       OPENING STATEMENT OF SENATOR JOHN McCAIN, CHAIRMAN

    Senator McCain. Good afternoon.
    The Airland Subcommittee meets today to receive testimony 
on problems with and improvements to the defense procurement 
policy. For the Airland Subcommittee, this is the third hearing 
in a series of hearings we intend to call on the vital issue of 
defense acquisition reform.
    I want to welcome Dr. John J. Hamre, President and CEO of 
the Center for Strategic and International Studies (CSIS), at 
one time, in a previous incarnation, a member of the staff of 
this committee; Frank J. Anderson, Jr., President of the 
Defense Acquisition University; Katherine V. Schinasi, Managing 
Director of Acquisition and Sourcing Management for the 
Government Accountability Office (GAO); Gene Porter, private 
research analyst for the Institute for Defense Analyses (IDA); 
and Gary Christle, Senior Project Director at the Center for 
Naval Analyses (CNA). We greatly appreciate all of you giving 
us your time for this important hearing.
    As we meet today, the Senate has completed its debate of 
the National Defense Authorization Act for the Fiscal Year 
2006. In that bill, we authorized $441.6 billion for national 
defense, including $421.1 billion for the Department of Defense 
(DOD) and $12.2 billion for military construction and family 
housing. That is a $19.5 billion increase over the amount 
authorized in fiscal year 2005. We also authorized a $50 
billion bridge supplemental, separate from the President's 
budget request. That is a lot of taxpayer money, and it is our 
responsibility to ensure that it is not wasted.
    We have unsustainable defense spending. Current military 
operations in Afghanistan and Iraq consume a large share of DOD 
resources and are causing faster wear on certain weapons 
systems. Refurbishment or replacement sooner than planned is 
putting further pressure on DOD's investment accounts. We 
cannot sustain the number of weapons programs that are in the 
program of record.
    The DOD's requirement process generates more demand for new 
programs than fiscal resources can support. The Service Chiefs 
and acquisition officials must understand this fact of life.
    We will hear testimony today that the top five weapons 
systems, just 5 years ago, cost about $291 billion combined. 
Today the top five weapons systems cost around $550 billion. 
One of those top five weapons systems, the F/A-22, has seen 
unit costs increase almost 190 percent. Continuing on this 
unsustainable fiscal path will gradually erode our national 
security. We must look to enact sweeping acquisition reform 
legislation and create an atmosphere of greater oversight in 
the DOD and Congress, while also increasing the efficiency of 
the process.
    Between 1975 and 2001, there have been 128 different 
studies that have chronicled deals of the procurement system. 
Our efforts here must not repeat the demise of the previous 
studies which ultimately led to limited positive change.
    Congress and the executive branch cannot stand by idly 
without taking positive actions to ensure the process is as 
efficient as possible. The service and defense acquisition 
executives cannot allow weapons programs to enter production 
when the technology is not fully developed.
    We will hear testimony from GAO that programs that started 
development with immature technologies experienced an average 
acquisition unit cost increase of nearly 21 percent over the 
first full estimate. Nunn-McCurdy program failures due to 
significant cost increases and system delays should have 
consequences for service acquisition executives, including 
program termination or a change in leadership.
    I am concerned that congressional influence continues to 
adversely affect the procurement process. Rarely do Congress 
and acquisition officials take notice unless they reach the 
level of abuse, including criminal which occurred during the 3-
year odyssey of the Boeing tanker leasing scandal in the Air 
Force. Unfortunately, defense priorities set by the armed 
services too often fall victim to special interests. Even the 
Services' extensive unfunded priority lists, totaling $15-$20 
billion each year, fail to corral congressional earmarks 
outside the critical needs of the Services.
    The Airland Subcommittee has the largest research, 
development, and acquisition (RD&A) budget of all the 
subcommittees in the Senate. In the Armed Services Committee, 
Senator Lieberman and I have worked together to fix a number of 
problems in the acquisition process in this year's defense 
authorization bill.
    We are interested in hearing the views of our witnesses on 
the acquisition structure and what laws, regulations, and 
business practices governing defense acquisition policy are 
candidates for modification. We should demand individual 
accountability and complete transparency in the Services and 
DOD to ensure the prudent expenditure of taxpayers' dollars. We 
should increase progress toward joint acquisition including 
reinvigorating the process within the Joint Requirement 
Oversight Council (JROC) in developing a sound initial 
capabilities document. We should insist that the requirements 
of individual programs are attainable within the resource 
constraints of each Service's budget and that programs do not 
enter production without demonstrating mature technologies.
    I look forward to the testimony of our witnesses.
    Senator Lieberman.
    Senator Lieberman. Thank you, Mr. Chairman. Welcome to the 
witnesses.
    Today's hearing is an important follow-up to the hearing we 
held in March on Air Force acquisition programs where we 
learned that the problems in the Air Force acquisition system 
go far beyond the mishandling of the tanker lease program and 
the conduct of Darlene Druyan. Today we are going to hear the 
recommendations of a distinguished panel of expert witnesses as 
to how we can begin to address these larger problems.
    In our March hearing, I asked the Acting Secretary of the 
Air Force and the head of a DOD panel reviewing Air Force 
acquisition issues whether they believed that the Air Force had 
gone too far when it downsized its acquisition organization and 
took too much of the oversight out of the process. Both 
witnesses were emphatic in stating that the Air Force has gone 
too far. I quote from Secretary Dominguez: ``I think we clearly 
did, Senator. 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.''
    Ms. Flavin said, ``Yes, sir, in my opinion we have. 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 programs. You do not see 
those very often anymore and I think they served a very useful 
purpose. For a very long time we have not been hiring people. 
So there is, I believe, a dearth of experience up and down the 
acquisition workforce at this stage. Yes, sir.'' I wanted to 
stress that ``yes, sir'' that she said at the end of the quote, 
Mr. Chairman.
    At today's hearing, former Deputy Secretary of Defense John 
Hamre will present the results of a study prepared by the CSIS 
which reveals a number of other significant problems in the DOD 
acquisition process. The CSIS study criticizes excessive 
bureaucracy in the process, including ``a seemingly endless 
number of integrated product team (IPT) and sub-IPT meetings,'' 
and an increasing ``number of Office of the Secretary of 
Defense (OSD) level reviews, including milestone, pre-decision, 
integrated product team, working integrated product team, and 
overarching integrated product team reviews.''
    According to the CSIS study, the preparation process for 
Defense Acquisition Board (DAB) milestone reviews now takes an 
average of 180 days, with up to eight major preparatory 
meetings, and Acquisition Category (ACAT) level one programs 
can expect to undergo at least one significant OSD level review 
per year with up to 14 reviews over an 11-year program schedule 
and this does not even include a series of separate reviews 
conducted by each of the military departments.
    So putting together the testimony we heard in March with 
these findings of the CSIS report, it seems to me that we may 
actually have the worst of both worlds when it comes to 
oversight. On the one hand, we have a multiplicity, some might 
say an excess, of reviews taking up far too much program time. 
On the other hand, we do not have enough Government employees 
with the technical capability to conduct those reviews. So we 
have too often effectively taken the real teeth out of them. 
The result, I fear, is a formula for failure and we are paying 
for it. The taxpayers are paying for an overly bureaucratic 
process that produces little value added.
    That must change. Mr. Chairman, I look forward to working 
with you to see that it does. Thank you very much.
    Senator McCain. Thank you very much.
    Welcome back, Dr. Hamre.
    Dr. Hamre. Thank you. Would you like me to begin?
    Senator McCain. Yes.

 STATEMENT OF DR. JOHN J. HAMRE, PRESIDENT AND CEO, CENTER FOR 
              STRATEGIC AND INTERNATIONAL STUDIES

    Dr. Hamre. First, Chairman McCain, Senator Lieberman, and 
Senator Reed, I am really very grateful to have a chance to 
come back home. I spent a lot of years in this room and took a 
fair amount of whooping from you all, but it was a great honor 
and I still cherish it as the biggest part of my career. Thank 
you.
    Mr. Chairman, I will be very brief because we have a lot of 
us that you want to hear from today.
    I start with the basic premise that organizations do well 
those things the boss checks. As a basic principle, I think 
that is right. The problem with our acquisition system is that 
it is very hard to really check anymore. The process is 
bifurcated in so many different directions. There are so many 
fault lines that run up and down the way the Department buys 
things that there is virtually no direct accountability.
    So I would suggest to you this requires structural change, 
not just process change. It requires structural change to get 
true accountability back squarely where the Department can 
observe and check what is going on.
    I think Goldwater-Nichols in 1986 really unintentionally 
created a major fault line that runs up and down the Department 
by segmenting and separating off the acquisition process from 
the rest of the processes in the Department. We need to remove 
that structural impediment. We need to get clean accountability 
so that you can see very clearly who is responsible and you can 
hold them accountable for it.
    Second, the Department has struggled for 50 years. It has 
been struggling with an ambiguous structural arrangement over 
who is accountable for what part of the overall process. The 
building is too big and too complicated to be run in a seamless 
and integrated way. So the way we run things in the Department 
is to actually counterpoise conflicting interests, fit them 
together, and put them in front of the Secretary so the 
Secretary can decide.
    One of the most important things that Goldwater-Nichols did 
in 1986 was to create very strong advocacy of demand for better 
quality of military capability, and it did that by elevating 
the role of the Chairman of the Joint Chiefs and the unified 
combatant commanders. That was a very good thing, but we did 
not create clean accountability in other aspects of the 
Department.
    Goldwater-Nichols, by default, turned the Service Chiefs 
into the senior supply officers, supplying good forces for the 
future, competent people, good training, and in theory, 
equipment, except it took them out of the chain of command for 
the acquisition process. So it does not make sense to take them 
out of the chain of command.
    More importantly, it created an ambiguous environment where 
we put the chief requirements process--the JROC is really 
populated by people that are supply officers in this case, and 
that is the Service Chiefs or their vices. We believe that that 
ought to be cleanly demarked so that you have the requirements 
process being peopled by people that are in the requirements 
business and then you counterpoise that in the ultimate process 
of making decisions and bringing them to the Secretary by 
putting them opposite the people that are supplying things. 
That is the Service Chiefs that have the responsibility for 
budgeting for everything in the Department, not just people and 
facilities. They need to have responsibility for acquisition as 
well.
    Those are the primary thrusts of our recommendations, sir. 
I think for purposes of speeding us through our opening 
statements, I will end here.
    I would like to make one final observation. You asked about 
the health of the industrial base. I am very glad that you are 
asking this question. I think the industrial base is fragile 
and in trouble. We made a decision 80 years ago in this country 
that we were going to build the most modern equipment, in this 
case, airplanes, in the private sector not in arsenals. I 
personally think that was the most important decision we made 
in the 20th century. It helped us win the Cold War.
    But we now have a very fragile industrial base and we are 
running that industrial base with the same mentality that we 
did in 1986 when we had 20 prime contractors, many new starts, 
lots of opportunities for competition, and tremendous capacity 
to pit contractors against each other for competitive purposes. 
We just do not have that now. We have to adopt a new approach 
to how we are going to manage this industrial base and I do not 
think we have that together yet. So I encourage you very 
strongly to make a priority of this as the work of this 
subcommittee continues.
    Thank you, sir. I am delighted to have a chance to be with 
you.
    [The prepared statement of Dr. Hamre follows:]

                Prepared Statement by Dr. John J. Hamre

    Mr. Chairman and distinguished members of the committee, I am 
honored to be invited to appear before this subcommittee on this 
critical issue. On a very personal note, I was once a member of the 
professional staff of the Armed Services Committee, and I was assigned 
to the Tactical Warfare Subcommittee, which at that time was chaired by 
the late Senator Barry Goldwater. The Tactical Warfare Subcommittee was 
the ancestor to the Airland Subcommittee. As such, it is a distinct 
honor to be back home.
    Mr. Chairman, let me commend you for holding this hearing. Frankly, 
the acquisition system for the Department of Defense is in deep 
trouble, I believe. It isn't because of ill will or inattention. I 
believe we are in trouble because the acquisition system we currently 
have is a product of a world that has passed from the scene. We need an 
acquisition system that is designed for today, not for the world that 
existed 25 years ago. Let me explain.

            GOLDWATER NICHOLS ACQUISITION REFORM IN CONTEXT

    I was a member of the staff of this committee when we developed the 
legislation that ultimately became the landmark Goldwater-Nichols Act. 
The acquisition reform legislation was developed at that time on a 
parallel track. At the time, we had a special subcommittee chaired by 
Senator Dan Quayle and ranking member Carl Levin. They developed the 
detailed legislative proposals that were incorporated as the 
acquisition reform provisions of the bill.
    We need to remember the context of the day. This legislation was 
developed during fiscal years 1985 and 1986. Those were days of high 
production rates from a large industrial base. In fiscal year 1985, we 
authorized over 900 aircraft, 50 intercontinental ballistic missiles, 
23 naval ships, 2,000 tanks and armored personnel carriers, over 5,000 
guided missiles and 72,000 unguided rockets. At the time, we had over 
20 major prime contractors.
    There was also controversy in the acquisition world. The Department 
was sharply criticized for sloppy acquisition procedures, most often 
characterized as $600 toilet seats and $427 hammers. I can recall quite 
clearly that there were two major controversies at the time: how do we 
avoid procurement scandals, and how do we keep ineffective weapon 
systems from entering high rate production?
    This was the world that gave birth to the current acquisition 
system. But I believe this world has passed from the scene. Today, we 
have a very small number of prime contractors capable of undertaking 
large, complex programs, and very little actual competition for major 
systems. We have few new starts in our acquisition system, and 
relatively low production rates. We are buying little and starting new 
things infrequently. Yet we have an acquisition system that was built 
on the assumption of large production complexes, high rates of 
production, frequent new starts, and multiple competitors.
    We designed an acquisition system that was appropriate for 1985, 
not 2005. The second problem we created in 1986 was to elevate above 
all other considerations the necessity of avoiding mistakes. The 
Department was severely criticized for buying $600 toilet seats. (That 
was a false controversy, but the truth was not important at the time. 
The drama was all that mattered.) Congress demanded that those mistakes 
not be repeated. So rectifying the mechanical process of buying things 
was made the supreme objective of the reform process.

       1986 REFORMS VALUED ``GUNSMITHING'' OVER ``MARKSMANSHIP''

    Congress reflected this by creating a new position, the Under 
Secretary for Acquisition. Congress demanded emphasis on the mechanics 
of buying things. One of the unintended consequences of this 
legislation was the devaluing of the previous position of the Director 
of Defense Research and Engineering (DDR&E). The DDR&E had been the 
third most important position in the civilian hierarchy of the 
Pentagon--behind the Secretary and Deputy Secretary, featuring such 
prominent scientist-policymakers as Harold Brown and Bill Perry. The 
position highlighted the strategic importance of technology and it 
ensured there was a strong institutional champion.
    But the 1986 acquisition reforms diminished that role and instead 
elevated the role of mechanical acquisition. I draw the contrast 
between ``marksmanship'' and ``gunsmithing.'' The old DDR&E position 
was the senior marksman of the acquisition process--what should we be 
buying? After the acquisition reforms of 1985, the emphasis was shifted 
to the mechanics of acquisition gunsmithing--how are we buying things? 
The men who have been confirmed to be our acquisition undersecretaries 
did not see themselves in this role. But the priorities embedded in 
Goldwater-Nichols forced them to play it. Today, the acquisition system 
in the Department of Defense is a bewildering complex of procedures and 
processes. Clarity of action is now missing.

                  LACK OF INSTITUTIONAL ACCOUNTABILITY

    Mr. Chairman, the final major problem I perceive with the current 
acquisition system in the Department is the fractured accountability 
that was created by the original reform legislation. I fully understand 
the imperative at the time to create greater professionalism in the 
acquisition process. But functionally, the legislation created a fault 
line in the Department. The acquisition system was carved out to be a 
segmented process, insulated from the procedures that establish 
requirements and develop budget priorities. This fault line in the 
Department is the primary contributor to the lack of institutional 
accountability in our system. Yes, the acquisition community is 
accountable for acquisition procedures, but the Department as a whole 
does not have systematic accountability of action that links 
requirements with budgets with acquisition.

                          SOLVING THE PROBLEMS

    I believe that the primary problems are institutional, and that 
they require an institutional change. Congress is not responsible for 
executive operations within institutions. You are responsible for 
overseeing, but not conducting those operations. You are responsible 
for setting the institution right. To this end, I recommend the 
following.

        CREATING A CLEAR ADVOCACY FOR ``SUPPLY'' AND ``DEMAND''

    First, remove the institutional fault line created by Goldwater-
Nichols. Goldwater-Nichols made a major change in the structure of the 
Department--a very good change in my view. It created two distinct 
power centers in the Department. The voices of ``demand'' for better 
military capabilities were strengthened by elevating the power and 
prestige of the Chairman of the Joint Chiefs and by strengthening the 
regional combatant commanders. The Service Chiefs were made the chief 
advocates of ``supply'' of military capability. In essence, Goldwater-
Nichols created a healthy balance between supply and demand.
    But there are important ambiguities in the current system. One of 
the major ``demand'' procedures--determining the joint requirements of 
future combat forces--is still controlled by the chief ``supply'' 
officers. The Service Vice Chiefs comprise the Joint Requirements 
Oversight Council. We believe that this needs to be changed and that 
the JROC needs to be populated by ``demand'' oriented institutions. We 
advocate giving representation on the JROC to the combatant commanders.
    Let me emphasize that the requirements determination process is not 
ended in the JROC. It simply represents one of the inputs that are 
ultimately sent to the Secretary of Defense for his decision. Fusion of 
supply and demand occurs only at the Office of the Secretary of 
Defense, and that is as it should be.

     RETURN THE SERVICE CHIEFS TO THE ACQUISITION CHAIN OF COMMAND

    Second, we need to return the military Service Chiefs to the chain 
of command for acquisition. Goldwater-Nichols made the Service Chiefs 
the primary advocates for the ``supply'' function of military 
capability. They are responsible for determining the manning levels of 
their respective Services and the priority given to recruiting and 
training. They manage the long-term shaping of the Service by 
determining requirements for new weapons and personnel. But they are 
excluded from the acquisition process. This is an institutional fault 
line that needs to be removed.
    Let me say that the Service Chiefs do participate in the 
acquisition process, but they do so indirectly through budgeting and 
requirements determination. As such, the current system creates a deep 
fault line. Service Chiefs need to be held accountable for the whole 
supply function and need the authority to carry it out.

   CLEAN UP THE RESPONSIBILITIES FOR ACQUISITION BETWEEN OSD AND THE 
                          MILITARY DEPARTMENTS

    Third, Goldwater-Nichols created two large acquisition 
bureaucracies in the Department--one at the military department level 
and one at the OSD level. We need to rationalize this. OSD should not 
be running things, but overseeing procedures and decisions. I believe 
the staff supporting the under secretary for acquisition is far too 
large for this responsibility. The large staff reinforces the 
``gunsmithing'' aspect of the job. A much smaller staff would 
necessarily emphasize ``marksmanship.'' Cutting the OSD staff 
substantially would contribute mightily to clarifying the roles and 
missions of the respective acquisition bureaucracies.
    For those who want a more detailed analysis, I recommend our recent 
Beyond Goldwater-Nichols Phase 2 report, which is available on the CSIS 
website at www.csis.org.

                  MANAGING THE DEFENSE INDUSTRIAL BASE

    Finally, Mr. Chairman, permit me to offer a few observations 
concerning the defense industrial base. America made a crucial decision 
over 80 years back that it would not build military aircraft in 
government arsenals, but instead would buy the most advanced 
technologies of the time from the private sector. I believe that was 
one of the most important and successful decisions of the past century. 
It insured that we would win the Cold War, because we would counter the 
massive quantitative advantages of the Warsaw Pact with a qualitatively 
superior military based on advanced technology.
    The private sector defense industrial base is the essential partner 
to the Defense Department, just as critical to our security as are our 
Armed Forces. We cannot fight and win wars without our private sector 
partners. But we do not honor their important role by good management 
on the part of the Government. We do not really know how to manage the 
defense industrial base today. We continue to use the mindset and the 
rules and regulations of the mid-1980s. Back then, we had ample 
suppliers, many opportunities for competition, high production rates, 
and the opportunity to discipline the entire system by turning to an 
alternative supplier. None of this is relevant today, particularly in 
the platform-oriented sectors.
    Today's defense industry is an increasingly smaller part of the 
economy, and fragile. We have few companies capable of taking on large, 
complex programs, and cannot live without any one of them. We continue 
to regulate the platform sectors of this industry as though it were 
large and robust. I believe managing this part of the industrial base 
is much more analogous to the way governments need to regulate public 
utilities.
    I worry that the Department of Defense is losing its capacity to 
manage this industrial base. We cannot just turn over the supply 
function to the private sector. We must manage essential Government 
interests within the Government. But I believe we are losing the 
technical capacity to do that. We have been experimenting with 
alternative concepts--such as lead system integrators--for some time. I 
am not sure that we have a solid framework for these alternative 
management approaches.
    I believe the Armed Services Committee should devote considerable 
attention to this subject during the coming year. I would recommend 
that you create a special subcommittee, or ask one of the existing 
subcommittees to take a dedicated look at the health of the defense 
industrial base.
    We have been studying the industrial base for some time at CSIS. My 
colleagues Pierre Chao and David Scruggs have considerable knowledge of 
and data concerning the defense industry. We stand ready to help the 
Committee at any time and in any way.

                               CONCLUSION

    Mr. Chairman, distinguished members of the subcommittee, I am 
gratified that you are holding this hearing. This is precisely what 
Congress should be doing concerning oversight of the Defense 
Department. Your primary role--setting right the institutional 
structure for the Department--is the foundation of reform. I am 
prepared to support you in any way as you undertake this crucial task.

    Senator McCain. Has your organization not done some recent 
studies on this issue?
    Dr. Hamre. We have, sir, and we would be glad to provide 
that to you and to the committee.
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    Dr. Hamre. We have been looking at the health of this 
industrial base, especially the second and third tiers of this 
industrial base. My colleague, Pierre Chow, and David Scruggs 
are here today. If you have any specific questions on that, I 
would ask them to come up and sit in my place because they are 
more expert on it than am I. But we certainly will be glad to 
help you.
    Senator McCain. Thank you.
    Ms. Schinasi.

    STATEMENT OF KATHERINE V. SCHINASI, MANAGING DIRECTOR, 
ACQUISITION AND SOURCING MANAGEMENT, GOVERNMENT ACCOUNTABILITY 
                             OFFICE

    Ms. Schinasi. Thank you, Mr. Chairman, Senator Lieberman, 
and members of the subcommittee. I appreciate the opportunity 
to be here before you today.
    Dr. Hamre has spoken to you as an insider. I am going to 
take a little different tack and talk to you as an outsider. I 
am going to end up in a different place and that is that I do 
not think accountability is possible to assign in today's 
environment. But I would like to take a few minutes to get 
there, if you do not mind. I ask that my full statement be 
submitted for the record.
    Senator McCain. Without objection.
    Ms. Schinasi. I am going to talk about how we define an 
efficient and effective acquisition process. I am going to talk 
a little bit about why that process has not been able to take 
hold in the Department, and I am going to end with some 
conditions that we think need to change to make that happen.
    First, how do we define an efficient and effective 
acquisition process? Such a process is focused on delivering a 
new product or capability in a timely manner and driven by 
knowledge-based decisions. In this context, technology 
development has been completed in the tech base. Before new 
product development is begun, a requirements process that is 
constrained by resources and guided by solid systems 
engineering results in an executable business case, that is, 
leaders know that requirements can be met by available time, 
money, technology, and management capacity. Once a program is 
started, managers demand knowledge and make decisions as to 
whether or not to move forward against an agreed upon set of 
metrics that ensure predictable outcomes. Effective controls 
help decisionmakers gauge progress in meeting cost, schedule, 
and performance goals. They ensure that managers conduct 
activities and provide evidence of relevant product development 
knowledge, and they allow comparisons to be made across 
programs of the relative return for investments.
    Why does this not work in the Department? Well, incentives 
in the Department encourage the initiation of large acquisition 
programs as the way to attract budgetary resources. Getting 
approval for a new program requires the promise of product 
solutions with performance characteristics that go well beyond 
current capabilities. Such characteristics depend on 
technologies as yet unproven and the budgeting process provides 
only a limited wedge of funding in the Future Years Defense 
Plans (FYDP). So cost estimates you make need to fit into that 
wedge.
    Once started, the competition for funding is harsh and 
continual. Each program suffers from and creates for others 
significant funding instability. Bad news almost certainly 
jeopardizes a program's funding. So no news becomes the 
preferred alternative.
    At the same time, there are few, if any, controls in DOD's 
acquisition policy to ensure that managers have the right 
knowledge for each of their individual investment decisions. 
Responsibility is broadly shared and accountability is very 
difficult to assign, if at all.
    So what needs to be done? Clearly, any solutions that we 
develop need to link to underlying incentives. The ``how to 
buy'' challenge in individual programs must depend on 
knowledge, metrics, and controls, but those cannot be developed 
nor made to stick without more disciplined tradeoffs in the 
``what to buy.''
    Despite the enormous investments that DOD has made--and 
those have nearly doubled in the last decade--and is committed 
to making in just its current programs, there is still not 
enough money. You referenced in your opening statement, Senator 
McCain, the doubling of the top five programs over the last 5 
years.
    We believe it may be time to focus on the demand side of 
the equation. If we can curb demand to a rational investment 
strategy in which the Department's leadership translates 
military requirements into a balanced, affordable portfolio of 
programs and makes satisfying that demand more predictable by 
developing and approving only programs that can be successfully 
executed, we can align responsibility and accountability to get 
a better return for the warfighter and the taxpayer.
    Much of this change can occur within the current 
organizational and policy structures. Where there is a will to 
change, there is a way to change. What we need to focus on is 
that each good decision, that is, a decision aligned with 
priorities and informed by knowledge, can be a step in changing 
the culture.
    Thank you, and I look forward to your questions.
    [The prepared statement of Ms. Schinasi follows:]

              Prepared Statement by Katherine V. Schinasi

    Mr. Chairman and members of the subcommittee: I am pleased to be 
here today to discuss why and how to get a better return from the 
Department of Defense's (DOD) weapon system investments. U.S. weapons 
are the best in the world, but the programs to acquire them frequently 
take significantly longer and cost more money than promised and often 
deliver fewer quantities and other capabilities than planned. It is not 
unusual for estimates of time and money to be off by 20 to 50 percent. 
When costs and schedules increase, quantities are cut, and the value 
for the warfighter--as well as the value of the investment dollar--is 
reduced.
    DOD's planned investment in research, development, and procurement 
of major weapon systems is approximately $1.3 trillion for its current 
portfolio, with over $800 billion of that investment yet to be made. 
The planned annual investment is expected to rise from around $149 
billion in fiscal year 2005 to $178 billion in fiscal year 2011. 
Marquee programs include the Army's Future Combat Systems; the Missile 
Defense Agency's suite of land, sea, air, and space systems; the Navy's 
advanced ships, such as the DD(X) Destroyer; the Air Force's 
Transformational Satellite Communications System; and the Joint Strike 
Fighter. Programs like these--and the Global Information Grid that is 
designed to interconnect them--are likely to dominate the budget and 
doctrinal debate well into the next decade. Not only do these programs 
represent huge technological leaps over their predecessors, DOD is 
proposing to deliver them faster.
    The persistent nature of acquisition problems has perhaps made 
decisionmakers complacent about cost growth, schedule delays, and 
quantity reductions in weapon system programs. But fiscal realities, 
coupled with the larger scale of acquisitions, will not allow budgets 
to accommodate the typical margins of error. Thus, we must either make 
tough decisions now to increase the chances for programs to be 
executable within fiscal realities or brace ourselves for more 
draconian decisions later driven by those fiscal realities. The means 
to make the thoughtful decisions are known.
    My statement today highlights the risks of conducting business as 
usual and identifies some of the solutions we have found in successful 
acquisition programs and organizations.

                          THE CASE FOR CHANGE

    The way DOD develops and produces its major weapons systems has had 
disappointing outcomes. There is a vast difference between DOD's 
budgeting plans and the reality of the cost of its systems. 
Performance, if it is defined as the capability that actually reaches 
the warfighter, often falls short, as cost increases result in fewer 
quantities of produced systems and schedule slips. Performance, if it 
is defined as an acceptable return on investment, has not lived up to 
promises.
    Table 1 illustrates seven programs with a significant reduction in 
buying power; we have reported similar outcomes in many more programs. 
For example, the Air Force initially planned to buy 648 F/A-22 Raptor 
tactical aircraft at a program acquisition unit cost of about $125 
million (fiscal year 2006 dollars). Technology and design components 
matured late in the development of the aircraft, which contributed to 
cost growth and schedule delays. Now, the Air Force plans to buy 181 
aircraft at a program acquisition unit cost of about $361 million, an 
almost 189 percent increase.

                           TABLE 1: EXAMPLES OF DOD PROGRAMS WITH REDUCED BUYING POWER
----------------------------------------------------------------------------------------------------------------
                                                Initial                     Lastest
                                              investment                  investment
                                                  (In         Initial         (In         Latest      Percent of
                   Program                     billions      quantity      billions      quantity      unit cost
                                                  of                          of                       increase
                                               dollars)                    dollars)
----------------------------------------------------------------------------------------------------------------
Joint Strike Fighter........................      $189.8  2,866 aircraft      $206.3  2,458 aircraft        26.8
Future Combat Systems.......................        82.6      15 systems       127.5      15 systems        54.4
F/A-22 Raptor...............................        81.1    648 aircraft        65.4    181 aircraft       188.7
Virginia Class Submarine....................        53.7   30 submarines        80.4   30 submarines        49.7
Evolved Expendable Launch Vehicle...........        15.4    181 vehicles        28.0    138 vehicles       137.8
Space Based Infrared System High............         4.1    5 satellites        10.6    5 satellites       160.2
Expeditionary Fighting Vehicle..............         8.1  1,025 vehicles        11.1  1,025 vehicles       35.9
----------------------------------------------------------------------------------------------------------------
Source: DOD (data); GAO (analysis and presentation).

    Furthermore, the conventional acquisition process is not agile 
enough for today's demands. Congress has expressed concern that urgent 
warfighting requirements are not being met in the most expeditious 
manner and has put in place several authorities for rapid acquisition 
to work around the process. The U.S. Joint Forces Command's Limited 
Acquisition Authority and the Secretary of Defense's Rapid Acquisition 
Authority seek the ability to get warfighting capability to the field 
faster. According to U.S. Joint Forces Command officials, it is only 
through Limited Acquisition Authority that the command has the 
authority to satisfy the unanticipated, unbudgeted, urgent mission 
needs of other combatant commands. With a formal process that requires 
as many as 5, 10, or 15 years to get from program start to production, 
such experiments are needed to meet the warfighters' needs.
    Today we are at a crossroad. Our nation is on an unsustainable 
fiscal path. Long-term budget simulations by GAO, the Congressional 
Budget Office, and others show that, over the long term, we face a 
large and growing structural deficit due primarily to known demographic 
trends and rising health care costs. Continuing on this unsustainable 
fiscal path will gradually erode, if not suddenly damage, our economy, 
our standard of living, and ultimately our national security. Federal 
discretionary spending, along with other Federal policies and programs, 
will face serious budget pressures in the coming years stemming from 
new budgetary demands and demographic trends. Defense spending falls 
within the discretionary spending accounts. Further, current military 
operations, such as those in Afghanistan and Iraq, consume a large 
share of DOD resources and are causing faster wear on existing weapons. 
Refurbishment or replacement sooner than planned is putting further 
pressure on DOD's investment accounts.
    At the same time DOD is facing these problems, programs are 
commanding larger budgets. DOD is undertaking new efforts that are 
expected to be the most expensive and complex ever and on which DOD is 
heavily relying to fundamentally transform military operations. It is 
giving contractors increased program management responsibilities to 
develop requirements, design products, and select major system and 
subsystem contractors. Table 2 shows that just 5 years ago, the top 
five weapon systems cost about $291 billion combined; today, the top 
five weapon systems cost about $550 billion.

 TABLE 2: TOTAL COST OF DOD'S TOP FIVE PROGRAMS IN FISCAL YEARS 2001 AND
                                  2006
                        [In billions of dollars]
------------------------------------------------------------------------
                   2001                                 2006
------------------------------------------------------------------------
            Program                Cost          Program         Cost
------------------------------------------------------------------------
F/A-22 Raptor aircraft........        65.0  Joint Strike           206.3
                                             Fighter.
DDG-51 class destroyer ship...        64.4  Future Combat          127.5
                                             Systems.
Virginia class submarine......        62.1  Virginia class          80.4
                                             submarine.
C-17 Globemaster airlift              51.1  DDG-51 class            70.4
 aircraft.                                   destroyer ship.
F/A-18E/F Super Hornet fighter        48.2  F/A-22 Raptor           65.4
 aircraft.                                   aircraft.
------------------------------------------------------------------------
  Total.......................       290.8  Total...........      550.0
------------------------------------------------------------------------
Source: DOD (data); GAO (analysis and presentation).

    If these megasystems are managed with traditional margins of error, 
the financial consequences can be dire, especially in light of a 
constrained discretionary budget.
    Success for acquisitions means making sound decisions to ensure 
that program investments are getting promised returns. In the 
commercial world, successful companies have no choice but to adopt 
processes and cultures that emphasize basing decisions on knowledge, 
reducing risks prior to undertaking new efforts, producing realistic 
cost and schedule estimates, and building-in quality in order to 
deliver products to customers at the right price, the right time, and 
the right cost. At first blush, it would seem DOD's definition of 
success would be very similar: deliver capability to the warfighter at 
the right price, the right time, and the right cost. However, this is 
not happening within DOD. In an important sense, success has come to 
mean starting and continuing programs even when cost, schedule, and 
quantities must be sacrificed.
    DOD knows what to do to improve acquisitions but finds it difficult 
to apply the controls or assign the accountability necessary for 
successful outcomes. To understand why these problems persist, we must 
look not just at the product development process but at the underlying 
requirements and budgeting processes to define problems and find 
solutions.

         A KNOWLEDGE-BASED PROCESS CAN LEAD TO BETTER OUTCOMES

    Over the last several years, we have undertaken a body of work that 
examines weapon acquisition issues from a perspective that draws upon 
lessons learned from best product development practices. Leading 
commercial firms expect that their program managers will deliver high-
quality products on time and within budget. Doing otherwise could 
result in the customer walking away. Thus, those firms have created an 
environment and adopted practices that put their program managers in a 
good position to succeed in meeting these expectations. Collectively, 
these practices comprise a process that is anchored in knowledge. It is 
a process in which technology development and product development are 
treated differently and managed separately. The process of developing 
technology culminates in discovery--the gathering of knowledge--and 
must, by its nature, allow room for unexpected results and delays. 
Leading firms do not ask their product managers to develop technology. 
Successful programs give responsibility for maturing technologies to a 
science and technology organizations, rather than the program or 
product development managers. The process of developing a product 
culminates in delivery, and, therefore, gives great weight to design 
and production. The firms demand--and receive--specific knowledge about 
a new product before production begins. A program does not go forward 
unless a strong business case on which the program was originally 
justified continues to hold true.
    Successful product developers ensure a high level of knowledge is 
achieved at key junctures in development. We characterize these 
junctures as knowledge points. These knowledge points and associated 
indicators are defined as follows:

         Knowledge point 1: Resources and needs match. This 
        point occurs when a sound business case is made for the 
        product--that is, a match is made between the customer's 
        requirements and the product developer's available resources in 
        terms of knowledge, time, money, and capacity. Achieving a high 
        level of technology maturity at the start of system development 
        is an important indicator of whether this match has been made. 
        This means that the technologies needed to meet essential 
        product requirements have been demonstrated to work in their 
        intended environment.
         Knowledge point 2: Product design is stable. This 
        point occurs when a program determines that a product's design 
        is stable--that is, it will meet customer requirements, as well 
        as cost, schedule, and reliability targets. A best practice is 
        to achieve design stability at the system-level critical design 
        review, usually held midway through development. Completion of 
        at least 90 percent of engineering drawings at the system 
        design review provides tangible evidence that the design is 
        stable.
         Knowledge point 3: Production processes are mature. 
        This point is achieved when it has been demonstrated that the 
        company can manufacture the product within cost, schedule, and 
        quality targets. A best practice is to ensure that all key 
        manufacturing processes are in statistical control--that is, 
        they are repeatable, sustainable, and capable of consistently 
        producing parts within the product's quality tolerances and 
        standards--at the start of production.

    A result of this knowledge-based process is evolutionary product 
development, an incremental approach that enables developers to rely 
more on available resources rather than making promises about unproven 
technologies. Predictability is a key to success as successful product 
developers know that invention cannot be scheduled and its cost is 
difficult to estimate. They do not bring technology into new product 
development unless that technology has been demonstrated to meet the 
user's requirements. Allowing technology development to spill over into 
product development puts an extra burden on decisionmakers and provides 
a weak foundation for making product development estimates. While the 
user may not initially receive the ultimate capability under this 
approach, the initial product is available sooner and at a lower, more 
predictable cost.
    There is a synergy in this process, as the attainment of each 
successive knowledge point builds on the preceding one. Metrics gauge 
when the requisite level of knowledge has been attained. Controls are 
used to attain a high level of knowledge before making additional 
significant investments. Controls are considered effective if they are 
backed by measurable criteria and if decisionmakers are required to 
consider them before deciding to advance a program to the next level. 
Effective controls help decisionmakers gauge progress in meeting cost, 
schedule, and performance goals and ensure that managers will (1) 
conduct activities to capture relevant product development knowledge, 
(2) provide evidence that knowledge was captured, and (3) hold decision 
reviews to determine that appropriate knowledge was captured to move to 
the next phase. The result is a product development process that holds 
decisionmakers accountable and delivers excellent results in a 
predictable manner.
    A hallmark of an executable program is shorter development cycle 
times, which allow more systems to enter production more quickly. DOD 
itself suggests that product development should be limited to about 5 
years. Time constraints, such as this, are important because they serve 
to limit the initial product's requirements. Limiting product 
development cycle times to 5 years or less would allow for more 
frequent assimilation of new technologies into weapon systems, speeding 
new technology to the warfighter and holding program managers 
accountable, as well as make more frequent and predictable work in 
production, where contractors and the industrial base can profit by 
being efficient.

     DESPITE POLICY, DOD IS NOT EMPLOYING A KNOWLEDGE-BASED PROCESS

    DOD's policy adopts the knowledge-based, evolutionary approach used 
by leading commercial companies that enables developers to rely more on 
available resources rather than making promises about unproven 
technologies. The policy provides a framework for developers to ask 
themselves at key decision points whether they have the knowledge they 
need to move to the next phase of acquisition. For example, DOD 
Directive 5000.1 states that program managers ``shall provide knowledge 
about key aspects of a system at key points in the acquisition 
process,'' such as demonstrating ``technologies in a relevant 
environment . . . prior to program initiation.'' This knowledge-based 
framework can help managers gain the confidence they need to make 
significant and sound investment decisions for major weapon systems. In 
placing greater emphasis on evolutionary product development, the 
policy sets up a more manageable environment for achieving knowledge.
    However, the longstanding problem of programs beginning development 
with immature technologies is continuing to be seen on even the newest 
programs. Several programs approved to begin product development within 
only the last few years began with most of their technologies immature 
and have already experienced significant development cost increases. In 
the case of the Army's Future Combat Systems, nearly 2 years after 
program launch and with $4.6 billion invested, only 1 out of more than 
50 critical technologies is considered mature and the research and 
development cost estimate has grown by 48 percent.
    In March 2005, we reported that very few programs--15 percent of 
the programs we assessed--began development having demonstrated high 
levels of technology maturity. Acquisition unit costs for programs 
leveraging mature technologies increased by less than 1 percent, 
whereas programs that started development with immature technologies 
experienced an average acquisition unit cost increase of nearly 21 
percent over the first full estimate.

ESTABLISHING A SOUND BUSINESS CASE DEPENDS ON DISCIPLINED REQUIREMENTS 
                          AND FUNDING PROCESS

    The decision to start a new program is the most highly leveraged 
point in the product development process. Establishing a sound business 
case for individual programs depends on disciplined requirements and 
funding processes. Our work has shown that DOD's requirements process 
generates more demand for new programs than fiscal resources can 
support. DOD compounds the problem by approving so many highly complex 
and interdependent programs. Moreover, once a program is approved, 
requirements can be added along the way that increases costs and risks.
    Once too many programs are approved to start, the budgeting process 
exacerbates problems. Because programs are funded annually and 
department wide, cross-portfolio priorities have not been established, 
competition for funding continues over time, forcing programs to view 
success as the ability to secure the next funding increment rather than 
delivering capabilities when and as promised. As a result, there is 
pressure to suppress bad news about programs, which could endanger 
funding and support, as well as to skip testing because of its high 
cost. Concurrently, when faced with budget constraints, senior 
officials tend to make across-the-board cuts to all programs rather 
than make the hard decisions as to which ones to keep and which ones to 
cancel or cut back. In many cases, the system delivers less performance 
than promised when initial investment decisions were made.
    So, the condition we encounter time after time describes a 
predictable outcome. The acquisition environment encourages launching 
product developments that embody more technical unknowns and less 
knowledge about the performance and production risks they entail. A new 
weapon system is encouraged to possess performance features that 
significantly distinguish it from other systems and promises the best 
capability. A new program will not be approved unless its costs fall 
within forecasts of available funds and, therefore, looks affordable. 
Because cost and schedule estimates are comparatively soft at the time, 
successfully competing for funds encourages the program's estimates to 
be squeezed into the funds available. Consequently, DOD program 
managers have incentives to promote performance features and design 
characteristics that rely on immature technologies and decisionmakers 
lack the knowledge they need to make good decisions.

                      THE PATH TO BETTER DECISIONS

    A path can be laid out to make decisions that will lead to better 
program choices and better outcomes. Much of this is known and has been 
recommended by one study or another. GAO itself has issued hundreds of 
reports. The key recommendations we have made have been focused on the 
product development process:

         constraining individual program requirements by 
        working within available resources and by leveraging systems 
        engineering;
         establishing clear business cases for each individual 
        investment;
         enabling science and technology organizations to 
        shoulder the technology burden;
         ensuring that the workforce is capable of managing 
        requirements trades, source selection, and knowledge-based 
        acquisition strategies; and
         establishing and enforcing controls to ensure that 
        appropriate knowledge is captured and used at critical 
        junctures before moving programs forward and investing more 
        money.

    As I have outlined above, however, setting the right conditions for 
successful acquisitions outcomes goes beyond product development. We 
are currently examining how to bring discipline to the Department's 
requirements and budgetary process and the role played by the program 
manager.
    As we conduct this work, we will be asking

         who is currently accountable for acquisition 
        decisions;
         who should be held accountable;
         how much deviation from the original business case is 
        allowed before the entire program investment is reconsidered; 
        and
         what is the penalty when investments do not result in 
        meeting promised warfighter needs?

    We can make hard, but thoughtful, decisions now or postpone them, 
allowing budgetary realities to force draconian decisions later.
    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 further information regarding this testimony, please contact 
Katherine V. Schinasi at (202) 512-4841 or [email protected]. 
Individuals making key contributions to this testimony included Paul L. 
Francis, David B. Best, David J. Hand, Alan R. Frazier, Adam Vodraska, 
and Lily J. Chin.

    Senator McCain. Thank you very much.
    Mr. Porter.

 STATEMENT OF GENE H. PORTER, RESEARCH ANALYST, INSTITUTE FOR 
                        DEFENSE ANALYSES

    Mr. Porter. Thank you, Mr. Chairman. I would like to thank 
you and the subcommittee for holding these hearings. I think 
they perform a very valuable public service not just to allow 
you to collect information for your work, but to elevate in the 
public view these important defense management issues.
    I will summarize my statement and emphasize that my 
statement is mine alone, not that of the IDA's, although I will 
draw on several studies from the IDA as I talk, including the 
cost growth study that was prepared last year. The committee is 
very familiar with the Institute's work on the Future Combat 
System (FCS) program.
    I am addressing long-term management of defense acquisition 
modernization programs, not the emergency purchase of equipment 
for forces in combat and not for contracting for services and 
not new financial management systems for the Department, as 
important as those acquisition issues are.
    In some contrast to my colleague and friend, Dr. John 
Hamre, I remain a strong supporter of Goldwater-Nichols and the 
Packard Commission's establishment of a defense acquisition 
executive. The problem is, as I see it, those procedures have 
not been fully implemented, and indeed, the ones that have been 
implemented in policy and procedures have not been followed 
often enough. I think this subcommittee and the full committee 
have had that discussion. I read statements by Senator Levin 
that talked about the Department not following its own 
procedures.
    I characterize the Packard Commission recommendations as 
``back to basics.'' That was a phrase used by the late Don 
Yockey, who was Under Secretary of Defense (Acquisition and 
Technology) in the first Bush administration and was a strong 
proponent of centralized standardization of defense acquisition 
processes.
    The first of five major problem areas that I will just 
highlight briefly is the chronic issue of better integration of 
requirements into the acquisition process. In my judgment, the 
``requirements'' concept per se might be retired like Mickey 
Mantle's jersey. It is something that served its purpose and we 
moved on. It has a lot of baggage with it. I think most 
practitioners here would agree that ``requirements'' cannot be 
considered properly in isolation. Cost and performance and 
affordability need to be considered jointly. That was said well 
back in 1971 when Alain C. Enthoven and K. Wayne Smith 
published ``How Much is Enough? Shaping the Defense Program, 
1961-1969.'' The foreword to this recently published book was 
written by the two best practitioners that are currently 
serving that I know, that is Under Secretary Chu and Under 
Secretary Krieg. They recast this from ``how much is enough?'' 
to ``how much risk should we take?'' You cannot really address 
that without looking at the cost and the effectiveness at the 
same time, not in isolation.
    The joint staffs, the JROC process, and the Joint 
Capability Integration and Development System (JCIDS) process 
are very useful to inform and advise the Secretary and Under 
Secretary what they think are needed, but those are not 
resource-constrained processes. It is up to the Secretary and 
his designee, the Under Secretary, to make the hard decisions 
on cost-performance trades.
    The defense acquisition executive needs good analyses of 
alternatives when he makes those decisions. When he is coming 
up to a DAB decision on what should be the next helicopter or 
the next deep strike weapons system, he needs a good, 
objective, independent analysis of alternatives to provide 
insights into those cost effectiveness issues. I am pleased to 
notice that the chairman of this subcommittee has recently put 
in an amendment, I believe, to this year's authorization bill 
to elevate the importance of analyses of alternatives in the 
defense management process. I think that is worthwhile.
    The need for cost performance trades does not stop at 
milestone B--entering into full-scale development. The program 
managers need continued flexibility to do cost performance 
trades if they are going to hold down cost growth on weapons 
systems. That generally happened in the F-35 Joint Strike 
Fighter (JSF), in part, in my judgment, due to the force of 
personalities. That kind of flexibility needs to be 
institutionalized across the Department.
    The second topic is Packard's ``fly before buy'' process. 
Several of us will talk about this. Ken Krieg now calls this 
``try before buy.'' I would say ``do it right the first time.'' 
Well, it is rocket science. This is the way all good system 
engineering organizations plan and execute their programs. They 
do not move on until they have reduced the technical risk in 
each of the important areas. This whole process is embedded in 
DOD policies and procedures but is not followed often enough.
    There are two key elements of DOD's ``fly before buy'': 
independent operational testing, which is working quite well; 
and then there are the technology readiness assessments, which 
are not working nearly as well. This committee might want to 
think about sponsoring the extension of the reporting 
requirements of section 804 of the authorization bill beyond 
their expiration in 2006 and perhaps strengthen and expand 
those reporting recommendations. My statement has some specific 
ideas there.
    Fielding new systems is now less urgent, in my judgment, 
than it was during the Cold War. We can now take the time to do 
it right at great advantage to both the warfighters that get 
good equipment that works and is supportable and for the 
taxpayers who do not have to spend on developing and 
redeveloping programs more than once.
    The third major point is funding stability. Stability of 
funding of acquisition programs, or instability of that 
funding, is the bane of both Government program managers and of 
industry. It is a chronic complaint. DOD's funding streams are 
unstable and the committee members are well aware of this 
problem.
    There is one aspect of one potential solution to which I 
would invite your attention that is not talked about very much, 
and I would say that my colleague here, who was once 
Comptroller of the Department of Defense, may want to comment 
on this later. That is, if we could stabilize the planned 
funding of operation and maintenance (O&M) funds in the 
outyears, if we could just do that right and not have a 
constant transfer every year from acquisition to O&M because we 
applied the same diligence to our O&M program planning that we 
do to our acquisition program planning, that alone would reduce 
instabilities in acquisition programs considerably.
    The other potential ways to reduce that instability are 
well known to the committee: willingness to make vertical cuts 
instead of salami slicing programs to deal with changing budget 
top lines; the establishment of management reserves of some 
type, at least in the outyears, if not in the budget year, to 
allow the Department, program executive officers (PEOs), and 
acquisition executives to have some flexibility.
    More emphasis on independent cost estimating: The 
Department has been doing better, particularly on independent 
estimates of production costs, at least according to the data 
that IDA has looked at up until 3 or 4 years ago. It is not 
clear to me that that is going nearly as well at the service 
level where the majority of the acquisition money is not 
actually spent on major acquisitions.
    Finally, milestone budgeting: The Packard Commission 
recommended milestone budgeting, which says we appropriate at 
milestone B or milestone two the money that we all agree is 
likely needed to do full-scale development. That is sort of the 
way we built lead ships in the Navy. You appropriate the money 
for the lead ship and the Navy goes off and does the detailed 
design work and builds the lead ship. We do not seem to do that 
anymore, but milestone budgeting might be a way, during the 
development phase, to reduce the instabilities.
    Fourth--and the chairman mentioned this--we need a better 
approach to joint acquisition. I differentiate between joint 
acquisition of weapons systems and joint acquisition of 
capabilities, capabilities-based planning and so on, which is 
the whole Department of Defense.
    Talking particularly narrowly about joint acquisition, 
joint acquisition serves two masters. One is commonality, which 
is economies of scale, getting a common airplane, common truck, 
common sedan that everybody can use at much lower expense than 
having each Service buy their own. My colleague, Dr. Hamre, has 
done yeoman's service for the taxpayer over the last 10 to 20 
years on defense agencies that are doing efficient common 
support, albeit after great birthing pains and trouble getting 
all that started, but I think there is wide agreement, even 
within the GAO, that those agencies that procure common support 
are much less expensive to the Department as a whole than they 
would have been had we left them separate.
    The prerequisites for joint acquisition are joint concepts 
of operation and joint funding. Joint concepts of operation 
translates roughly to agreed requirements on what we are going 
to buy. They did that for the JSF. It seems to be going 
reasonably well. They tried to do that for the F-111 20-30 
years ago. They could not agree on joint requirements and we 
did not get a joint program out of it.
    Finally, joint command and control is at the heart of joint 
warfighting and is something that Dr. Hamre's organization 
really foot-stomped in its first Beyond Goldwater-Nichols 
report. It said that we have been trying to do this with 
cooperative things and executive agents for decades and it has 
not worked, and that the Department of Defense should, in fact, 
establish a joint acquisition agency or entity of some kind to 
buy joint command and control systems, particularly for things 
like joint task forces. The Department is doing a lot of 
studies on this subject, but I have not seen any sharp 
decisions to move in that direction. It still strikes me as 
very important.
    My final major point is better access to technology. The 
desire for better access to technology is what got us to the 
Office of Technology Assessment (OTA) concept, bringing in 
creative, small companies to bring new technology to bear. That 
has gotten out of hand on major systems acquisition in my view, 
but the Department still needs the authority and the incentives 
to bring in new technology.
    More broadly, as Norm Augustine's new study on the U.S. 
economy, done for the National Academy, points out, only the 
Federal Government funds basic research. Much of the current 
commercial technology that powers our productivity improvements 
came out of DOD-funded basic research, and DOD basic research 
funding is stagnant. The U.S. Government's basic research 
funding is declining, and this is a big problem not just for 
the Department of Defense, but for the Nation as a whole. 
Congress could increase the funding and I think one of your 
fellow subcommittees is looking at the funding of basic 
research by the Department. You could also consider 
incentivizing industry to put more of their independent 
research and development (IR&D) funding back into basic 
technology rather than just products.
    Finally, just three points. You asked about industrial 
base, competition, and outsourcing.
    Industrial base: I believe that it is important to maintain 
design teams. If we are going to maintain competitive design 
teams, you have to fund them without promising production, and 
that means R&D has to be profitable in its own right. The 
Defense Science Board (DSB) said this for years. We still have 
not done that very well.
    We need to fund surge capabilities for things that need to 
be surged: antidotes, vaccines, some kinds of ammunitions, but 
not much else.
    In competition, competition is vital. It has led us to some 
superb weapons systems and is vital at the front end of our 
major weapons programs. We get the best and the brightest in 
industry working days, nights, and weekends to create new 
weapons systems concepts of enormous importance and 
effectiveness for this country.
    But once we have down-selected, once we have chosen a prime 
contractor to build that new airplane or ship or major weapon 
system, competition goes away, and that contractor's 
incentives, very properly, are very different now than the 
Government's. That contractor has a responsibility to his 
shareholders, to keep his profits up, his revenues up, and he 
is not incentivized, as has been discussed at this committee 
and elsewhere, to drive subsequent costs down once he is the 
sole source. We call that a competitive program, but when a 
contractor has that business for 20 years, it is not 
competitive after the first major down-select, as long as he is 
doing a decent job.
    So the Government needs other tools to drive down the cost, 
and some of those have been talked about. Detailed cost 
tracking is one of the tools. ``Breaking out'' subcomponents is 
another potential tool. Chairman Hunter of the House Armed 
Services Committee has suggested greater use of the Challenge 
Program which is on the books but not used very much.
    But this is a tough area. There are a lot of intellectual 
property issues associated with data rights and trying to 
compete pieces of equipment.
    Finally, on outsourcing: I was around the Pentagon when 
Reinventing Government was going on, and I remain a strong 
believer in strategic sourcing, competitive sourcing of things 
you can find in the Yellow Pages: services that are not 
inherently governmental. But lead systems integrator work 
integrating the major weapons is not a capability that you can 
find in the Yellow Pages, and I strongly believe that that is 
the sort of expertise that needs to be restored within the 
Government, which particularly needs the technical expertise to 
do the kind of systems integration work that the Department 
used to be very good at.
    I will not take more time to go through an anecdote about 
how the Navy did the Navy tactical battle system after the 
kamikaze attacks, which has now led to the AEGIS system, but 
that initial work was done by in-house naval engineers. We need 
to work at restoring that technical expertise, and if we do 
that, we will not need as many overarching integrated product 
teams (OIPTs), working integrated product teams (WIPTs), 
integrated product teams (IPTs), and what have you to spread 
the blame around.
    [The prepared statement of Mr. Porter follows:]

                  Prepared Statement by Gene H. Porter

    Mr. Chairman, I welcome this opportunity to present my views on the 
management of defense acquisition programs to this subcommittee.
    I am currently a research analyst at the Institute for Defense 
Analyses (IDA), a federally-funded research and development center that 
is chartered to provide objective analyses primarily to the Office of 
the Secretary of Defense and the Joint Staff. I have attached a brief 
overview of IDA to this statement. At this subcommittee's March 2005 
hearing on the Army's Future Combat Systems (FCS) program, the chairman 
said, ``The Institute for Defense Analyses should look at the entire 
procurement issue.'' As it turns out, I am currently involved in a 
similar project. This ongoing effort, plus my personal experience, 
forms the basis for my statement. My industry and government background 
on these matters is briefly and informally summarized in an attachment.
    Although I will refer to the results of some IDA research, this 
statement and my responses to any subsequent questions are mine alone.
    My statement deals primarily with the deliberate long-term planning 
and execution of major weapons systems acquisition programs. It does 
not address the obvious need for effective emergency procedures for 
meeting unexpected near-term needs of forces in combat--procedures that 
Congress and the executive branch have recently dealt with in some 
detail.
    Having been involved in several high-level reviews of defense 
acquisition management in recent years, I remain a strong supporter of 
the findings and recommendations of President Reagan's Blue Ribbon 
Commission on Defense, commonly referred to as the ``Packard 
Commission.'' Some of the Packard recommendations were never fully 
implemented. Others were implemented in DOD policies and procedures but 
not always followed in practice, as Senator Levin observed at the 
hearing of the full committee on September 27. My view of the major 
weaknesses in implementation are summarized below and described in more 
detail throughout this statement.
    I find only two major elements missing from the earlier Packard 
recommendations: (1) the widely recognized need to improve policies and 
procedures that encourage more and better joint acquisition, for which 
no formal acquisition management structure currently exists, and (2) 
``milestone budgeting,'' which I deem to be less urgent but still worth 
pursuing.
    In my view, the current major problems with the Department's 
management of the acquisition portfolio can be usefully categorized 
into the five areas outlined below. The relative importance of each of 
these problems varies widely among the military Services.

          1. Weak integration of the Department's weapons system 
        requirements process, the formal acquisition management 
        process, and the programming/budgeting process.
          2. Excessive departures from proven systems engineering 
        management practices already embedded in policy, sometimes 
        summarized as ``Fly-Before-Buy.''
          3. Frequent--indeed chronic--changes in the actual funding 
        provided to programs compared with the initially approved 
        funding profiles.
          4. Lack of progress toward Joint Acquisition, as exemplified 
        by the lack of a formal DOD management structure, except at the 
        Special Operations Command (SOCOM) and at the Defense Agencies.
          5. The shift in the locus of scientific and technical 
        advances that are likely to be important in the future to 
        outside the primary purview of the Defense Department and in 
        some cases outside of the United States.

    I believe these problems underlie many, if not all, of the issues 
about which the subcommittee asked the witnesses to comment, including 
the reported excess growth in the cost of too many programs. 
Unfortunately, there is no single solution that I can recommend that 
would make progress on all fronts.
    As this committee well knows, improvement of defense--indeed 
government--acquisition is a complex topic, and significant progress 
will be a long, hard slog. I will highlight some aspects of each of the 
foregoing five topics and then close by addressing your questions about 
the industrial base, outsourcing, and competition. For lack of time and 
relevant expertise, I will not address in any detail other important 
acquisition management issues of potential interest to this 
subcommittee, and to the full committee, such as services contracting 
and accountability other than to note that in his testimony on 
September 27, Secretary Kreig cited better accountability as one of the 
three key principles he intends to pursue. This is a complex area that 
extends from the difficulty of holding accountable program managers 
that have insufficient control of their own funding, to the 
accountability of higher level officials.

                      REQUIREMENTS--RELATED ISSUES

    This section deals with better integrating the requirements aspects 
of defense acquisition. The problems with acquisition-budgeting 
integration are dealt with in a subsequent section.
    A key step in sound acquisition program planning is to establish 
realistic, achievable, and affordable statements of the intended 
principal characteristics of a notional new weapon system. There is an 
ongoing tendency in some quarters to consider the establishment of such 
``requirements'' as quite separate from the acquisition process. That 
is not what the Packard Commission recommended, nor is it consistent 
with the legislation that established the position of the Under 
Secretary for Acquisition, as I understand it. At the end of the day, 
the Under Secretary of Defense for Acquisition, Technology, and 
Logistics, acting on behalf of the Secretary has the responsibility and 
authority to decide the equipment characteristics the Department will 
ask the President to request that Congress fund.
    Nevertheless, it is highly appropriate that the Nation's 
warfighting experts, both the combatant commanders, and the Chiefs of 
the military Services, be deeply involved in the decisions that lead to 
establishing a formal acquisition program. Indeed, the Service Chiefs 
in particular are in fact heavily involved, not only in identifying 
needs and setting the requirements at the start of programs, but also 
in the ongoing cost-performance trades that are made as a program 
proceeds through development and into production.
    In addition, the Chairman of the Joint Chief's of Staff has 
established a formal process by which his staff develops advice that is 
provided to the Defense Acquisition Executive (DAE) as to what the 
Department should acquire to meet a recognized need--particularly from 
the viewpoint of the combatant commanders and the joint warfighting 
community. The DAE ultimately makes such decisions in consideration of 
the advice rendered by the members of the Defense Acquisition Board, 
and ideally after examining the results of an objective analysis of 
alternatives. For this process to work well, there needs to be close 
cooperation between the warfighting ``customers'' and the acquisition 
executive, as was envisioned by the Packard Commission's unimplemented 
recommendation for the establishment of a Joint Requirements Management 
Board (JRMB).
Inadequate Integration of Requirements into the Acquisition Process
    The objective formulation of requirements for new weapons systems 
has sometimes--some would say frequently--been hindered by pressure 
from the sponsoring Service--and its supporters--for a particular 
programmatic solution. As a result, DAEs have sometimes been presented 
with essentially a fait accompli, wherein both the need and the 
solution have been decided outside the acquisition chain, without a 
sound analysis of alternatives, and presented to the Defense 
Acquisition Board as a contract ready for issuance.
    I was encouraged to read Secretary Krieg's testimony of September 
27 in which he reported that he, too, believes the Department's 
requirements and acquisition processes must be better integrated, and 
laid out his principles for achieving that end. It is my understanding 
that he has moved to take a greater role in the examination of 
requirements, not only for major defense acquisition programs (MDAPs) 
but also for those other programs that may not meet the MDAP cost 
thresholds, but that are vital enablers to future joint military 
operations, such as command and control systems.
Inadequate Latitude for Cost-Performance Tradeoffs
    In addition to the sometimes lack of ``due process'' in 
establishing the analytic basis for a new acquisition program, once a 
new program is started, the detailed performance requirements and other 
characteristics are sometimes still specified in such detail that the 
program manager (PM) has little room for making the sort of cost-
performance trades for which, most agree, the PM needs both authority 
and latitude to decide if costs are to be adequately controlled. In my 
experience the degree of such cost-performance flexibility provided to 
the F-35 Joint Strike Fighter program managers is a rarity.
    Secretary Kreig and two of the Service Acquisition Executives 
testified 2 weeks ago that they, along with their military 
counterparts, the Vice Chairman, Joint Chiefs of Staff (VCJCS), and the 
Service Chiefs, are increasingly involved in making such cost 
performance trades on ongoing major programs. As a result, some 
performance goals are being significantly altered in order to better 
balance cost and performance risks. As noted earlier, such activities 
by the civilian acquisition executives were an important element of the 
Packard Commission recommendations. However, it seems likely to take 
some time before these increasingly routine management actions at very 
senior levels get translated in kind to the management of cost-
performance trades on smaller programs.
    Requirements that have been dictated in minute detail, without a 
full appreciation for the upcoming technical challenges, are a 
contributing cause of the dramatic rise in cost on some programs as 
cited by the subcommittee's invitation letter. Indeed, much of this 
apparent rise in cost may be due more to a poor understanding of the 
technical risks at the outset (and premature commitment to the next 
phase) than to weak program management, as will be discussed in the 
next section of this statement.
    By the same token, the pejorative term ``requirements creep'' 
doesn't always imply poor management. Indeed, in most major programs 
that are expected to take over a decade to proceed through risk 
reduction, system design and development, and initial production, the 
government should be open to changes that may add cost, if that added 
cost can be justified and funded without undue risk to other 
capabilities. Such changes include revised responses to changing 
threats, the unplanned availability of new technology that can lower 
production costs, and engineering changes that lead to worthwhile 
reductions in operating and maintenance costs. Many such changes are 
clearly in the Department's interest, but they should be made in a 
manner that demonstrates their appropriateness via the appropriate 
acquisition executive's requirements review process, and they should be 
clearly explained as prudent to Congress, including their impact on 
other programs.
    In keeping with this concept, a 2004 IDA study on the reported 
growth of costs of 138 defense programs attempted to differentiate 
between growth due to ``decisions'' such as changing performance 
requirements or changing production rates, and growth due to 
``mistakes,'' such as erroneous estimates of labor hours or material 
costs. IDA found that about half of the cost growth in development 
programs and one-third of the (smaller) growth in production programs 
was due to deliberate ``decisions,'' rather than ``mistakes.''

          DEPARTURE FROM PROVEN SYSTEMS ENGINEERING PRACTICES

    A major thread of the Packard Commission's recommendations was to 
``fly before buy.'' Secretary Kreig now calls it ``try before buy.'' 
One could also say, ``do it right the first time.'' However it is 
stated, this old chestnut remains as valid today as it was almost 20 
years ago. In fact, one could argue that it is even more valid today 
because there is no major new threat so imminent that sound system 
engineering management practices need to be sacrificed in order to 
accelerate the fielding of unproven technology and equipment. Although 
the precept is embedded in DOD policies, I sense that it has been 
insufficiently heeded in recent years.
    The Department has relied heavily on two key tools that are 
intended to implement this principle: One is working well; the other 
isn't.
    Formal Operational Testing
    Significant benefits have accrued to our warfighters by 
independently ensuring that their equipment has demonstrated both 
operational effectiveness and supportability in the field. U.S. 
military equipment is the envy of the world's fighting forces, in my 
view in large part as a result of our rigorous and independent testing.
    Technical Readiness Assessments (TRAs)
    As Congress recognized when it passed section 804 of the National 
Defense Authorization Act of Fiscal Year 2002, and as the Government 
Accountability Office (GAO) noted in its recent reports, the Department 
and its component Services have too often departed from well-
established rules that require all elements of technology to have been 
demonstrated in the relevant environment before acquisition programs 
are allowed to proceed into full scale development. Premature ramping 
up of programs poses a high risk of problems that then require program 
activities to be recycled at great expense in time and money. The 
Army's FCS program is an example well known to this subcommittee.
    More generally, the ability of DOD to independently and competently 
assess the maturity of technology is hobbled by the lack of in-house 
technical expertise. One reason that operational testing is so 
successful is the independence and technical competence of the 
Department's operational test and evaluation staff. A similar model 
could be developed and required for identifying critical technologies 
and assessing their maturity. This would better assure that the 
Milestone Decision Authorities and Congress would have reliable 
information at key decision points. This would of course require a 
greater degree of Government technical expertise than now exists--a 
need that is broadly recognized.
    The 2004 IDA review of the Army's FCS program noted a large number 
of technical issues that had not been resolved at the time approval was 
given to proceed into system design and development. One result of 
these unresolved technical issues appears to have been the slippage of 
the Preliminary Design Review until late next year and overall slippage 
of initial operational capability by 4 years. These changes call into 
question the appropriateness of the Milestone B decision in 2003.
    Given the lack of threat-driven urgency for the Department's major 
acquisition programs, I personally believe that there should be a very 
high bar for waivers of this sound management principle. This 
subcommittee may wish to sponsor extension of some (possibly expanded) 
version of the existing reporting requirement under section 804 beyond 
its scheduled expiration in 2006. I suggest that such future reporting 
include major information systems, retrospective reports on the 
accuracy of prior year's assessments, and on the degree to which 
previously approved risk mitigation plans succeeded. Such assessments 
need to be made by technically qualified personnel that are free of 
conflicts of interest. Service acquisition executives could logically 
be required to report to the DAE similar information on the development 
programs under their purview.

                          FUNDING INSTABILITY

    As the members of this subcommittee are well aware, the Department 
has accumulated an elaborate set of procedures for the detailed 
planning and management of acquisition programs--procedures that, when 
followed, and when accompanied by stable funding, have generally 
produced good results, given the complexity of DOD programs. The 
resulting ``baseline'' plans are tightly coupled to the timely 
allocation of the planned funding. Therefore, any significant change to 
the postulated funding profile--almost always a reduction--is quite 
disruptive to even the best-planned and most technically stable 
program.
    There are myriad reasons why the funding levels actually 
appropriated and apportioned to acquisition programs are frequently 
changed from those originally planned and agreed to within DOD. Some 
major contributors are as follows.
The migration of planned acquisition funds to the operating accounts
    The mismatch between the Department's ability to carefully forecast 
the funds needed in the future for each approved weapon system and the 
Department's ability (or willingness) to forecast its needs for future 
operating funds is an important contributor to instability. Given that 
DOD must always constrain its total funding plans to the level 
prescribed by the long-range budget plans of the President and 
Congress, every year the Department is faced with the need to cut back 
on previously planned acquisition spending in order to meet unplanned 
needs for operating and maintenance (O&M) funds. This ongoing problem 
is frequently exacerbated by having to adjust previously overly 
optimistic estimates of future total DOD funding levels to accommodate 
emerging near-term Government-wide funding realities.
    This source of instability in acquisition program funding is 
chronic--not just associated with either the current high tempo of 
unplanned operations or with deficit concerns. The acquisition program 
``cuts'' imposed as a result of this phenomenon are usually broadly 
spread across most acquisition programs, requiring that most be re-
planned in detail and at considerable increase in total cost. This type 
of instability is not confined to actions in the executive branch 
across the 5-year plan. In some former years, Congress would level a 
``tax'' on DOD in the form of an undistributed reduction for the 
imminent budget year that would have the same broad destabilizing 
effect. Indeed, I understand that fresh consideration is unfortunately 
being given to such a destabilizing ``tax'' for the current budget year 
as a way to limit the deficit.
    Because this impact results from purely budgetary considerations 
and not from changes in the threat, or program troubles, or other 
changes in a particular program, it is difficult to argue within DOD 
that any particular program, or set of programs, should be sacrificed 
in order to protect the stability of the remainder, although such 
vertical cuts would be sensible.
    A broad solution to this problem of annual transfers of previously 
planned acquisition funds to operating accounts would of course be for 
the Department to plan its long-term operations and maintenance 
spending to the same ``most likely cost'' criteria that it tries to 
apply to the planned cost of its weapons systems. For this reason, it 
is important that acquisition program planning be more closely 
coordinated with the Department's overall resource allocation and 
budgeting processes. The latter is particularly challenging in that 
decisions on acquisition programs are largely event driven--completion 
of development, etc.--and budgets are calendar driven. Nevertheless, it 
is a hopeful sign that Secretary Krieg continues to emphasize the need 
to better integrate acquisition and resource management in his recent 
testimony.
``Fencing'' is not the solution
    From time to time the suggestion is made that, once an acquisition 
program has been thoroughly reviewed and approved by the Defense 
Acquisition Executive, the associated funding profile that would lead 
to the next major milestone should be exempted from further 
adjustments, such as those frequently made during the annual budget 
preparation cycles. As important as improved funding stability is to 
the coherence and efficiency of acquisition program management, it is 
not more important than the need for the Department to be able to 
respond flexibly to changing threats, risks, and total funding 
availability as it prepares budget proposals. ``Fencing'' the funding 
for some acquisition programs would have the effect of further 
destabilizing others, under current procedures. For this reason, except 
for occasional isolated programs of great strategic importance, 
secretaries of defense have been properly reluctant, in my judgment, to 
mandate that specific levels of funding be earmarked for specific 
acquisition programs as the Services update their long range plans in 
response to his guidance.
The need for planned ``reserves''
    The lack of DOD ``Management Reserves'' is frequently cited as a 
source of program instability. Managers of civil projects ranging in 
complexity from building a single family home to tunneling under a 
major city know they cannot accurately predict the total cost just by 
adding up costs of each of the initially planned steps known to be 
needed. There are always unknowns, and even unknown unknowns, that 
drive up the final cost. Builders that promise a result at a fixed 
price always include some unallocated contingency reserves in their 
bids, or they would soon be bankrupt.
    In sharp contrast to private sector practice, the half of the DOD 
acquisition spending that is devoted to RDT&E, and most of the other 
half that goes to procurement spending, is contracted not on a fixed-
price basis, but using cost-type contracts. In principle, the 
Department could--and should--include prudent contingency reserves in 
their estimates of both development and procurement costs. In practice 
however, there is a bias against such prudent planning in large part 
because there is always some need that is more tangible than the 
``unknowns'' that motivate planning for reserves.
    As the subcommittee is aware, the Department has long supported an 
independent Cost Analysis Improvement Group (CAIG) dedicated to 
improving its estimates of future costs. This activity has been 
moderately successful, in my view, in strengthening the Department's 
ability to forecast, and budget for, future production costs. Because 
of the uniqueness of every development program, and the sparsity of 
analytic tools, independent estimates of development costs have proved 
somewhat less reliable than those for production costs. These 
uncertainties lead to a tendency with the Department to, on average, 
accept rosy forecasts of development costs. Therefore, when a 
particular program develops a serious problem in development that 
raises its cost well beyond the budget, presuming the program is still 
important, the usual practice is to transfer funding from other 
acquisition programs to, in principle, ``equalize the pain''. It may do 
that, but as with annual ``taxes'' by either Congress or the executive, 
the result is broadly destabilizing across many programs.
    This of course is not a new issue. In past years the Department has 
tried several different approaches to establishing prudent levels of 
reserves, at least in its outyear plans, that can be allocated as 
needed to salvage troubled programs, or accommodate other sensible 
changes, without having to tax and destabilize others. In all cases, 
such schemes seem to have been abandoned after only a few years, or 
even months, because of the difficulty in holding back funds--even 
outyear funds--against unknown eventualities, when there were so many 
competing demands to meet known needs.
    My personal sense is that the stability of acquisition programs is 
important enough to warrant yet another try at establishing such a 
reserves program--not necessarily for the budget year, but surely for 
the outyear plan. Whether such reserves should be held at the Program 
Executive Officer (PEO), Service Acquisition Executive (SAE), or 
Defense Acquisition Executive (DAE) level is currently beyond my ken.
Other Funding Destabilizers
    The Appropriation Process
    DOD acquisition budgets are prepared years in advance of the actual 
intended dates of obligation of the requested funds. As time passes, 
more and more is known about the status of each ongoing program and its 
actual need for, and ability to effectively use, the requested funding. 
The executive branch updates its annual budget requests for the latest 
``fact of life'' changes just before submitting the requests in 
February, and even occasionally submits amendments that have similar 
features. Nevertheless, it is Congress that usually has the latest 
information on program status when the markups of appropriation bills 
near completion. It is not unusual to find that millions of dollars 
requested months earlier by the executive branch are no longer needed 
due to program slippages and are thus available to Congress for 
reallocation.
    One problem with this seemingly logical process is that there is no 
easy way for programs that have lost money in 1 year's appropriation 
process to get it restored early in the next year. In cases where the 
entire program has slipped to the right by the amount of the reduction 
by virtue of its internal problems, this is not a major source of 
instability. However, in cases where Congress makes a marked reduction 
in funding because a major funding milestone has slipped a few weeks 
into the next fiscal year, that program will likely need most of that 
funding early in the following year, if disruptions are to be 
minimized. If DOD is to find the funds needed to keep the program on 
its slightly slipped track, it most likely will have to do so at the 
expense of the stability of several other programs. I have never seen 
the data that would be needed to accurately scope the full extent of 
this ``congressional'' instability, and therefore can't judge the need 
for procedural changes.
    Emerging, unplanned, programs
    An additional source of instability is a decision to move a 
promising experimental program that had not been planned for production 
into the formal acquisition system. The Department funds a variety of 
promising experiments that each have some prospect of becoming worthy 
of longer-term funding than originally planned. Such programs are 
typically managed by the Defense Advanced Research Projects Agency 
(DARPA) or in the Department's Advanced Concept Technology Demonstrator 
(ACTD) portfolio. If one or more such programs are tested and found to 
warrant prompt inclusion in the Department's long-term program plans, 
they usually must displace one or more other programs--a destabilizing 
activity that has a chilling effect on the mainstream defense 
acquisition community's enthusiasm for such programs. One obvious 
solution to this threat would be for the Department to create a 
standing outyear ``wedge'' of unallocated funds, some of which could be 
shifted annually to fund emerging good ideas without disrupting other 
programs. A problem with this approach is similar to that for 
establishing an outyear reserve for funding troubled programs and other 
program changes--there would be a significant one-time destabilization 
of other programs in order to fund such contingency accounts.
One other potential improvement in program stability: Milestone 
        Budgeting
    A different step towards stabilizing the funding for the 
development/initial production phase of programs would be to shift to 
``milestone budgeting'' as recommended by the Packard Commission. Under 
this approach the full estimated cost of development, and perhaps the 
first year or 2 of initial production, would be appropriated and 
managed as a lump sum in much the same way as the cost of a new lead 
ship used to be appropriated. A full-scale change to such a procedure 
would have a major impact only on obligational authority, but not on 
actual outlay rates, as the funds would be actually expended at 
approximately the previously planned rate. The benefit would be the 
greatly increased ability of program managers to efficiently plan and 
execute the multiyear activities of their development programs due to 
the confidence they would have in the availability of funds.
    Towards more accurate pricing of defense acquisition programs
    Some seem to believe that the Department still deliberately 
underprices many of its acquisition programs in order to be able to get 
as many new programs started as possible. Examples of such ``low-
balling'' can undoubtedly be found, but my general experience in recent 
years has been that both the Services and OSD leadership have worked 
rather hard to budget their acquisition programs to the ``most likely'' 
cost, at least in the first year after such estimates are made.
    Based on the IDA's 2004 examination of data on 138 programs 
mentioned earlier, it appears that the decades-long effort to align DOD 
acquisition procurement budgets with the results of truly independent 
cost estimates has been modestly successful in reducing apparent 
production cost overruns. That analysis showed that about 75 percent of 
the cost growth in production programs was attributable to only 20 
percent of the programs--outliers beyond the expected normal 
distribution of estimate errors. I suspect, but cannot demonstrate, 
that many of these outliers are attributable to both the aforementioned 
technological immaturity at the time the initial cost estimates were 
made, as well as some ``requirements creep'' that may not have received 
sufficient oversight.
             lack of joint program and acquisition planning
    The impediments to jointness in the Department of Defense 
acquisition program planning are particularly well known to this 
subcommittee, dealing as it does with the interface between the air and 
ground combat forces of the U.S. The Goldwater-Nichols Act is widely 
acknowledged to have led to significant improvements in the planning 
and execution of joint military operations. Its impact on increasing 
the ``jointness'' of the Department's long-range program planning 
process, including its acquisition program planning, has been much less 
impressive to date.
    It may be overly simplistic to contrast the apparent internal 
jointness between the air and ground elements of the U.S. Marine Corps, 
with the ongoing difficulties in achieving similar synergies between 
the Army and the Air Force, but there are two important points that can 
be illustrated using that analogy.
Joint Operating Concepts
    First, a common, unified concept of how to operate together not 
only really helps, but is essential to real jointness. The Marines 
pride themselves on having hashed out effective operational concepts 
for air-ground operations across a broad range of combat scenarios. The 
unity of such concepts is widely advertised as integral to their Marine 
Air-Ground Task Force (MAGTF) organizational structures. However, joint 
operating concepts and joint integrating concepts that cross the 
boundaries of the other Services are much less developed.
    It is difficult to make a lot of progress in defining an acceptable 
set of joint ``requirements'' for new equipment that would be operated 
by multiple Services in the absence of agreed, and relatively specific, 
joint operating concepts. As the subcommittee knows, the Department is 
working to develop a broad range of joint operating and integrating 
concepts to address this need, but progress seems glacial. This, plus 
the funding issue discussed below, constitutes the major impediments to 
achieving the longstanding goal of having programs ``born joint.''
    The closest the Department has come in recent years to a successful 
major joint acquisition program is the Joint Strike Fighter--now the F-
35. Research at IDA into the differences between the originally joint 
F-111 program that reverted to a single Service, and the largely 
successful (to date) joint F-35 program, identified one overriding 
factor. In the F-111 program the Navy and Air Force failed to agree on 
an acceptable set of joint performance requirements. Such agreement, 
reached early in the F-35 program, has largely persisted through many 
changes, by virtue of the joint management and funding structure. But 
the F-35 type of ``jointness'' flows more from a desire to save 
acquisition and maintenance costs through the use of common equipment 
than it does from the need to operate more jointly. Even with common 
airframes, the Services could in principle equip them with uncommon 
sensors, communications equipment, and weapons--the type of equipment 
important to joint operations.
Joint Funding
    Second, a single flow path for funding clearly helps. When the 
Marines plan their future spending programs, they can internally 
resolve issues and assemble, at least within the Department of the 
Navy, a coherent long-range program plan for the several components 
important to joint air-ground operations. Other examples include the 
integrated radar and missile air defense systems that were developed 
separately by the Army, Navy, and Air Force. There are no examples of 
single sources of funding for successful major cross-service programs 
that come to my mind.
    The lack of planned interoperability among the military services is 
not a new problem even though warfighters in the field have a strong 
recent record of successful last-minute improvisation that ends up 
getting the job done, albeit at considerable expense in time and 
efficiency. In discussing the acquisition of equipment important to the 
interoperability of U.S. forces, the 2004 Center for Strategic and 
International Studies (CSIS) Beyond Goldwater-Nichols (BG-N) report 
stated:

          This enduring lack of jointness in how DOD procures weapons 
        has both raised the cost of military operations (e.g., 
        persistent interoperability problems cause friendly fire 
        casualties) and constrained the growth of U.S. military 
        capabilities (e.g., Services invest too much in duplicative 
        capabilities and too little in Low Density/High Demand assets)

    Nowhere is the need for improved coherence in the acquisition of 
military capabilities more apparent than in command, control, and 
communications systems. Citing ``repeated failures over the past decade 
to develop common, interoperable'' command and control systems, the 
aforementioned CSIS report explicitly recommended that funding and 
responsibility for managing such programs be transferred from the 
Services to a new joint management entity. I have seen no concrete 
steps being taken to implement such a recommendation.
    The Department is reportedly looking broadly into the planning for 
such joint command and control and supporting information 
infrastructure programs. The central issue being addressed is how to 
assure that separately acquired and fielded programs provide the 
necessary integrated joint capabilities.
    It is worth noting that ``purple'' funding of common support 
activities has largely proven its worth. Despite their considerable 
birthing and growing pains, such DOD-wide activities as the Defense 
Logistics Agency, Defense Information Services Agency, Defense Finance 
and Accounting Service, and the Defense Contract Management Agency, are 
widely agreed to now be working well and are considerably less costly 
than would have been the case had the Services each retained such 
functions. This outcome is much to the credit of my fellow witness, Dr. 
John Hamre, who oversaw much of this effort as Comptroller and Deputy 
Secretary in the previous administration. It is my belief that more 
such ``joint'' funding is a necessary condition for achieving much real 
progress towards joint acquisition.
    My sense is that it may take another herculean effort, such as that 
that went into the Goldwater-Nichols Act itself, to boldly move the 
Department into a new approach to acquiring capabilities that are truly 
``born joint''. This subcommittee clearly has the expertise to lead 
such an effort. It seems unrealistic to expect much more progress 
toward improved joint acquisition without a major effort by both the 
Secretary of Defense and Congress.

                          ACCESS TO TECHNOLOGY

    This subcommittee is well aware that the day has long passed when 
the Defense Department could rely exclusively, or even primarily, on 
technology that had been developed as a result of DOD investments. The 
explosion of new applied technology in the U.S. commercial sector, 
coincident with globalization of such developments, poses a significant 
challenge to DOD. No longer can Government laboratories and traditional 
defense contractors be looked to as the primary source of new 
technologies important to future defense systems. Indeed, 
acknowledgement of this trend lies behind many of the acquisition 
``reforms'' adopted by the Department over the past decade, including 
its enthusiasm for the use of Other Transaction Authority (OTA) 
agreements to hopefully gain access to non-traditional suppliers.
    But applied technology flows out of basic research, which in this 
country is still dependent on Federal funding. The problem for DOD is 
being exacerbated both by the ongoing decline in Defense and other U.S. 
Government investment in basic and applied research, and by the Defense 
Department's decision in the 1990s to cease giving industry incentives 
to spend its Government-reimbursed independent research and development 
funding on long-term science and technology projects that are of 
particular importance to national defense needs. The simple solutions 
to these trends, to which this subcommittee could contribute its 
expertise and influence, would be to reverse the decline of DOD 
spending on basic research and to encourage the Department to resume 
its former practice of ``scoring'' industry independent research and 
development (IR&D) projects against the Department's long-term goals 
when determining the level at which such investments would be 
reimbursed via DOD contract overhead allowances.
    More broadly, I invite the subcommittee's attention to the 
excellent treatment of this increasingly urgent national problem that 
Norm Augustine's National Academy Committee on Prospering in the Global 
Economy of the 21st century recently produced for the Senate Energy and 
Natural Resources Committee. This study emphasized that the Federal 
Government is the only source for funding basic research in the United 
States; that corporate R&D funding is product-oriented; and, noting 
that many of today's most successful commercial technologies originated 
in basic research funded by the Department of Defense, where support 
for such funding continues to wane, recommended that DOD funding of 
basic research be increased at a rate of 10 percent per year. The 
growing plight of the ocean science community, whose research is so 
important to a broad range of national security issues, adds conviction 
to my recommendation that the members of this subcommittee strongly 
support the efforts of the Subcommittee on Emerging Threats and 
Capabilities to implement the spirit of the Augustine Committee's 
recommendation. Such a funding increase would also benefit efforts to 
increase the availability of the meaningful, interesting, and important 
research work needed to further motivate U.S. students to pursue 
challenging technical and scientific education goals.
    The more complex issue involves DOD access to advanced technology 
whose centers of excellence are outside the United States. To date DOD 
has relied primarily on its large, multinational prime contractors to 
manage such access, and this may continue to be the best approach. 
However, this is an area that I believe warrants increased attention, 
as do so many facets of the defense acquisition process.

                              OTHER TOPICS

Industrial Base
    Just as the American public broadly benefits from the growing 
globalization of the consumer economy, within limits, the Defense 
Department also broadly benefits from the globalization of the supply 
chain both for the lowered cost of its commercial products needs and 
its access to advanced technologies for which the U.S. is not a leader. 
But for supplies for which a surge capacity is assessed as an important 
element of U.S. national security planning, there is no reason to 
depart from the current practice of funding such standby capacity in 
the U.S. Such needs include, for example, vaccine production; antidote 
production; other limited shelf-life supplies; and some types of 
ammunition.
    It is also vitally important that the equipment on which the United 
States relies for its most sensitive communications and intelligence 
activities are assembled from ``trusted sources'' of components.
    There are obviously other strong incentives for the United States 
to ensure that its industrial base can continue to produce the 
principal weapons systems that are used to equip its military forces. 
However, as DOD becomes increasingly dependent on technology for which 
other free world countries may have gained a competitive advantage, it 
is unrealistic--even counterproductive--to demand that arbitrary 
percentages of DOD equipment components and software originate in the 
United States. Furthermore, paying for the maintenance of excess 
defense industrial production capacity in the hopes of reducing costs 
though competition is also generally counterproductive, as discussed 
below.
    Paying for extra capability to design and prototype new, innovative 
forms of military equipment may well be worthwhile, but, as also 
discussed below, such a program would need to be made profitable in its 
own right to be successful.
Competition
    There are two chief perceived benefits of formal competition in 
defense acquisition programs: design innovation and cost reduction.
    Design Innovation
    In my experience, competition is very effective in bringing forth 
the best industry can offer at the beginning of every major new 
acquisition program. Top talent is frequently switched from lucrative 
ongoing programs to help formulate the company's technical concepts for 
the big competition at hand. The reason for this success is not hard to 
discern; the companies know that the winner probably will never have to 
face further real competition on that program. For this reason, bidders 
not only commit their best design talent, but also frequently promise 
to share the cost of the early development phase of the program. Some 
may still believe this is a good deal for the Government; I do not. By 
accepting such in-kind ``contributions'' early in development, the 
Government sub-optimizes its long-term interests and makes some 
implicit commitment that it will proceed into full-scale development 
and production. Such a commitment, whether implicit or not, limits the 
Government's ability to decide on alternate courses of action. 
Furthermore, if the Government places any significant weight on such 
``up-front'' contributions when selecting the prime contractor, it may 
well forgo much larger benefits available from other bidders in terms 
of lower future production and operating cost and/or better system 
performance features. Such considerations have motivated the 
Department's growing use of ``best value'' source selection criteria in 
recent years.
    As noted earlier, I believe at least the early phases of research 
and development (R&D) activity should be made profitable in their own 
right, without the promise of a production run to ``get well.'' Such an 
approach could greatly increase the Government's ability to keep 
competent design teams productively employed without the obligation to 
take designs to production before they may be needed. It might also 
bring into the DOD orbit many nontraditional R&D firms that may be able 
to contribute innovative ideas. But this would be a hard sell, in part 
because of the very real intellectual property ownership issues that 
surround such programs.
    There are also always ongoing pressures to only invest 
significantly in developments for which there is a follow-on production 
program. My recollection is that the Joint Strike Fighter program 
started as a series of design and prototype testing competitions for 
advanced aircraft components and subsystems, and that industry, and 
perhaps Congress, quickly insisted that such expenditures would be 
justified only if an aircraft development program was established in 
the funded program of record.
Cost reduction
    In contrast to the benefits of formal design competition, I believe 
the cost reduction benefits of competition are highly overestimated, at 
least at the major system level. Indeed, as a practical matter, once a 
major defense contractor has won a design competition and any 
subsequent down-select that is intended to lead to production, the 
threat of further competition will have largely vanished. At that point 
the contractor's duty to his shareholders to keep costs and profits up 
on the prevalent cost-type contracts begins to conflict directly with 
the Government's interest in driving costs down. From time to time the 
Department has attempted to compete the subsequent production of 
complex systems, such as battlefield trucks. Although I have seen no 
recent systematic study of the results of such competition, my sense is 
that most results were disappointing due to such factors as long delays 
and unexpected costs in fully qualifying the alternate supplier. Such 
prime-contract re-competitions are becoming much more difficult to 
orchestrate as systems become more complex and tightly integrated, and 
the intellectual property rights to embedded commercial products and 
components become harder to deal with.
    Once a qualified prime contractor is producing satisfactory 
equipment under a prime contract, the Government needs to employ tools 
other than direct re-competition to encourage cost limitations and 
reductions. These tools take many forms, such as detailed tracking of 
the contractor's actual costs, component break out, and incentive fees 
and are highly unique to Government management practices. The private 
sector has very few, if any, long-term cost-plus contractual 
relationships where the buyer has no alternate supplier reasonably 
available.
Other types of competition
    There is a third potential use of competition in defense 
acquisition that has not been generally adopted but may be worth 
additional attention. This is the notion of cross-system and even 
cross-Service competition for funding to meet a real ``mission'' or 
``capability'' need. Such an approach has been suggested by past 
Defense Science Board task forces through such broad examples as 
comparing the costs of striking inland targets from Navy carriers with 
the costs of Air Force bombers for the same effects. The Department is 
not currently organized or staffed to routinely conduct such studies 
``in house.'' Having conducted a Deep Attack Weapons Study along these 
lines for OSD several years ago, IDA can attest to the difficulties of 
such attempts at explicit cross-service competition
    Finally, I note that the Department at one time championed a 
``Challenge'' program in which outside suppliers could formally offer 
to provide some piece of equipment, or subsystem, to DOD at a lower 
price than was currently on contract. The opportunities for benefiting 
from such a program have probably declined in recent years as the 
Department has undertaken less and less of its own system integration 
work, thereby reducing its ability to switch sources for components or 
subsystems. Nevertheless, some such new effort to open ongoing DOD 
contracts to new ideas and technologies from outside suppliers may well 
be warranted.
Outsourcing
    As noted earlier, I am not prepared to comment on the details of 
the problems involving contracting for services, although I recognize 
the importance of Senator Levin's comments thereon in September.
    However, I was on the fringes of DOD's involvement with the 
Reinvention of Government and supported the use of public-private 
competitions for the types of services that one can find in the 
``Yellow Pages.''
    I still believe in the value to the Department of such competitions 
for routine services that are not ``inherently governmental,'' but 
would be quick to recognize that there are problems in managing such 
contracts when they are outsourced.
    Representing the Government's interests in structuring and 
overseeing major defense acquisition programs is not a skill set that 
one finds in the Yellow Pages. At the level of weapons systems 
acquisition, the Government is different. There is a very real limit to 
the applicability of commercial program management practices to the 
Government's needs. When a private company chooses to undertake a 
major, multiyear development of a complex new system, it does not 
outsource the bulk of the work using a cost-plus multi-decade contract. 
Indeed, almost all major systems developments in the commercial sector 
are done ``in house'' and very little information on either the costs 
or success rate of such developments is available in the public domain. 
Furthermore, the company program managers have great control over, and 
confidence in the stability of their own budgets. I make this point not 
in defense of any current Government acquisition practice, or to 
advocate a return to the arsenal system, but to remind the 
subcommittee, though I doubt it is necessary, that contracting for such 
major system developments really is unique to the Government.
    As this subcommittee knows from the IDA review of the FCS program, 
and the related testimony of Dave Graham, the IDA project leader, IDA 
found that the FCS integrated Army/Boeing ``One Team'' management 
approach ``results in inherent tensions 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.'' IDA recommended that the Army strengthen 
its corporate independent assessment capabilities. I cite this report 
not to imply that there is a particular new or ongoing problem in the 
FCS program, but as an example of what I personally think should be the 
high-water mark for outsourcing the types of systems integration 
activities that were once the hallmark of the Defense Department's in-
house technical abilities.
    Acting on behalf of the Government in overseeing the design and 
integration of complex, multi-billion dollar acquisition programs takes 
a high level of skill and experience. Ensuring that the Government has 
enough such talent is a major and continuing challenge. I believe the 
Government needs to take strong actions to beef up this senior segment 
of the acquisition workforce. This particularly includes systems 
engineering talent at both the PM and PEO levels. Hopefully, the new 
National Security Personnel System will facilitate such actions by the 
Department.
                                closing
    Finally, I would like to compliment the chairman and the 
subcommittee for holding these hearings. In my view, they provide an 
exceptionally valuable forum both for the subcommittee to gather 
information important to the discharge of its legislative duties and 
for the broader goal of elevating the public dialog on matters vital to 
the future security of this Nation.
    Thank you for the opportunity to present my views.

    Senator McCain. Thank you very much.
    Mr. Porter. Thank you.
    Senator McCain. Mr. Anderson.

    STATEMENT OF FRANK J. ANDERSON, JR., PRESIDENT, DEFENSE 
                     ACQUISITION UNIVERSITY

    Mr. Anderson. Thank you, Mr. Chairman. Senator Lieberman, 
Senator Chambliss, thank you for the opportunity to appear 
before you today to discuss improving the DOD acquisition 
system.
    For the sake of time, I will quickly highlight my main 
points, but I request that the entirety of my prepared 
testimony be included in the record.
    Senator McCain. Without objection.
    Mr. Anderson. There are several longstanding systemic 
issues that I think must be addressed. I think the Department 
knows what those issues are and I would not disagree with any 
of the previous discussions about what the issues are. But I do 
not believe we will produce better acquisition outcomes unless 
we take on several of these systemic issues. I do not believe 
that our most pressing issue is the way DOD is organized.
    The systemic issues that I believe must be addressed if we 
are to produce better acquisition outcomes are actions required 
to create better program stability, how we do a better job of 
managing costs and schedule growth in our programs, and 
critical is creating an integrated and aligned ``Big A'' 
process. There have been other leaders from the Department who 
have been over and talked about this idea of ``Big A.'' I 
believe that that is really a step toward full fulfillment of 
the Packard recommendation that really suggested that we 
overlay the major decision processes in the Department.
    Changes of the type needed are both cultural and process 
and will require determined willpower by the DOD leadership and 
all other key stakeholders, including Congress. I do not 
believe just making the organizational changes without taking 
on the cultural and process issues will produce outcomes that 
are desired.
    Based on what I have seen and believe is ongoing in the 
Quadrennial Defense Review (QDR) process, and the Defense 
Acquisition Performance Assessment (DAPA), I believe that 
acting Deputy Secretary of Defense England and the Honorable 
Ken Krieg both share your sense of urgency about the need to 
address these issues now. I believe they also have the 
determined will to push for the required process and cultural 
changes that must be addressed.
    Finally, I would feel remiss in not addressing the 
absolutely critical role that the acquisition, technology, and 
logistics (AT&L) workforce must play in reengineering, shaping, 
or executing future courses of action.
    I am prepared to go into further detail on any of the 
systemic issues that I identified, and I look forward to your 
questions. Thanks for the opportunity to be here.
    [The prepared statement of Mr. Anderson follows:]

              Prepared Statement by Frank J. Anderson, Jr.

    Chairman McCain, Senator Lieberman, and members of the 
subcommittee: Thank you for the opportunity to appear before you today 
to discuss improving the Department of Defense (DOD) acquisition 
system. I know this is a very important subject for you and also for 
the Department of Defense. Today there is a broad consensus (among 
Congress, the DOD leadership, private sector senior leaders, and 
others) that DOD must act now to improve acquisition outcomes. This is 
important for all stakeholders. The challenge is in maintaining this 
consensus, collaborating effectively, and developing and implementing 
specific changes. You requested that I provide my views on three areas: 
1) acquisition organization structure and what laws, regulations, and 
practices governing defense acquisition policy may need modification 
and improvement; 2) structural problems associated with the dramatic 
rise in the cost of, and widespread delays in developing, testing, and 
fielding major defense systems; and 3) the effects of the U.S. industry 
consolidation, the effects of competition on defense contracts, and my 
assessment of how critical the defense industrial base may be to 
defense acquisition policy.
    The pending National Defense Authorization Act for Fiscal Year 
2006, S.1042, Section 806, would require Defense Acquisition University 
(DAU), acting under the leadership of the Under Secretary of Defense 
for Acquisition, Technology, and Logistics (USD(AT&L)), to conduct a 
review of the acquisition structures of the DOD. Also, the Acting 
Deputy Secretary of Defense initiated an ``integrated acquisition 
assessment to consider every aspect of acquisition, including 
requirements, organization, legal foundations, decision methodology, 
oversight, checks and balances--every aspect.'' The results of this 
effort will be provided to the Deputy Secretary of Defense and to the 
Quadrennial Defense Review (QDR) team this month. Based on what I have 
seen and believe, I am convinced the Honorable Ken Krieg, USD (AT&L) 
and the DOD senior leadership team shares your concerns and sense of 
urgency about the need to improve acquisition outcomes and they will 
share their recommendations with you in the near future.
    Now, to the issues you highlighted in your letter and my views on 
required actions relative to improving acquisition outcomes. My 
thoughts are on producing acquisition outcomes that are both responsive 
and better in terms of cost, schedule, and performance commitments. 
Acquisition structure is certainly a contributing factor in achieving 
improved acquisition outcomes. However, I do not believe our most 
pressing issue is the way DOD is organized to accomplish the 
acquisition mission, and I do not believe a single focus on 
organization alone will address our most significant issues. There are 
several longstanding, systemic issues that I think must be addressed 
first, and if they are not, I believe we will only produce marginal 
improvements. These issues are 1) program stability; 2) creating an 
integrated and aligned ``Big A'' process; 3) cost growth in our 
programs; and 4) competition and the industrial base. Changes of the 
type needed will not be easy and will require an unusual willpower by 
leadership and all other key stakeholders.

                           PROGRAM STABILITY

    Virtually every major study of the defense acquisition process has 
identified the lack of program stability as a driving factor 
influencing cost growth and schedule delays. It is still a major issue. 
Funding instability is created by a number of factors and leads to a 
continual reallocation of funds between programs to address near term 
priorities. Some funding reallocation is absolutely necessary but this 
area must be thoughtfully addressed. Repeated reallocation of funds 
between programs ultimately leads to a ripple effect of cost growth and 
schedule delays on multiple programs, not just the original program. We 
must find ways to fund programs at the ``most probable cost'' instead 
of the ``most optimistic cost,'' and this includes smartly addressing 
risk factors up front. This will be painful and require hard decisions, 
however, we must start a process to address the issue of ``too many 
programs chasing too few dollars.'' If we fail to address this systemic 
issue, the detrimental perturbations created by program instability 
will continue to drive undesirable outcomes.

               AN INTEGRATED & ALIGNED ``BIG A'' PROCESS

    One of the common observations about the defense acquisition 
process centers on how long it takes to acquire today's complex weapons 
systems. The serial sequence of decisionmaking for acquisition programs 
(starting with the requirements process, then proceeding through the 
budgeting and acquisition processes) has been repeatedly identified as 
a driving factor. The ``Big A'' concept, which includes integrating and 
aligning the major decision support systems (Requirements, Budgeting, 
Technology, Acquisition, and Sustainment), is attractive, among other 
reasons, because it could create a robust, yet more streamlined, 
decisionmaking process. This would allow leaders of each of the 
decision support systems to make a ``360 degree'' assessment before 
deciding to proceed with a major acquisition program. This process 
would support the emerging concept of capability portfolio management.

                              COST GROWTH

    Program cost and schedule growth has attracted widespread criticism 
from Congress, the warfighter community, and our DOD senior leadership. 
This is a major issue. The exact causes of cost growth are numerous and 
difficult to precisely quantify. Some of the contributing factors are: 
requirement changes, stretch cost goals, initial program 
underestimation, known and unknown technical issues, and planned/
unplanned schedule slips. In addition, the pressures of the 
marketplace, in many cases, push contractors in the heat of 
competition, to significantly under bid their cost of delivering 
products and services. As noted above, our tendency is to fund at the 
most optimistic price and the fact that most of our programs have no 
formal management reserve creates an environment that is primed for 
cost growth.
    One of the most promising strategies to help manage cost growth is 
evolutionary acquisition. In the past, many new weapon systems were 
designed to achieve dramatic leaps forward in capability. This often 
led to using immature technologies that contributed to cost growth and 
schedule delays. By using evolutionary acquisition, new technologies 
and capabilities are tested and fielded in carefully planned 
increments. Evolutionary strategies allow us to field more mature 
capabilities first, thus allowing us to better address cost and 
technical risks. As promising as evolutionary acquisition is, it is not 
without risk, and also requires that we smartly address the issue of 
technology readiness.

                  COMPETITION AND THE INDUSTRIAL BASE

    You also asked for my views regarding the effects of the U.S. 
industrial base consolidation, and the effects of competition on 
defense contracts. Over time, the U.S. has experienced a significant 
reduction of prime contractors in the defense industrial base, moving 
to the current configuration of the ``Big 5,'' with a supporting first-
and-second-tier-structure, and small business industry sector. This 
consolidation has impacted our ability to leverage competition. In 
spite of this drawdown and consolidation, the U.S. defense industrial 
base is still the best in the world. We must continue to smartly 
increase the use of commercial solutions and best practices in 
supporting both DOD and Federal requirements. This will require that we 
operate successfully in both competitive and limited or non-competitive 
markets. Our goal must be to consistently define smart business 
strategies and solutions. We must also be sensitive to the evolving and 
growing influence of the global market place and global competition 
while ensuring a strong role for small business as part of our defense 
industrial base. I believe the Department of Defense, industry, and 
Congress must work together to ensure the defense industrial base 
continues on a path of integration with the commercial sector, while 
remaining globally competitive. Finally, I think we must provide 
competitive opportunities for our small business suppliers, as well as 
our first-and-second-(and lower) tier suppliers.

                               CONCLUSION

    Mr. Chairman, I believe the goals and desired outcomes that you, 
Members of the Senate and House, and our DOD senior leaders have 
communicated, are on target. But, to successfully improve will require 
significant cultural change. There are some significant cultural 
hurdles we must address if we are to successfully produce better 
acquisition outcomes. Finally, I would feel remiss to not mention the 
critical role the AT&L workforce must play in both shaping and 
implementing any future improvements. We are developing a thoughtful 
human capital strategic plan to address future workforce capability 
needs. I note that the Honorable Ken Krieg has committed to the Senate 
and the House to have an AT&L human capital strategic plan within 120 
days of the QDR completion. We have started that process and we are 
working it hard.
    Mr. Chairman, thank you again for the opportunity to testify before 
the committee on these important topics. I would be happy to answer any 
questions you and the members of the committee may have.

    Senator McCain. Thank you very much.
    Mr. Christle.

STATEMENT OF GARY CHRISTLE, SENIOR PROJECT DIRECTOR, CENTER FOR 
                         NAVAL ANALYSES

    Mr. Christle. Good afternoon, Mr. Chairman, Senator 
Lieberman, and Senator Chambliss.
    I too, like everyone else, am very happy to be here in 
spite of the fact that I did not know I was going to be here 
until 2:30 yesterday afternoon, but I will try to do the best 
that I can.
    Senator McCain. I think you requested to come here. Is that 
not true, Mr. Christle?
    Mr. Christle. Yes, sir. I did not mean that as a shot. It 
is useful in that I have a statement that I would like to have 
entered that has not been vetted by anyone, so it is my words.
    Senator McCain. Without objection.
    Mr. Christle. I will not read it because that would 
probably be the first time I actually read it through, but I 
would like to talk a little bit about where I come from and 
what I think is the fundamental problem that we have in 
achieving successful outcomes in our programs.
    I spent most of the 1990s within the OSD as the Deputy for 
Acquisition Policy, the Secretariat for the DAB, 
responsibilities for establishing acquisition program baselines 
for all congressional reporting, and the internal oversight 
process that the Under Secretary's organization runs. One could 
say that I spent a career at conducting program management as a 
spectator sport and finished my last 10 years as perhaps the 
commissioner of that sport. What that has led me to believe is 
our oversight processes are totally wrong. They are smothering 
our program managers.
    Since I left in October 2000, I have been fortunate at CNA 
and with our naval primary customer, the Office of the 
Assistant Secretary for Research and Development, to have an 
opportunity to look into how industry practices program 
management and how they practice oversight of the programs that 
we care about. I have come away with a very different model 
than what we do within the Department.
    The first place I will start is to echo Gene Porter, 
Packard, and the Packard recommendations. Despite being a part 
of the implementation of those things, it was not until the 
last couple years that I actually read those, delved into the 
background, and looked into the part of Goldwater-Nichols that 
plays here. That is the role of the Service Chiefs. I actually 
have read the 1985 staff study that was the basis for that, and 
there are probably few people that can say they have done that.
    We end up in a place that none of those people intended us 
to be. We have not implemented Packard. Packard identified an 
industry model to follow that had six attributes, and I would 
contend that none of those attributes can be found in our 
current policies and practices that in any way, shape, or form 
reflects what Packard intended.
    Clear command channels--this has already been alluded to 
regarding the overarching IPT process. Packard said we want no 
more than two layers between the program manager and the 
acquisition executive. That would be the program executive 
officer and the service acquisition executive. If you overlay 
the codified IPT process that is put on top of that, starting 
with the overarching IPT, the mandated requirement to have an 
integrating IPT, the allowance, which turns into a requirement 
for whatever number of additional working IPTs are necessary--
and there is always a cost IPT. There is always a test and 
evaluation (T&E) IPT, and there are virtually always one or two 
more. If you overlay those on the decisionmaking structure that 
Packard envisioned, it is very clear that program managers have 
a very long way to go from the time they need a decision until 
they can get it. All of those intervening layers are capable of 
saying no, but they are not capable of saying yes. As someone 
who practiced that game for a long time, I would say I have a 
great deal of sympathy for the program managers I have had to 
deal with for the last 5 years and how the world looks from 
their point of view.
    We have substituted oversight--and I think all of us 
collectively--for the fact that there is very limited 
accountability within the Department. Now, John Hamre and I 
talk about two different kinds of accountability, I think. I 
think John talks about institutional, organizational 
accountability, and I am talking about what John, I believe, 
calls transactional accountability.
    Some of these are things that I have gleaned from the work 
that I have done since I retired in October 2000 to go out and 
validate that industry model--whether it was current today. In 
the process of interviewing all the CEOs and CFOs of the five 
major defense programs and their counterparts one level down, 
it is clear that the Packard model for project management still 
exists.
    Are those good models? I can only say in reviewing Aviation 
Week for the last 4 years from 2001 through 2004 and their 
annual review of top performing defense companies, those 
companies that were involved in my interview list all 
significantly improved their overall performance in that annual 
rack-up of 19 large aerospace and defense companies.
    More important, though, more to the point is that Aviation 
Week has identified through their performance studying the fact 
that program management--and focus on program management--is 
the key distinguishing characteristic between those companies 
that perform well--and perform well is largely financial the 
way they are looking at it. They explicitly describe the 
likelihood that those companies will bring programs in on cost, 
on time, and within per spec. The degree to which those 
companies focus on the project manager is a great predictor of 
how well they will do relative to companies that do not do 
that.
    Senator McCain. What weapons system has come on board on 
price on time?
    Mr. Christle. It is a good question, sir, and the answer is 
none.
    Senator McCain. Then how could we identify someone if there 
has been none?
    Mr. Christle. They are looking at two things. They are 
looking at firm, fixed price programs and their own internal 
programs, but they are also looking at how well those companies 
do within our context.
    I am going to jump right to my bottom line with that 
question because that is a good lead-in for something. I spent 
much of the last 5 years working with Navy acquisition 
management, and not too long ago I had a discussion with 
Secretary Young where I told him that when I talked to his 
program managers I always asked them what does the Assistant 
Secretary expect from you on your program, and the answer 
always came back with the Defense Acquisition University (DAU) 
answer, bring my program in on time, on cost, and on schedule. 
My response is what drove your question, Senator. I tell them 
that the next program manager who does that is going to be the 
first one.
    However, I modify the question and I say what I really want 
to know is what do you, Captain Joe Smith, think that John 
Young expects from you on your program as it is configured 
today with all of its warts today. What does he expect from you 
right now? The answer to that question is always a blank stare 
except from those program managers for a program that has just 
come apart and they have been through a wire brush review with 
the Secretary.
    That leads to what I think is our biggest problem which is 
we have a failure of individual accountability up and down our 
process. This is not new. If you go back to the A-12 report by 
Chester Paul Beach, now the general counsel at United 
Technology, his section 6 is worth reading by anyone who is 
interested in this. Paul describes the abiding cultural 
problem--those are his words--as to how we get to where we are 
in this decisionmaking. It comes down to accountability and 
lack of it.
    I cannot address the top level of accountability, which 
some of your staff have asked about, but I know who to hold 
accountable for things like the Druyan affair and what not. I 
do not know how the Department institutes that accountability. 
I do know how the uniformed and civilian professional 
acquisition people can and should be held accountable below 
that, and I think it requires two things to be done.
    One, it requires that they have their goals and 
expectations transmitted to them. People will say that our 
programs last too long. How can they hold a program manager 
accountable for meeting initial operational capability (IOC) 
that is not going to occur for 12 more years? The answer is 
they cannot. But I can hold a program manager accountable for 
what happens in the next 12 months, and I would suggest that we 
borrow again from industry and their concept of an annual 
operating plan. Virtually all the companies have something that 
is similar to what the world understands as a balanced 
scorecard, but it is a means of communicating expectations for 
the next 12 months. I can hold the program manager accountable 
for those.
    It has the advantage that I do not have to put it on the 
program manager until I have basically finished the resource 
allocation process. So I get rid of the number one excuse of 
our program managers: it was not my fault. Somebody else messed 
up my program. By the time you start a fiscal year, most of 
that work is done. You can set the plan for the next 12 months 
and you can hold program managers accountable to those and for 
certain goals. That would follow clearly an industry model in a 
little more detail than what Packard provided.
    The other part of that and the last part that I want to 
talk about is we need to take control of the acquisition 
workforce. A lot of us were hopeful that the National Security 
Personnel System (NSPS) would do that for us, but I am afraid 
that we probably missed the window for the easier fixes. We 
need an acquisition workforce that is nimble, is flexible, can 
be redeployed to where management needs them, and is prepared 
through such things as actively managed career development and 
succession planning, again to follow the industry model, to 
prepare people and move them into positions of later 
responsibility.
    The reason that is so important in an accountability sense 
is that people in our acquisition workforce need to understand 
who they work for and why they work for them. Again, I will 
take you back to Paul Beach and his A-12 report, but I will 
also take you to one of my current favorites, Jim Collins, in 
Good to Great where he talks about getting the right people on 
the bus and then making sure they have the right people in the 
seats. It is well worth reading if you have not read that.
    An element of doing that for us is to start doing active 
workforce planning, eliminating the waivers, the 18-month time 
to get qualified for our senior jobs, and we should have 
absolute, ironclad mobility agreements with our people, 
certainly anybody who aspires to be in a critical acquisition 
position.
    It is my strong belief, in closing, that if we do not 
address this accountability issue, we will become the 129th 
study in the pile of studies that Secretary Rumsfeld alluded to 
in his 128 studies question. We will continue to fix things on 
the margin, things that probably ought to be done, but we will 
not bring this organization to where it really needs to be.
    Thank you, sir, and I appreciate your time.
    [The prepared statement of Mr. Christle follows:]

                 Prepared Statement by Gary E. Christle

    Mr. Chairman and distinguished members of the Airland Subcommittee, 
I am honored to be invited to appear before this subcommittee, despite 
the fact that the invitation came only 24 hours ago. The good news 
about the lateness of the request is that I did not have to vet this 
statement. The bad news may be that it is not a particularly polished 
piece, but this is a subject that I know intimately.
    I have spent more than 25 years practicing project management as a 
spectator sport in OSD, including the last 10 years of my career as the 
``commissioner'' of that sport. When I retired in October 2000, I was 
the Deputy Director for Acquisition Man agent, in the Office of the 
Under Secretary of Defense for Acquisition, Technology, and Logistics. 
At the time, my responsibilities included the DOD 5000 series policy 
documents, the Defense Acquisition Board (DAB) Executive Secretary, the 
Acquisition Program Baseline (APB) process, and the recurring program 
oversight process commonly called the Defense Acquisition Executive 
Summary (DAES) process. We also managed the congressional reporting 
functions, primarily the Synthetic Aperature Radar (SAR) and the so 
called ``Nunn-McCurdy unit cost reporting and breach certification 
processes, the contractor cost and schedule control policies, often 
referred to as Earned Value Management, and finally, the Defense 
Acquisition Workforce Improvement Act (DAWIA) functional boards for 
Program Management and Business, Cost Estimating, and Financial 
Management. With the late addition of the remnants of the systems 
engineering organization, all of the pieces were in place to take on a 
true program management advocacy and policy organization. Then I 
retired.
    I have since been with the Center for Naval Analyses (CNA), largely 
doing research on acquisition management issues. CNA and our Navy 
sponsors, mostly the office of the Assistant Secretary of the Navy for 
Research, Development, and Acquisition, have provided an opportunity to 
study both industry and Defense approaches

         To program management,
         To development of program managers, and
         To conduct of program oversight. This has been a 
        personally rewarding opportunity to examine my acquisition 
        career in the light of how the public and private sectors 
        approach the subject. I have also had the luxury of actually 
        reading the thoughts and findings of the major management 
        theorists of recent years. You may soon note that I have been 
        heavily influenced by pundits such as Peters and Waterman, the 
        ``In Search of Excellence'' authors who arguably kicked off the 
        past 20 years of management reinvigoration, through Jim 
        Collins, author of ``Built to Last'' and ``Good to Great.'' I 
        have also had the opportunity to revisit the history and 
        details of both Goldwater-Nichols and Packard, and to conclude 
        that despite having been part of the implementation history of 
        both, neither, was ever implemented in a manner consistent with 
        the stated intent. This is especially true of Packard.

    In an Acquisition sense, people who raise the subject of Goldwater-
Nichols really are talking about the Packard Commission 
recommendations. Goldwater-Nichols is all about jointness, and from an 
acquisition perspective is simply a statutory enabler of the Defense 
Acquisition Executive advocated by Packard. The real issue with 
Goldwater-Nichols is that it is the source of the acquisition 
frustration every Chief, of every Service, since 1986, has had over the 
perceived prohibition against their participation in the acquisition 
process. All I will say in this opening statement is that there are 
three decision processes in DOD:

         Resource allocation;
         Requirements generation; and
         Acquisition.

    The Chiefs own or control the first two, and by virtue of that 
ownership and control, probably have far more to do with the outcomes 
of programs than do the acquisition managers.
    The real issue is what happened to the Packard recommendations. 
Packard recommended an industry model with six characteristics:

         Clear command channels
         Limited reporting requirements
         Stability
         Small, high-quality staffs
         Communications with users
         Prototyping and testing

    I would suggest that NONE of these attributes is found in today's 
acquisition management model, in any way remotely approaching what the 
authors intended.
    Clear command channels are what Packard hoped to achieve by 
limiting intervening layers between the program manager (PM) and the 
acquisition decisionmaker (DAE or SAE) to no more than two. This 
delayering was also supposed to be the source of personnel reductions 
envisioned by Packard as oversight staffs withered. While our policy 
documents say we have done this, one has simply to overlay a graphic of 
the Packard chain with the formalized IPT structure in DOD 5000. First 
there is the Overarching IPT (OIPT) with its subordinate IPTs 
consisting of a Mandatory Integrating IPT, and whatever other working 
IPTs are deemed necessary. This will virtually always include a cost 
IPT and a test and evaluation (T&E) IPT at a minimum. All of these IPTs 
are impediments to the rapid and effective decisionmaking intended by 
Packard.
    As for ``limited reporting requirements,'' you could not call any 
PM before this committee who would agree that attribute was 
implemented, and they would be talking about more than just 
congressional reporting requirements.
    As for stability, this is a topic far broader than the current time 
permits, but this is a program baseline or internal ``contract'' or 
agreement between the PM and the acquisition executive (actually, 
Packard's model presumes a ``Corporate'' decisionmaker such as a CEO) 
but we can discuss that at another time. The point is, that there is 
virtually no enforced agreement between PMs and decisionmakers. Our 
propensity to routinely change baselines, washing to actuals, to use a 
pejorative term, is a frequent and justified criticism levied by the 
Government Accountability Office (GAO).
    In the area of small, high-quality staffs, there has been much 
progress as a result of DAWIA but there is much more to be done to 
achieve the kind of workforce management Packard contemplated, 
especially in the area of workforce mobility, career planning, 
succession planning, and the ability to marshal resources when and 
where needed, all hallmarks of the industry model.
    I will not dwell on the other two attributes, despite their 
importance, other than to say there remain significant issues, 
especially with regard to prototyping and testing which is simply a 
variation on fly before buy and the tools others have mention regarding 
Technical Readiness Levels and ``Knowledge Points.
    One might ask if the Packard model is still relevant. In the past 4 
years I have personally conducted interviews with CEOs and CFOs of the 
five largest Defense contractors to verify the model is still a good 
one. As a benchmark on these interviews, Aviation Week's annual review 
of top performing companies reported that these five companies made 
substantial improvements in the period 2001-2004. This is important to 
our discussion because Aviation Week's analysis has found effective 
program management to be a major discriminator between companies likely 
to bring a project in on time and on cost, and less competitive 
companies who consistently struggle with program execution. Packard 
remains an appropriate model for DOD.

                        SO, WHAT IS OUR PROBLEM?

    In June 2001, Secretary Rumsfeld rhetorically asked, ``Why has 
there been little fundamental change in the Department's acquisition 
process despite the 128 different studies that have chronicled the ills 
of the procurement system?'' This question was asked in the context of 
the 2001 QDR but there is no answer to the question in the subsequent 
QDR papers. Today, we are again in the middle of QDR 2005 and Acting 
Deputy Secretary England is asking the same question. In June 2005 he 
said, ``Prices are going up, we need to improve performance, 
acquisition times are getting longer--so it's not working. We have to 
understand why and correct the system.'' Should we expect an answer 
this time?
    Secretary England may have put his finger on the problem in a 
speech given at the Current Strategy Forum, held at the Naval War 
College, 12 Jun 2001, when he said ``DOD . . . is perhaps one of the 
last bastions of the Cold War's legacy of centralized planning and 
execution. Unfortunately, it is largely out of step with modern 
American management.''
    I would like to suggest to this committee that the answer to 
Secretary Rumsfeld's rhetorical question is a nearly complete lack of 
accountability in our system. The need for accountability is obvious in 
Packard's recommendations on short decision chains and personal 
commitments between PMs and acquisition executives. In my recent 
confirmation of the continued relevance of the Packard model, the 
industry executives uniformly stressed the need to ``stay out of the 
details,'' and made comments such as ``We don't manage the operation, 
we direct it.'' ``It doesn't matter how hard you try, it's the result 
that counts.''
    Unfortunately, we in DOD have tried to make up for the lack of 
accountability with more and more oversight. We have created a system 
that is based on a lack of trust, and one that that rewards staff for 
``catching'' the PMs.
    I have discussed these issues in several fora over the past months 
and the most common response is ``yeah, we need to fire more people.'' 
But that's not it. The Oxford dictionary defines accountability as the 
``liability to give account of, and answer for, discharge of duties or 
conduct; responsibility.'' People simply need to know they will be 
called to account and they must know what they will be held accountable 
for.
    I had a discussion with Secretary John Young in which I described a 
recurrent conversation with Navy PMs. I ask, ``What does Research, 
Development, Acquisition (RDA) expect from you.'' Invariably, the 
answer is ``to bring my program in on time, within cost, and meeting 
performance goals.'' My response is always, ``Yeah, we know the Defense 
Acquisition University (DAU) answer and if you actually do it, you will 
be the first.'' I rephrase the question, ``What does John Young expect 
from you, Captain Mike Smith, on your program in its current state of 
affairs that is different from the state of any other program?'' The 
answer to that question is always a blank stare, and that is the issue. 
We put too much emphasis on how to do things and not enough emphasis on 
what to do. We need to change that and unless we do we will be 
continually improving acquisition at the margins, usually doing things 
that probably should be done, but never achieving the ``fundamental 
change'' the Secretary has asked for.
              my suggestions for change are in two parts:
         We need to communicate clear goals and objectives from 
        the Defense Acquisition Executive (DAE) to the Service 
        Acquisition executives, and they in turn to their program 
        executive officers (PEOs), to PMs and to the staffs of all.

                 This sounds a lot like a balanced scorecard 
                approach and it may be, but it does not need all the 
                data collection and perfect metric baggage that so 
                often kills balanced scorecards. Most of the companies 
                I examined have fairly simple scorecard approaches that 
                clearly communicate current management expectations.
                 The length of our programs is too great to 
                hold people accountable for program level goals. How do 
                we hold today's PM accountable for an initial 
                operational capability (IOC) that is 12 years away? We 
                can't. But, if we use the common industry concept of an 
                ``annual operating'' plan we can establish measurable 
                goals for the next 12 months that will clearly measure 
                progress towards the long term program goals. An annual 
                operating plan has the added advantage that it can be 
                annually assessed to greatly diminish the vagaries of 
                the planning, programming, and budgeting system (PPBES) 
                and appropriations processes, removing one of the most 
                common excuses for not succeeding.

         The second thing we need to get effective control of 
        the acquisition workforce to make it trained, flexible, and 
        mobile, so management can marshal resources when and where it 
        needs them, and so management can conduct both career and 
        succession planning without violating Civil Service rules.

                 We can require mobility agreements for all who 
                wish to take a critical acquisition position (GS-14 or 
                0-4 and above);
                 We should not only reduce qualification 
                waivers, but also greatly reduce the amount of non-
                acquisition experience that we count towards 
                qualification, and eliminate the ``grace period'' for 
                qualification.
                 Require cross-functional and cross-
                organizational assignments for critical acquisition 
                positions.
                 Pass enabling language to permit PM and PEO 
                succession planning including the ability to identify 
                high performance individuals early on and enable career 
                paths for them that will lead to acquisition leadership 
                positions.

    I would like to thank the committee for this opportunity and hope 
this last minute stream of consciousness has been helpful to you. 
Again, thank you.

    Senator McCain. Thank you very much.
    Dr. Hamre and Mr. Porter, there are very few benefits of 
growing old, but I have found that recollecting the 1980s has 
some relevance to this discussion we are having today because 
in the 1980s we took some very serious budgetary actions: no 
cost-plus contracts, incentive contracts only, strict 
accountability, and the cost escalation associated with the 
acquisition of major weapons systems was certainly there, but 
it had no comparison to what we are experiencing today.
    I have recently--and maybe you have too--seen the recent 
numbers of then-year dollars of a destroyer which is now $2.2 
billion, an aircraft carrier now $13 billion or $14 billion. 
The F-22 is now up to nearly half a billion dollars each.
    What has changed, Dr. Hamre, Mr. Porter?
    Dr. Hamre. I think that the primary thing that has changed 
is the denominator in most cases. When we buy so few things 
now, when we forecast an affordable F-22, we thought we were 
going to buy 750 of them.
    Senator McCain. I do not mean to interrupt you, John, but 
the original plan for the F-22 was that we would buy 648 of 
them, and because of the cost escalation, we are now only 
buying 181. So is this a chicken or an egg situation?
    Dr. Hamre. It is both, sir. The F-22 was very high 
technology and then we ran it through a very long and tedious 
acquisition process. A very high amount of the F-22 cost is in 
operational testing. We have a huge infrastructure that is 
still executing programs the way we did 15-20 years ago. If you 
go out and look at the contractor base, there is an awful lot 
of the money that is going for overhead. I think it is a 
combination of the rules and the way we continue to buy things, 
an annual budgeting process that forces an unreality in how we 
forecast costs.
    Senator McCain. I guess my point here is, though, that to 
reinsert the Joint Chiefs into the process is not addressing 
the fundamental issue here.
    Dr. Hamre. The reason I recommend it is because you do not 
have anybody you can hold accountable right now because it is 
split and diversified so many different places inside the 
Department. The reason I recommend at least getting the Chiefs 
back in is at least the Chiefs are responsible for putting a 
budget proposal together for their Service, and right now they 
put a budget proposal together for the Service, and they say to 
the acquisition guys, okay, you go up to the Hill and get more 
money. There is not enough money for this. You have to start 
aligning their accountabilities and their responsibilities, and 
we bifurcated it. That is why I recommend it, sir.
    Senator McCain. I understand. I understand, John.
    Go ahead, Mr. Porter.
    Mr. Porter. I mildly disagree with my colleague on this 
business of bringing the Chiefs back in.
    Senator McCain. That is not my question. My question is why 
in the world we are experiencing these kinds of cost overruns 
dramatically different from the situation in years past.
    Mr. Porter. Two answers, Senator. One, I was out in 
industry during the 1980s, and while I do not carry water for 
the National Defense Industrial Association, I am strongly of 
the belief that the Government was wrong in the 1980s to force 
on the major contractors fixed price development programs of 
brand new systems that neither the Government nor industry had 
a good idea of what it was going to----
    Senator McCain. I could not disagree with you more. We have 
a fundamental, serious disagreement because on the present 
trend, we are not going to be able to afford it. No matter how 
good the technology is, we are not going to be able to afford 
it. So to somehow insist that just whatever technology we 
decide to do, that it is a cost-plus contract, and when there 
is nobody building it except one, as was just pointed out in 
the testimony, and then you ask for additional technology and 
it is cost-plus, guess what happens. We now quadruple the cost 
of a destroyer to $2.2 billion so that we can now buy four Navy 
ships. That, I think, concerns Mr. Christle. I do not know 
whether we can buy an aircraft carrier or not. So I could not 
disagree with you more.
    Mr. Porter. Then I did not express myself very clearly, 
Senator, because the point I was making was we should not have 
signed those contracts when we did know what they were going to 
cost. We should not have----
    Senator McCain. That is up to the contractor to tell us 
what it is going to cost. If the contractor cannot tell us what 
it is going to cost, then he should not be seeking a contract. 
That is a fundamental of economics.
    Mr. Porter. Agreed.
    Senator McCain. Go ahead, please. Do you want to continue, 
Mr. Porter?
    Mr. Porter. The other point I would make--and this is 
consistent with what Dr. Hamre said--is that the overhead that 
is associated with our industrial base and our Government side 
is much too large. There need to be efforts to reduce that 
overhead. I have toyed in the past with the idea of separate 
contracts for overhead so that we can really see what the 
direct costs are of material and labor that go into programs 
and we can have a separate incentive structure for driving down 
overhead costs that is not so invisibly intertwined into 
individual programs.
    Senator McCain. Ms. Schinasi, was it a smart thing for the 
DOD to encourage consolidation amongst the defense corporations 
in the 1990s?
    Ms. Schinasi. I am not going to speak from anything 
published that we have, but to go to the issue of competition, 
I think clearly competition is what we need to get discipline 
built into the system. To the extent that you have competition 
that works, you can back off of the regulations and some of the 
oversight that you need.
    There are different ways to get competition, I would argue, 
and there is healthy competition in defining what the 
requirements are that you need and who is going to satisfy 
those requirements from inside the military before you move out 
into the industrial base itself.
    Senator McCain. As I see it, I say to the witnesses, we 
have two problems. This technical side of it we are addressing, 
but also are we acquiring and using weapons systems that meet 
the threat since the post-Cold War era, which perhaps is an 
issue of a separate line of conversation.
    But getting back to the accountability issue, who was 
accountable within the Air Force to allow the C-130J to be 
procured under a commercial item procurement strategy for 10 
years? They did not provide visibility into contractor costs 
and without the protections to ensure the prices negotiated and 
eventually paid are reasonable. So now we have a C-130J that 
was supposed to cost $33 million and is now up to $68 million 
and still climbing.
    Who was accountable within the Army to make the decision to 
use an OTA which lacked the standard legal protections? And 
guess what. The cost, as I remember it, has gone from $90 
billion to $130 billion. Clearly the OTA was supposed to be 
tailored for small entries into the defense business. There is 
no stretch of the imagination that you could make that would 
qualify this as the OTA.
    Of course, we all know about the tanker lease issue, to 
lease the 767 tanker as a commercial item.
    That seems to me that somebody made a decision to go around 
the traditional procurement process in the most blatant 
fashion. Maybe it is Congress' fault for not paying more 
attention. I do not know, but to justify the C-130J as a 
commercial item and the FCS as something which applies to small 
competitors who are trying to get into the business staggers 
the imagination.
    I will let you respond, Mr. Christle, but these four Navy 
ships may have the greatest technology in the world. It may be 
just gangbusters, but if you can only buy four of them--there 
is a number of missions that the Navy has, and if you are only 
building four ships a year, they are not going to be able to 
carry them out.
    Go ahead.
    Mr. Christle. I am not here representing the Navy and that 
is not my background. However, it is a good question to answer.
    We know who is accountable for the decisions, just like we 
know who is accountable when we relieve the captain of a ship. 
The people who sign those decision memorandums are the ones who 
ought to be accountable. Our problem is how do we exercise that 
accountability. Here we are probably talking about firing, but 
accountability is not all about firing people. It is about the 
incentives and the motivations and how we hold people 
responsible for where they are going.
    The price of a ship that gets us to the point where we can 
only buy four is in part a resource allocation problem that is 
not resolved, and is too easily passed off by the Chiefs by 
saying, well, the acquisition people let it cost too much. In 
that sense, the Chiefs are ignoring the fact that they own two 
of the three major decision processes in the Department. They 
own requirements generation, they own or certainly control 
resource allocation, and it is too easy to pretend like those 
two do not affect acquisition.
    This is one of the places where John and I disagree as far 
as the Services getting back the acquisition authorities. If 
you are happy with the way they are handling requirements 
determination and how they are handling resource allocation, 
then maybe it is time to give that to them. But my view is that 
until they show that they can handle those in a way that looks 
at the long-term needs, things will cost a lot of money.
    We have done work at Center for Naval Analyses (CNA) trying 
to sort out the reasons for the cost growth that you have just 
talked about, and you can put an awful lot of that into the 
fact that these are, in fact, better ships and better systems, 
but a very large chunk is not explainable by that. So there 
clearly is some cost growth.
    I go back to individual accountability again. We make 
decisions in programs. You ask who is accountable for these 
other things. A program decision was made by someone. That does 
not get turned into the goals and objectives for which the 
people who are going to implement those decisions are going to 
be held accountable. We do not do that in the DOD.
    If we did that, one of two things, probably both over time, 
would happen. People would try harder to meet those goals, 
number one, but number two, our processes might start to adapt. 
If we knew we were going to be held accountable for meeting the 
goals that we set out and we tell you and ourselves that we are 
going to meet, if we find out that someone is held accountable 
for not doing that, we may start figuring out how to do a 
better job of that.
    That is a much better approach to solving some of these 
problems than if OSD or the Army or the Navy or the Air Force 
tells everybody chapter and verse how to do business. That is 
not what we want.
    As one CEO told me, we do not manage our business. We 
direct it, and I think OSD needs to get into that kind of a 
mode in how we flow down responsibility for achieving the 
objectives that we all want.
    Senator McCain. Mr. Anderson, do you have any comment?
    Mr. Anderson. Yes, sir. I think there are some structural 
issues that we need to address to get to your core concern 
about why cost continues to grow, why we continue to get things 
late, and why in many cases there are performance issues.
    I think the first one is an issue that is being addressed 
today, and that is there is a fundamental disconnect in terms 
of how requirements are set today, the acquisition process, and 
the funding process. We need to integrate those decisions so 
that the key owners of those processes are together at the same 
point in time so that you get a 360-degree look in terms of 
aligning resources with requirements.
    I think as you look at the structural issue, there are two 
levels of oversight: the immediate program where you have 
specific requirements, and then a broader corporate review 
where you are looking at portfolios, how many programs we have 
chasing a particular outcome or objective. So it is getting the 
decision processes in the Department today overlaying each 
other so that we make a better informed decision. There is a 
thought process of how much you are willing to allocate to 
achieve a desired objective. That is also a part of the 
structural decision.
    I believe that these issues are, in fact, being addressed 
in the Department now. I believe that you are going to see some 
recommendations out of the QDR and the DAPA that will take on 
these issues in a significant way with the intent of changing 
outcomes.
    Senator McCain. Thank you.
    Senator Lieberman.
    Senator Lieberman. Thanks, Mr. Chairman.
    Let me just build on some of the questions that Senator 
McCain raised and also a comment, which is this is a problem of 
real urgency now beyond the baseline reason, which is our 
concern about the expenditure of taxpayer money and whether it 
is being expended wisely. But to build on John's comment about 
the four new ships out of the Navy, they can be phenomenal, but 
four ships is four ships, and maybe your ability only to turn 
out four impacts our ability to protect the country.
    I give you another example from the Army now of the impact 
of increasing costs of acquisitions. Some of us feel that the 
Army should be bigger than it is today to meet the requirements 
that we are placing on it and that it will face in the years 
ahead. Now we have a situation coming where the word is coming 
out of the Army that in fact, as opposed to even filling the 
increased Army end strength that has been in the last two DOD 
authorization bills, including the one today, we may be ending 
up cutting back to about 480,000 Army end strength to free up 
money to make acquisition, particularly of the FCS, possible.
    So we are in a squeeze here and it should propel us, in a 
very difficult area, to try to find economies. This is not 
easy, as you all testified. This is an enormous operation. The 
numbers are enormous. The Department is enormous, but we have 
to figure out how to get our hand on it.
    I want to come back to one part of what I said in my 
opening statement, and I will preface my question this time by 
citing Mike Wynne, then Under Secretary of Defense for 
Acquisition, Technology, and Logistics (USD(AT&L)), now of 
course, Secretary of the Air Force, who testified before this 
committee earlier this year: ``I believe we are at the point 
where any further reductions in the defense acquisition 
workforce will adversely affect our ability to successfully 
execute a growing workload. The numbers are startling. The 
defense acquisition workforce has been downsized by roughly 
half since 1990 while the contract dollars have roughly doubled 
during the same period.''
    So I want to go down the row and ask each of you briefly 
whether you agree with Mr. Wynne's assessment of the state of 
the acquisition workforce, and what you think we should do 
about it. Ms. Schinasi?
    Ms. Schinasi. Senator Lieberman, can I make a comment on 
your earlier statement before I answer that question?
    Senator Lieberman. Sure, so long as it is favorable. 
[Laughter.]
    Ms. Schinasi. I think I might want to suggest that we 
redefine how we talk about performance with this issue of fewer 
and fewer of what we have. The Department has been steadfast in 
its thinking about performance as the performance 
characteristics of any individual system, and that is what 
forces us to push technology and push technology and push 
technology. If we think about performance in terms of how many 
things we actually have in the field, it gives us a different 
way to think about what incentives we want to put in place to 
get success. So I am offering that.
    Senator Lieberman. I think I understand what you are 
saying. Should we not first be thinking about what the threats 
are we want to be able to protect America from and then build 
back to the systems we need? Maybe turning out four ships or 
going down to 480,000 Army end strength does not meet those 
threats.
    Ms. Schinasi. Right. Absolutely. I think what has happened 
is that we have defaulted to something called ``capabilities-
based,'' and what that has turned out to mean is anything we 
can get.
    Senator Lieberman. Anything we can get on any system we are 
building to make it the best.
    Ms. Schinasi. When the monies run out, we will take what we 
have, and I think maybe that gets back to the question of why 
we are seeing such cost growth now. There really is no endpoint 
that we all agree on that we are moving toward as a measure of 
success.
    Senator Lieberman. Whose fault is that? Is that our fault 
in Congress? Is it the lack of somebody in the system at DOD to 
say, hey, wait a second, this is more capability than we can 
afford?
    Ms. Schinasi. I think the responsibility lies within the 
Department. They are the ones that have the responsibility for 
managing these taxpayer dollars.
    I will say it is the money that really drives these 
decisions, and every time a bad decision is enabled by 
additional money, then the incentives perhaps are not in the 
right place for making the right decision the next time.
    Senator Lieberman. I appreciate that comment.
    So how important is it that we hire more people in the 
acquisition force?
    Ms. Schinasi. To move to your actual question, I think it 
is very important. We are very concerned about the loss of 
capability and certainly I hear that from every program manager 
I talk to every place I go. It is the management people. It is 
not the oversight necessarily, but you cannot perform good 
oversight on the contractors unless you have the management 
expertise yourself. Particularly with systems engineering, 
there are very few people left who understand how to do that.
    Senator Lieberman. So what is the problem there? That we 
failed to recruit adequately or that we are not paying folks 
enough?
    Ms. Schinasi. I think it is a variety of things. It is an 
issue that faces the Government as a whole. Demographics are 
affecting us and other things within the----
    Senator Lieberman. People are retiring. Is that what you 
mean?
    Ms. Schinasi. People are retiring. The experience is 
leaving the Government, and it is not being replaced at a fast 
enough rate.
    I think also we are asking people to do much more, and we 
are not able to get them up to speed as quickly as we need both 
to manage and to oversee the responsibilities that we are 
putting increasingly on the contractors.
    Senator Lieberman. John, what do you think?
    Dr. Hamre. Sir, I think the Navy probably less so than the 
other two, but I think all the Services are right at the edge 
of not being able to really be good buyers any longer.
    Senator Lieberman. Yes.
    Dr. Hamre. I think they have, in many ways, lost the 
organic competence to be good buyers. They have been 
experimenting with alternatives. That is what LSI is really, it 
is trying to get the private sector to do a job that in the 
past the Government did.
    Senator Lieberman. Is that a good idea? In other words, 
contracting out the acquisition function.
    Dr. Hamre. Yes. We are just not going to go back to the 
days when we could hire lots of engineers and bring them into 
the Government. We have had 17 years of pay caps. Frankly, that 
is a part of why we are losing competence. You asked why have 
we lost the competence. We have taken a lot of the 
transactional work out of the Government, and so you do not 
have a way to really grow talent inside the Government any 
longer. If you get one new start in 17 years, it is pretty hard 
to get competent program managers. So there is a whole 
combination of reasons that this has happened.
    I suspect we are going to have to evolve very much of a 
hybrid system where we buy technical competence from the 
private sector but still develop enough organic expertise 
inside the Government.
    One recommendation I would ask you to consider is that we 
think about creating a federally funded research and 
development center (FFRDC) that is designated and designed to 
help the acquisition process itself. We really do not have that 
now.
    Senator Lieberman. An interesting idea.
    Dr. Hamre. I think getting a central entity that could 
provide the technical support--for example, the way that 
aerospace has done this for the space division out at El 
Segundo or the way that Mitre has provided this for the Air 
Force where it is actually providing the technical support that 
in the past we had in the Government. We just cannot afford to 
do it now. But put it in an FFRDC and have it available to all 
the Services so they can tap into it and use it to help them. I 
think we could use something like that, but I have not thought 
about this in sufficient detail.
    Senator Lieberman. I would invite you to do that.
    You said something powerful, though. We are at a point 
where we are not able to be very good buyers or consumers, 
which I take it you mean not informed adequately.
    Dr. Hamre. With the technical competence it takes to do it 
well now.
    Senator Lieberman. Yes. Thank you.
    Mr. Porter?
    Mr. Porter. Yes, sir. As I said in my statement, I too am 
concerned about the technical competence in the Government, and 
I associate myself with Dr. Hamre's remarks as a potential 
solution.
    Pay caps. You asked why we cannot do it. Pay caps and not 
just pay caps per se, but position caps. We can only have so 
many highly paid positions in the systems commands, for 
example. There is the general lack of appreciation for what the 
GAO acknowledges. These are highly paid people, highly 
talented, experienced people that we need to do the 
Government's business and we cannot treat them like they are 
interchangeable with the private sector because they are not.
    Now, I will go back to the substance of your question about 
Mike Wynne's quote, and I suspect that he was perhaps 
exaggerating for effect; not that his numbers were wrong, but 
the 50-percent reduction in the defense acquisition workforce 
includes all of the depot work that was transferred from DOD 
depots to private sector depot work in the 1990s. There was a 
massive shift of that kind of work. I do not consider that kind 
of work acquisition management of conceiving of and doing the 
analysis on new design and new weapons systems and figuring out 
what is doable and at what price as per my previous discussion 
with Senator McCain.
    Senator Lieberman. Thank you.
    Mr. Porter. So the 50-percent reduction of the workforce 
was not all senior acquisition managers.
    Senator Lieberman. Understood.
    Mr. Porter. It was a lot of depot people.
    Senator Lieberman. Mr. Anderson, do you have a response on 
the size of the acquisition force and its competence? There is 
an implication here that if we spend a little more on a better 
acquisition force, we will save a lot more money in the 
acquisition process.
    Mr. Anderson. We have an ongoing study to look at the size 
of the acquisition workforce. We are in the middle of that. 
There has been significant downsizing.
    A part of the answer to this question is the construct that 
the Department chooses to put in place for how we conduct 
acquisition. I would disagree with the input that we have lost 
the art and the skill of buying. I do not believe that that is 
the case. I believe that we do have a workforce with sufficient 
talents. We do have an issue that requires thoughtful 
assessment in terms of how we handle it. There is a 10-year gap 
where we had a significant drop in the workforce in the mid-
1990s.
    Senator Lieberman. As the budget dropped?
    Mr. Anderson. Right.
    I am concerned about our bench strength in terms of the 
middle managers that exist in the workforce today and how we 
replace an aging workforce. Right now we have a significant 
part of the acquisition workforce that is retirement-eligible, 
and when you are in a position that you have to retain a high 
percentage of your workforce that has the flexibility and the 
option to retire, that is certainly a concern.
    One of the big issues that we are working right now is to 
put in place a thoughtful, human capital strategic plan that is 
based on a comprehensive analysis of the workforce as it exists 
today. We should have that complete. In fact, the Honorable Ken 
Krieg has made a commitment that he will have a human capital 
strategic plan 120 days after completion of the QDR.
    The technical or engineering workforce is certainly a 
significant recruiting issue for us, but we do still have a 
strong internal engineering capability. The question that we 
need to answer is whether or not that is adequate for 
positioning the workforce in the future. Some of the personnel 
ceiling issues that we have to deal with are set up and then 
the Department has to go through a priority process of deciding 
how do we allocate talent across all of the functional areas 
where we need people. That will drive the numbers of people 
that are allocated for acquisition or allocated for engineering 
and other functional areas. Also there is an issue of how you 
size the operational warfighting force. So that is a 
combination issue and that also has to be dealt with in the 
context of a budget.
    Senator Lieberman. Right. Thank you.
    Mr. Christle, I am going to switch just briefly because I 
want to get somebody's reaction to what John Hamre said instead 
of asking about the size of the acquisition workforce. What 
about the recommendation that we address some of these problems 
by taking responsibility for acquisition of major weapons 
systems away from the USD(AT&L) and giving it instead to the 
Service Chiefs, which would reverse reform recommended by the 
Packard Commission 20 years ago?
    Mr. Christle. I see no reason why going back to 1985 will 
change any outcomes. As I stated earlier, two of the three 
decision processes are already in the control of the Chiefs. If 
we think they are doing a good job in those two, then maybe 
this is time. I for one do not think that the resource 
allocation process is well run and I do not think that the 
requirements generation process is well run, and I would not 
add to the Chiefs' difficulties with that.
    I am reminded of what was in the conference report for 
Goldwater-Nichols. It referred to the vice chairman but it was 
in the context of the vice chairman being the co-chair of what 
then was called the Joint Requirements and Management Board 
(JRMB). It has now morphed into the JROC. But more importantly, 
it was the combination of the JROC with the DAB. In today's 
terms, that is what it would have been. The conference report 
cautioned that they did not want the vice chairman getting 
overly involved in acquisition matters.
    Now, in the context of Goldwater-Nichols, as you know 
better than I do, they were all about jointness and they did 
not want the Chiefs sidetracked by these fun day-to-day issues 
in acquisition where the toys are. I think that is still a good 
concern.
    Senator Lieberman. Thanks, Mr. Christle. Later on, if we 
have time, I would like to hear Dr. Hamre's response to that, 
but I am going to yield now. Thank you, Mr. Chairman.
    Senator McCain. Mr. Chairman, Senator Warner.
    Chairman Warner. I just want to commend you, Mr. Chairman, 
and your ranking member and members of the subcommittee and 
thank this panel.
    We just passed our bill here an hour or 2 ago. This is the 
conference report that accompanied it, and in here is quite a 
detailed section on the goals which you are pursuing here. I 
have asked the staff to provide each of you with a copy of this 
report and I hope that you have the opportunity to study it and 
critique it and continue to work with this subcommittee so that 
we can strive to improve the system.
    So I thank you very much and thank you, Mr. Chairman.
    Senator McCain. Senator Chambliss.
    Senator Chambliss. Thank you, Mr. Chairman. I too 
appreciate your holding this hearing. You and I have had some 
extensive discussions about this issue and it is extremely 
important to both of us. So, to you and Senator Lieberman, 
thank you for doing this.
    Ms. Schinasi, Dr. Hamre answered the question relative to 
the huge increases we have seen in weapons systems. He said 
that it is a combination of program management and technology, 
as well as a reduction of these numbers. Would you agree with 
that statement? Would you elaborate on that a little bit too 
please?
    Ms. Schinasi. I would agree, but I would separate those two 
things. I think the push for technology and the competition 
that is going on and the lack of controls in assigning 
priorities to what we need to get to our military in 
capabilities is part of the problem. We have too many programs 
competing for limited funds, which means you are overpromising 
capability and underestimating the cost of those so that a lot 
of the cost growth that we see is predictable. I think the 
companies that are engaged and the Department itself would 
admit that we do not know a lot about what something is going 
to cost when we set that first acquisition program baseline and 
make promises that we will get it to you in this amount of time 
with this performance and at this cost. We do not know enough 
when we do that. So a lot of this cost growth, we would argue, 
is predictable.
    The point about quantities is one that plays out after we 
get started because we need to find money now to pay for those 
cost overruns that we did not have enough knowledge about when 
we started that program. A lot of that comes from within an 
individual program where you cut production quantities because 
you have given yourself a certain limit on that program, but it 
also comes because other programs themselves are not doing well 
and need to go find money. So the instability is caused by each 
individual program, but it ripples throughout the whole 
modernization account. So I think those are the two pieces of 
that.
    Senator Chambliss. Yes. It is interesting when you say it 
is predictable. I think that is exactly right. The way the 
Pentagon operates, in and of itself, from an acquisition as 
well as a procurement standpoint, dictates that the cost of 
anything we buy is going to be more than if you bought it off 
the shelf. With the sophistication of the equipment we buy, it 
obviously is magnified.
    I am particularly interested in how that relates to a 
couple of weapons systems I have significant interest in. The 
F/A-22, for example. The fly-away cost of lot 1 of the F/A-22 
was $211 million and the quantity was 10. The fly-away cost of 
lot 5, where we are now up to 24 in that one lot and we have 
increased it by about 60, is $133 million. So there it looks 
like from the sheer numbers--the more we buy, obviously, the 
per-unit cost is going down.
    I noticed in your presentation and in your written 
statement, you have some interesting figures on this particular 
issue. If you look at the FCSs, the initial quantity was 15 
systems. The latest quantity is 15 systems, but it has a 54.4 
percent unit cost increase. There is no reduction in the number 
that we are buying. Obviously, with something like that, the 
increase in cost must be due to technology issues and program 
management issues.
    You look at the Virginia class submarine. Initial quantity, 
30 submarines; latest quantity, 30 submarines, again 100 
percent, but you have a 49.7-percent increase. The same thing I 
would assume.
    The same thing relative to the space-based infrared system, 
the satellites. You have 100 percent of the satellites, but you 
have a 160-percent cost increase.
    But then you look at the F/A-22. This is pretty 
significant, and I have not seen this comparison before. You 
have a reduction from 648 down to 181. We are buying 29 percent 
of the aircraft, and you have a unit cost increase of only 
188.7 percent. So it is pretty obvious if you compare that to 
the others, that the reason you are seeing a per-unit cost 
increase should be more attributable to a decrease in numbers 
rather than program management and technology. Would you agree 
with that?
    Ms. Schinasi. I think they are included in that cost 
increase, but clearly the decrease in quantities does have an 
impact on the increase in unit cost.
    Senator Chambliss. John, let me tell you what really 
frustrates me. Again, you and I have talked about this. You 
know what great respect I have for you. I think it is the same 
thing that frustrates the chairman and Senator Lieberman. I 
will use the F/A-22 as an example again. In 1985, we decided we 
were going to buy it. Here we are in 2005, and we do not have 
that plane flying in Iraq today. That has been 20 years. I know 
we kept moving the bar. The goal post kept going down the 
field, and we had technology, particularly during the 1990s, 
that changed almost every day.
    But at some point in time, when we contract to buy a 
weapons system, we need to know that we are going to get it. We 
need to be able to set a time frame that assures us that when 
we give that bid to somebody we are going to get it in 5 or 6 
years and not be 20 years down the road and still not have the 
weapons system in our inventory.
    How are we going to get to that point? What do we have to 
do, from an oversight standpoint, to lean on the Pentagon, to 
lean on our contractors all across the industrial base to try 
to get to some point where, when we give that contract, we know 
we are going to get that weapons system in inventory in a 
reasonable period of time?
    Dr. Hamre. Senator, I would like to echo something that 
Gene Porter said, which I think is not really appreciated 
adequately, that the biggest cause of our program turmoil is 
budget changes year to year. The primary reason we have budget 
changes year to year is because we do not honestly budget for 
O&M and military personnel (MILPERS).
    I will give you an example. We say we want to get savings 
in the O&M account. The only way we know how to do that is we 
program a negative wedge in the outyears for O&M and say, you 
all figure out how you are going to save this money. If you 
save 60 cents on the dollar--and that tends to be average over 
the last 10 years--that is good, but that means that you have 
to make up 40 cents on the dollar every year when you fall in 
on your budget. The only flexibility you have is you cut 
procurement. So that is one thing.
    Second, for military personnel, we do not budget real cost 
growth in military personnel. We budget for pay raises but not 
real cost growth. We know that the real cost growth averages 2 
percent a year. That means that 40 percent of your budget every 
year you fall in on, you have to make up an extra 2 percent 
because you did not honestly budget the cost for it in previous 
years. We have never done this for 40 years. So two-thirds of 
our budget, the O&M and the MILPERS accounts, which start every 
budget year with, frankly--I do not want to say it is a 
dishonest budget from the past, but a hole that has to be made 
up. The only place you can make it up in the budget year tends 
to be your discretionary accounts and discretionary accounts 
are R&D and procurement. So we jerk around those programs every 
year. This is what happened to us on the F/A-22.
    As Ms. Schinasi said, there is an institutional bias to be 
optimistic when we budget the cost of a new weapons system. It 
is so hard to get something going in the budget that we opt for 
the most optimistic assessment for the R&D costs and for the 
technology advancement. Invariably we understate the cost of 
every new system because it is so hard to do. So we take the 
optimistic estimate at every line.
    We know how to handle that by trying to budget to ``should 
cost'' estimates that are independently derived. So we know how 
to handle that, but we have never honestly tackled the problem 
about dishonest budgeting in the outyears for O&M and MILPERS. 
That would be one of the most important things you could do 
because it would take away the instability that the procurement 
accounts have to confront every year. That is one of the major 
things I think you could do. I would encourage you to look at 
that.
    Senator Chambliss. My time is up.
    Senator McCain. Go ahead.
    Senator Chambliss. One thing I have not heard any of you 
talk about in your presentations is multiyear contracts. Good, 
bad, indifferent? It looks to me on any weapons system, whether 
it is four ships we need or four airplanes or 10,000 pieces of 
body armor, if we know that we are going to buy them over 4-5 
years, whatever it may be, we are a lot better off. I think C-
17 has shown us that. Would anybody like to comment on 
multiyear? Mr. Porter?
    Mr. Porter. Yes, sir. Senator, I am glad you bring that up 
because that is one of the traditional ways that both Congress 
and the Department have tried to hold down cost. But there is 
clearly a hazard and we have seen that in recent years, that 
you really need to be sure you are going to want that system. 
Threats change. The Soviet Union goes away suddenly, and if you 
are locked into 5-year, multiyear contracts for something that 
you no longer need because the threat has changed--and I am 
supportive of Senator Lieberman's interest in paying attention 
to the threat--then you may want to cancel that program after 2 
or 3 years. Now you have a legal obligation to this contractor 
with whom you have signed a multiyear contract and he has 
bought a whole bunch of equipment, landing gear, what have you, 
in the expectation of going ahead. So one needs to, I think, be 
very sure that this really is going to persist for 5 years and 
that the threat is not likely to change in a way that may 
obligate us to spend money on things we really do not need in 
the last part of that contract.
    Dr. Hamre. Can I just make one observation, sir? The 
Department, despite the rhetoric saying they like multiyears, 
really does not like multiyears. That is because it locks in 
the budget the next year and gives you less flexibility. So if 
you look at the history through the 1980s and the 1990s, 
Congress pushed for more multiyears, and it was really the 
Department that pulled back because it, frankly, gives you less 
flexibility to move the dollars around the next year. If you 
start taking away 20 and 30 percent of a Service Chief's 
flexibility to move dollars around in the succeeding year, it 
is a lot harder to put your budget together if you do not have 
honest budgeting at the top. So it really is a structural bias 
against multiyears, although I think they are a very important 
and good thing to do. If we could get ourselves the discipline, 
it would be a good thing to do.
    Senator Chambliss. Yes, which goes back to your previous 
point about not being honest with our budgeting.
    Dr. Hamre. Yes, sir.
    Mr. Anderson. Could I add to that? I did a study for the 
Air Force in 1996 where we went out and looked at multiyear 
contracting. There have never been a lot of programs that have 
actually had multiyear contracting for the specific reasons 
that Dr. Hamre mentioned. At that time, the highest percentage 
of the procurement budget that had really ever been locked in 
multiyear contracting was about 33 percent. So there is kind of 
a pain threshold in terms of how much of the procurement budget 
the process today is comfortable having tied to multiyear 
contracting.
    Ms. Schinasi. Senator Chambliss, I would like to weigh in 
on that one as well.
    Senator Chambliss. Sure.
    Ms. Schinasi. The criteria for multiyear is stability, and 
I think, as with everything, if you have the preexisting 
conditions, then you can move forward with that. The thing I 
think that we need to be mindful of in the environment today is 
with the continual churn that is going on within the 
procurement account and the lack of stability overall, we see 
25 percent of the programs in a restructure at any point in 
time, that that condition of stability is likely to be less and 
less available for us to even consider the multiyear option.
    Senator Chambliss. Lastly, I would just say, Mr. Porter, I 
never heard a more correct statement than what you said when 
you said competition ends with the awarding of the contract. It 
is after that contract is awarded that we just get eaten up 
with costs. I do not know how we get around that, but that is 
exactly right.
    Thank you, Mr. Chairman.
    Senator McCain. Senator Lieberman.
    Senator Lieberman. Mr. Chairman, I just want to ask John 
Hamre if he wants to respond to the criticism of the idea. I 
will add to that. John, you are going to love this. In your 
years on the committee, you used to give Sam Nunn questions 
like the one I am about to ask you. It seems only fair that I 
should----[Laughter.]
    Dr. Hamre. That was before I became a virgin. [Laughter.]
    Senator Lieberman. In a way this may structure your 
response. Obviously, under the current DOD system, the Service 
Chiefs have major responsibility for resource allocation 
decisions, budget and requirements decisions that drive the 
acquisition process. They do not have responsibility for the 
acquisition process itself.
    Your report recommends that the Chiefs be held directly 
responsible for both resource allocation and acquisition, 
saying that should reduce the friction between the processes. 
But you also appear to endorse the separation of supply 
functions and demand functions in the sense that you recommend 
that the Service Chiefs be given responsibility over the 
acquisition process, but they be removed from the requirements 
process. So help explain what some might think was an 
inconsistency.
    Dr. Hamre. No, I do not think they are inconsistent.
    First, if I could go back. I think, as Gary Christle 
mentioned, there are three main processes: establishing 
requirements, allocating resources, and buying things. My 
argument is that when you intentionally segment that and give a 
guy responsibility for two of them but not the third, you 
basically have taken him off the hook for being systematically 
accountable for outcomes for his Service.
    I have enormous regard for Gary. I have worked with him for 
20 years. I do not disagree with his argument for 
accountability, but I believe he is advocating transactional 
accountability: people accountable for things they do on an 
individual case. I do not think you are going to get good 
transactional accountability if structural accountability is so 
ambiguous that you can lose true responsibility in a broken 
system. I think we have that now.
    Now, my advocacy for cleaning up the two chains of supply 
and demand are really a different formula in the sense that I 
am saying the Secretary is ultimately accountable. The 
Secretary cannot manage the Department in a single integrated 
way, and so the way we do it is we make sure that there are 
good advocacies for contending points of view and make them 
make their best case so that the Secretary has the best 
information in front of him. So you need to have a strong 
advocate for demand, and the strong advocate demand really is 
the combatant commanders and the Chairman of the Joint Chiefs. 
The strong advocate for supply is your Service Chiefs, and 
those need to be as cleanly delineated as possible.
    My argument is they are confused right now. They are 
confused on the requirements side because we have the supply 
guys on the requirements board. I believe we really ought to 
get that aligned so that people that are in charge of demanding 
better performance should be in charge of demand, and then 
having a very clean advocacy for supply. We do not have a clean 
advocacy for supply because we have broken the process between 
requirements, resource allocation, and acquisition. So I think 
if we bring those together and clean up these two chains--I 
think they are very consistent, Senator, by the way.
    Senator Lieberman. Can you do it in a way that preserves 
the jointness that was, obviously, at the heart of Goldwater-
Nichols?
    Dr. Hamre. That is the great critique of our 
recommendation. Does it undermine your capacity to get joint 
systems?
    Senator Lieberman. Right.
    Dr. Hamre. The first thing I have to say is, in all 
honesty, there are not that many joint things we buy. Where we 
get joint things, they tend to be things like helicopters and 
missiles. Yes, we know how to make those joint. We have had a 
joint Air Intercept Missile (AIM)-9 for years. We have had a 
joint AIM-7 for years. We know how to get joint missile 
systems. We do not buy joint aircraft carriers. We do not buy 
joint tanks. These are things that are for the Services. So I 
think we tend to overstate this problem of jointness.
    There is one exception to that and that is command and 
control. Here our system is broken, and it is broken because we 
basically let the Services buy their own command and control. 
This is the one area where I would change things. I would buy 
command and control centrally because I do not think we will 
ever get true interoperability trying to work from the edges 
into the middle. I think we have to start with an integrated 
core in the middle and work our way out to the edges.
    That was the basis for our recommendation that you move the 
title X responsibilities for command and control and make those 
centrally acquired. I think you are going to see the Department 
move in that direction.
    Senator Lieberman. Thanks, John. Thanks for making some 
very specific recommendations. Obviously, when you do that you 
may be subject to criticism but that is the way we are going to 
move forward from where we are to something better.
    Thanks, Mr. Chairman.
    Senator McCain. I thank the witnesses. It has been very 
helpful. Thank you.
    This hearing is adjourned.
    [Questions for the record with answers supplied follow:]

               Questions Submitted by Senator John McCain

                          CAUSE OF COST GROWTH

    1. Senator McCain. Dr. Hamre, Ms. Schinasi, Mr. Porter, Mr. 
Anderson, and Mr. Christle, many within the DOD, Congress, and industry 
have mentioned requirements creep as the prime reason for cost growth 
today. What do you believe is the single most important cause of cost 
growth and which position in the DOD should be held accountable?
    Dr. Hamre. I don't think there is a single most important cause. 
There is a lethal combination, however. It is so hard to start a new 
weapon system in the Department that we tend to stipulate extraordinary 
capabilities, often beyond a reliable basis for technology at the time. 
Then the budget climate forces unrealistically optimistic assumptions 
in order to minimize the cost and development time. Finally, 
unrealistic and oversubscribed budgets cause annual turmoil. In my 
view, those three things in combination cause the problem.
    Ms. Schinasi. Our work has shown that the single most important 
cause of cost growth is that the Department continually makes decisions 
to commit major investments to product development without 
demonstrating that requirements set out by the military Services can be 
met with the technology, time, money, and managerial capacity 
necessary. Because the Services' requirements are often the result of 
years of work and articulated in a way that promises leaps in 
capability, they are usually considered ``untradeable'' in efforts to 
get a match with resources. Therefore, the Department begins a program 
assuming that immature technologies will be available on a 
predetermined calendar-driven schedule and that levels of funding will 
be available, regardless of the original baseline cost estimates. 
Demonstrating that critical technologies are mature by the start of 
system development is a key measure of the knowledge needed before 
committing to product developments. We reported last March (GAO-05-301) 
that only 15 percent of programs we assessed began development with all 
their technologies mature; their research and development cost growth 
averaged 9 percent. The remaining 85 percent of programs that started 
development with immature technologies averaged 41 percent cost growth.
    Once committed to such a precarious course of action, the 
Department rarely, if ever, recovers. However, despite policies to the 
contrary, the Department continues to make decisions during development 
and to enter production for which it does not have sufficient knowledge 
about design and manufacturing. At the same time, a lack of discipline 
in the requirements community--often referred to as requirements 
creep--and budgeting processes exacerbate both the Department's 
inability to make informed decisions and the inability to assign 
accountability for the impact of those decisions.
    Mr. Porter. Although there has been little empirical study of this 
issue, the consensus view is that the single most important cause of 
apparent growth in the RDT&E cost of acquisition programs is the 
premature initiation of programs before their technical risks and 
associated costs are adequately understood.
    Growth in production cost is more complex. IDA studies indicate 
that about three quarters of the growth in procurement cost across all 
programs is accounted for by only about 20 percent of the programs. The 
most important proximate causes of these instances of major cost growth 
were:

          1. Acceptance of unrealistic cost estimates at the 
        ``baseline'' milestone review either because of unrealistic 
        descriptions of program content or because off-lawed costing 
        data or techniques.
          2. Major changes in the configuration of the system to be 
        produced made after the baseline was established--
        ``requirements creep''--well justified or not.
          3. A contract strategy that incentivized ``buy in'' by the 
        winning bidder.

    In addition, I believe an important, if not major, reason for 
production cost growth is the departure of actual funding from the 
funding profile that was expected when production was initially 
approved. Stretching production program schedules always increases the 
total production cost for the same total quantity of equipment. The 
source of such acquisition funding instability is primarily the failure 
of the Department to plan its future spending on operations and 
personnel with anywhere near the discipline that it applies to its 
acquisition programs--as was explained in some detail by Dr. Hamre in 
his response to a question from Senator Chambliss.
    The defense acquisition executive who makes the formal decision 
approving program initiation or advancement and the associated cost 
estimates is the accountable official. To the extent that subsequent 
resource allocation decisions made by other defense or congressional 
officials result in the growth in cost of an acquisition program, that 
deciding official should be accountable.
    Mr. Anderson. I do not believe identifying a single growth factor 
adequately addresses the issue I think you are raising. I believe the 
five most significant cost growth factors are:

          (1) overly optimistic cost estimates and stretch goals at the 
        initiation of high technology development programs;
          (2) pushing programs into production with unresolved 
        technical risk and immature technologies;
          (3) too many requirement changes as a required capability is 
        evolving instead of block upgrades;
          (4) funding instability driven by both unanticipated 
        operational costs and too many acquisition programs chasing 
        limited available funding. This includes inserting new start 
        programs with inaccurate assumptions about future funding 
        availability; and
          (5) initiating state-of-the-art technology programs without 
        appropriate management reserve funding to deal with known and 
        unknown risk factors.

    As stated, several, and in most cases all, of the five factors are 
at play on programs experiencing cost growth problems. All five factors 
must be addressed to significantly improve cost performance.
    Today, inadequately integrated decision processes make it extremely 
difficult to fairly hold a single person accountable for program cost 
growth because of independent decision processes and decision points 
where many decisions are made by different decisionmakers that 
influence program cost growth. However, based on my understanding of 
the Defense Acquisition Performance Assessment and the Quadrennial 
Defense Review proposals, I believe appropriate initiatives are 
evolving that will thoughtfully address both program cost growth and 
program accountability in a meaningful way.
    Mr. Christle. The single most important cause of cost growth is 
probably the Milestone B initiation of programs before technology and 
requirements have been stabilized. This is largely a matter of DOD's 
failure to follow its own policies. Since the appropriate policies are 
largely in place, this is mostly a management issue that can be laid at 
the doorstep of the Defense Acquisition Executive (DAE--the Under 
Secretary of Defense (Acquisition, Technology and Logistics)) for not 
ensuring proper implementation of policies. In addition, for specific 
programs, the Milestone Decision Authority (MDA) should also be held 
accountable. For major programs, this is the DAE. For lesser programs, 
the Service or other Component Acquisition Executive (CAE) should be 
held accountable for all programs under their jurisdiction.
    Much is made of instability as a major cause of cost growth and 
while I certainly agree, going down that road diffuses accountability 
and opens the door to a mind set of ``its not my fault.'' With that 
caveat in mind, one could make a case for holding the Deputy Secretary 
of Defense or the appropriate Chief of Staff accountable for funding 
instability, as they are owners of the funding processes.

                            ESTIMATING COST

    2. Senator McCain. Dr. Hamre, Ms. Schinasi, Mr. Porter, Mr. 
Anderson, and Mr. Christle, cost estimates have often been a problem. 
In a report from 1995, the GAO stated that a substantial amount of cost 
risk is associated with the 1995 to 1999 FYDP. They reported that the 
cost estimates for weapon system development, procurement, and other 
defense related programs might be underestimated by about $112 billion. 
This next statement is very important. The GAO went on to state, ``By 
underestimating costs, DOD was able to include billions of dollars in 
additional programs in the FYDP.''
    This statement greatly concerns me. In March of this year the GAO 
released an assessment of selected major weapons programs. In this 
recent report the GAO discussed the increase in cost of the DD(X). In 
1998 the estimated R&D costs hovered at $2 billion. In August 2004 the 
R&D costs had risen to over $10 billion. This example highlights a 
whole host of issues, but the GAO specifically stated that errors in 
cost estimates contributed in part to the significant rise in costs.
    Do you have any concrete recommendations that DOD can use to 
incorporate better cost estimating so that the budget request forwarded 
to Congress each year can better reflect the costs of a program 
throughout the FYDP?
    Dr. Hamre. Cost estimates depend on assumptions. The plausibility 
of the assumptions should be questioned. If I could recommend one 
thing, I would suggest that every major weapon system have an 
independent technical assessment to accompany the independent cost 
estimate. The independent technical assessment would determine the 
degree of realism in the technical assumptions informing the original 
cost estimates.
    Ms. Schinasi. First, we would like to see an environment created 
that recognizes the necessity of dependable cost estimates. For 
example, the need to fit many programs into the FYDP is a competitive 
process that does not require truth or transparency in the cost 
estimating process to succeed. To refer back to your earlier question, 
many players can add requirements to a program during its product 
development without any assessment of the cost consequences. A 
different environment can be created using either incentives or 
penalties or a combination of both. Without any value to be gained from 
good cost estimates, attempts to improve cost estimating techniques are 
likely to have little impact. Cost estimating techniques can be 
improved by ensuring that all cost estimates provided to Congress 
clearly indicate the confidence level of the estimate. All major 
acquisitions should also have an independent cost estimate performed as 
a check on the program office's often optimistic estimate and if that 
independent estimate is not used, then DOD should provide a rationale.
    While cost estimating problems are not unique to ship acquisitions, 
we recently reported (GAO-05-183) that Navy practices for estimating 
costs, contracting, and budgeting for ships have resulted in 
unrealistic funding of programs, increasing the likelihood of cost 
growth. Despite inherent uncertainties in the ship acquisition process, 
the Navy does not measure or provide for the probability of cost growth 
when estimating costs. Moreover, the Navy did not conduct independent 
cost estimates for carriers, which could have provided decisionmakers 
with additional knowledge about a program's potential costs. In 
addition, contract prices were negotiated and budgets established 
without making full use of design knowledge and construction 
experience.
    Mr. Porter. In my view, the best way to improve the accuracy of the 
Department's budget requests to Congress for acquisition programs is to 
ensure that DOD's program for making independent estimates of the cost 
of proposed acquisition programs are fully staffed with qualified 
personnel, particularly at the Service level. In addition, the 
responsible acquisition executives must know that they will be held 
accountable by Congress if the independent cost estimates are not used 
as the basis for the budget estimates and if the requisite levels of 
technical maturity have not been achieved when programs are approved to 
proceed into the next phase. It would also be helpful if both Congress 
and the Department could agree on a clear definition of ``cost growth, 
`` including the baseline from which it should be measured and 
reported. My own view is that growth should always be reported relative 
to the Milestone B/2 Baseline Estimates, unless of course there is a 
major technical change to the program that requires rebaselining.
    Mr. Anderson. Addressing the cost growth factors identified in the 
answer to question one will significantly improve the accuracy of 
individual program budget estimates thereby improving the overall 
accuracy of program cost estimates contained in DOD budget requests.
    Additionally, I believe shifting to a process of consistently 
estimating and funding programs using most likely cost that includes 
appropriate cost estimates for risk factors instead of using most 
optimistic cost estimating techniques would improve the accuracy of 
budget estimates. This would require a significant internal cultural 
change based on current practice. This would have the impact of 
reducing the number of programs in the budget at any given time. 
Finally, we must improve the training we provide our cost estimating 
workforce, and also improve our cost-estimating tools and models.
    Also, periodic due diligence reviews to validate cost to complete 
estimates for existing programs would improve the accuracy of budget 
submissions. This is extremely tough, and would require unique 
collaboration and open communication. Budget program estimates need to 
reflect alignment of DOD's three decisionmaking systems: requirements, 
resources, and acquisition. Opportunities to improve integration and 
alignment of the three decision processes are being addressed by the 
Defense Acquisition Performance Assessment study and in the Quadrennial 
Defense Review.
    All stakeholders, including Congress, can make a difference here by 
being sensitive to the impact of inserting program initiatives and 
requirements without adding appropriate funding.
    Mr. Christle. This is not an easy question to answer because the 
subject usually involves predicting the future, which is inherently 
risky. However, some improvement should come from requiring the budget 
requests for significant programs to include a certification from the 
Chairman of the Cost Analysis Improvement Group (CAIG) that the budget 
request is consistent with the independent estimate.
    Congress should tighten the ``baseline'' rules for unit cost 
growth, commonly called ``Nunn-McCurdy'' breaches. In general, 
baselines should be set at the Milestone B estimate with no changes 
allowed for any reason with the possible exception of a change in 
forecast program quantity. Any program that experiences a breach should 
be rebaselined to the breach estimate with a lower threshold 
established for the next breach.
    You used the DD(X) as an example, and I would say some different 
baseline rules should probably apply to ships. The first request to 
start a hull should be the unit cost baseline until Milestone B, with 
the same threshold rules recommended for all other programs.
    A word about restrictions on adjustments. From a congressional and 
taxpayer perspective, the only thing that matters is that something now 
costs more than what Congress approved. All other parsing is just a way 
to explain the problem away, no matter how ``good'' the reason may be. 
Congress should expect DOD to establish whatever internal procedures 
and controls DOD deems necessary to control changes in cost for any 
reason. If DOD fails to do this, it should expect personal and 
legislative consequences that clearly state the particular malfeasance 
as the reason. This is a form of institutional accountability that 
Congress could easily establish.

                          LAYERS OF MANAGEMENT

    3. Senator McCain. Dr. Hamre, Mr. Porter, and Mr. Anderson, former 
Deputy Secretary of Defense David Packard observed that excessive 
layers of management in DOD acquisition organizations resulted in slow 
decisionmaking and a loss of accountability, especially for failures. 
How can we ensure that layers of management do not accumulate in large 
organizations like DOD, when bureaucratic pressures in government 
typically encourage growth in budget and personnel?
    Dr. Hamre. I advocate structural solutions to the acquisition 
problems we face. I don't believe these problems can be fixed by 
procedural changes. I recommend that the acquisition process be 
returned to the military departments, that the Service Chiefs-of-Staff 
be returned to the chain of command, and that the size of the staff 
working for the Under Secretary for Acquisition be cut at least in 
half.
    Mr. Porter. The Packard Commission recommended a streamlined 
reporting chain that has not been fully implemented. The complexity of 
modern weapon system development programs, as well as the normal 
bureaucratic search for consensus, has resulted in a proliferation of 
``integrated product team'' (IPT) arrangements. IPTs have proved 
effective at the working level--within government and industry program 
offices, and for the purpose of improving cost visibility. However, at 
the Service and DOD headquarters levels, such ``teams'' often act as 
additional, informal, layers of management. One approach to reducing 
the need for such organizational arrangements is to ensure that each 
acquisition executive, program executive officer, and program manager 
in the formal chain is highly qualified to meet his or her 
responsibilities without requiring a large supporting and coordinating 
staff. In addition, some Services have continued to keep their senior 
``Systems Commanders'' in the command chain, at least informally, 
thereby adding another layer beyond that envisioned by the Packard 
Commission. Similar concerns exist concerning the expansion of the role 
of the Joint Staff under the JCIDS process.
    Mr. Anderson. The Packard Commission recommended organizations have 
no more than two layers of management between program manager and the 
Milestone Decision Authority. I believe DOD had achieved reasonable 
success in this area. However, this question is really focused on the 
role and impact of multiple decision processes and staff functions that 
impact how acquisition decisions are made. There are two other decision 
systems in DOD, requirements and resources, that operate separately 
from the acquisition decision system and both have significant impact 
on program outcomes. Program managers must interface with, align, and 
respond to all three decisionmaking systems. I believe the role and 
impact of staff functions, as well as opportunities to improve 
integration and alignment of the three decision processes, will be 
addressed in the QDR. Specifically, I believe issues of slow 
decisionmaking and accountability will be addressed in the QDR.

    4. Senator McCain. Dr. Hamre, Mr. Porter, and Mr. Anderson, in your 
view, are there too many layers of management in DOD and do they also 
negatively impact decisionmaking and accountability?
    Dr. Hamre. I don't think that it is so much too many layers as too 
many people who are in duplicative oversight functions.
    Mr. Porter. In my view, the several IPT and JCIDS-inspired 
arrangements above the program office level constitute additional 
informal layers of management and should be reduced to the degree that 
they do not add real value to the decisionmaking process.
    Mr. Anderson. I think the DOD has effectively limited the number of 
layers of program management in DOD. There will always be a certain 
amount of inherent and desirable tension between streamlined, agile 
decisionmaking and maintaining appropriate checks and balances. 
Streamlining and defining the appropriate role for staff functions is 
always a challenge in large organizations. DOD is no exception. 
However, I believe the appropriate focus is to drive better and more 
effective integration of the three decisionmaking systems (acquisition, 
requirements, and resources). The Defense Acquisition Performance 
Assessment (DAPA) team was absolutely correct when they stated ``in 
reality and practice, these processes and practitioners often operate 
independent of each other. Actions in each of the processes cause 
unintended negative consequences that magnify the effects of 
perturbations in any one area.'' Again, I believe that improving the 
decisionmaking process will be addressed in meaningful terms by the 
QDR.

    5. Senator McCain. Dr. Hamre, Mr. Porter, and Mr. Anderson, in 
written testimony, Dr. John Hamre stated that ``. . . we need to return 
the military Service Chiefs to the chain of command for acquisition. 
Goldwater-Nichols made the Service Chiefs the primary advocates for the 
``supply'' function of military capability. They are responsible for 
determining the manning levels of their respective Services, the 
priority given to recruiting and training. They manage the long-term 
shaping of the Service by determining requirements for new weapons and 
personnel. But they are excluded from the acquisition process. This is 
an institutional fault line that needs to be removed.'' Do you believe 
there is value added in returning the Service Chiefs to the acquisition 
process and how would it affect the acquisition process?
    Dr. Hamre. The purpose for returning the Chiefs of Staff to the 
acquisition chain of command is to eliminate a fault line of 
accountability in the Department. The Service Chiefs are now the 
primary individuals responsible for supplying people, facilities, and 
training to the operating elements of the Department. They need to be 
made responsible for balancing acquisition within that broad mission.
    Mr. Porter. I was privileged to serve with Dr. Hamre in a previous 
administration and have a very high regard for both his dedication to 
good government and for many of his initiatives. Unfortunately, 
however, I find myself in strong disagreement with this particular 
initiative.
    In my view, the road to improved accountability lies in fuller 
implementation of the Packard Commission recommendations that 
recognized the need for, and real value of common business procedures 
in the management of DOD acquisition. Packard's ``fly before buy'' and 
``short chain of command'' principles are now at the core of DOD 
acquisition procedures. When they have been faithfully followed, 
including thorough testing, they have led to greatly improved 
performance of the Nation's fielded military equipment, and to more 
predictable costs. But the Department too often has not followed the 
Packard principles.
    Dr. Hamre's expectation that bringing the Service Chiefs of Staff 
``back'' into the acquisition management chain as a way to better align 
the ``requirements,'' ``funding,'' and ``acquisition management'' 
responsibilities and thereby improve accountability has four major 
problems:

          1. Interoperability problems continue to hamper U.S. military 
        operations and contribute to both fratricide and needless, 
        inefficient, duplication of effort. Diluting the acquisition 
        authority of the Secretary would be a major setback for 
        ``jointness.'' Although the Packard Commission did not greatly 
        emphasize the need for improved ``jointness'' in acquisition 
        per se, subsequent events raised this need to an important 
        national goal. The Goldwater-Nichols Act has led to a widely 
        recognized improvement in the Nation's ability to conduct joint 
        military operations in the field. But too often these improved 
        procedures in the field are still severely hampered by the 
        failure to ensure that the key equipment being used by the 
        deployed forces was ``born joint.'' The strengthening of the 
        position of the Secretary of Defense by the Goldwater-Nichols 
        Act has set the stage for his acquisition executive to take a 
        strong leadership role in ensuring that the new equipment the 
        Department acquires fully supports future joint warfighting 
        needs. Diluting this authority by transferring it to the Chiefs 
        of the individual Services to focus on their narrower, Service-
        unique, needs would be a major step away from the goal of 
        improved jointness.
          The ongoing duplication of efforts to acquire battlefield 
        UAVs by each of the Services is a good example of the need for 
        a stronger Defense Acquisition Executive role in deciding what 
        new systems should be funded.
          2. It devalues, if not violates, the statutory responsibility 
        of the Secretary of Defense and his designated acquisition 
        executive to decide what should be acquired, how it is to be 
        bought, and what the proper funding stream should be in light 
        of the Department's overall priorities within the resources 
        made available by the President and Congress. The Service 
        Chiefs, to whom appropriated funds will eventually be allocated 
        for execution of the approved budgets, are certainly a major 
        source of recommendations for ``what to buy.'' Their annual 
        budget proposals are the Department's first cut at what to 
        spend. But the Secretary is both authorized and obligated to 
        consider other sources of such recommendations. In particular, 
        as Dr. Hamre and others have recommended, the Combatant 
        Commanders are already playing an increasingly strong role in 
        advising the Secretary on ``what to buy.'' But the ultimate 
        decision on what the Department deems ``required'' is made by 
        the Secretary and his acquisition executive. This extant 
        process could be improved by strengthening the role of the 
        acquisition executive in the annual formulation of DOD budget 
        proposals such that the stability of acquisition program 
        funding could be improved.
          3. As a practical matter, the Service Chiefs already exert 
        considerable influence over how equipment is acquired. Although 
        the overall acquisition policies and procedures are promulgated 
        under the authority of the Secretary, detailed decisions on 
        changing program content result from ongoing joint reviews by 
        the Service Chiefs and the relevant acquisition executive. 
        These reviews frequently result in decisions by a Service Chief 
        to modify the performance goals of a particular system in order 
        to better achieve overall program goals. Sometimes this results 
        in very appropriate ``requirements creep;'' sometimes it 
        results in jettisoning unjustifiable requirements that 
        otherwise would needlessly drive up the cost. Secretary Krieg 
        testified at some length in late 2005 about how the Service 
        Chiefs and their acquisition executives were working together 
        to update such ``requirements.'' The success of this process 
        does not indicate to me a strong need to give up on the Packard 
        principles.
          4. A major benefit of the Packard reforms was for DOD to 
        present much more of a ``single face to industry.'' Industry no 
        longer has to deal with as many diverse and Service-unique 
        contract requirements and procedures as was once the case. One 
        of my fears is that if acquisition management authority is 
        shifted from OSD to the Service Chiefs, each Service will once 
        again develop and impose its own unique specifications and 
        contract administration procedures, thereby reversing two 
        decades of improved efficiency. Industry will no doubt accept 
        the increased funding that will be required to reestablish 
        separate procedures for different service contracts being 
        executed in common factories, but this will be at the expense 
        of a real output of equipment from the system.

    Mr. Anderson. First, I do not believe the Service Chiefs have been 
excluded from the acquisition process. The Service Chiefs currently 
have significant influence over all aspects of the acquisition process, 
including service acquisition executive decisions. Specifically, and as 
noted by Dr. Hamre, the Service Chiefs play key roles in the 
development and approval of requirements. They also set priorities for 
funds allocations for acquisition programs in the planning, 
programming, budgeting, and execution process. The Service Chiefs 
provide for sustainment once a weapon system is fielded. The Service 
Chiefs exercise jurisdiction over the testing agencies that evaluate 
programs prior to production and fielding. Also, the Service Chiefs 
manage the personnel system, including assignment, evaluation, and 
promotion of all military personnel associated with the acquisition 
process.
    As I stated in my testimony, I do not believe simply making this 
organizational change will address the broader systemic issues that 
must be addressed to improve acquisition outcomes. These systemic 
issues are: requirements changes; technology risk/immaturity; funding 
instability; overly optimistic cost estimating/stretch cost goals; and 
alignment of the outcomes of the three Department of Defense 
decisionmaking systems.

    6. Senator McCain. Dr. Hamre, Mr. Porter, and Mr. Anderson, what 
are the potential negative or unintended consequences of such a change?
    Dr. Hamre. There are numerous arguments made against this 
recommendation, but most of them are uninformed. There is one 
legitimate criticism, and that is that it will make it potentially 
harder to undertake joint acquisitions. Here I think we need to be 
careful to dissect the problem. I don't think there are that many joint 
procurement programs, frankly, and we know how to manage them. There 
are no joint aircraft carriers or destroyers or tanks or landing craft. 
We do have joint missiles and helicopters and fighters, and we have 
developed management structures for those few items. There is one major 
exception and that is command and control. I don't think this can be 
done at the Service level. I have advocated that command and control 
acquisition be removed from the military departments as their 
responsibility, and shifted instead to an enterprise-wide office in the 
Department.
    Mr. Porter. I believe the major adverse consequence of adopting Dr. 
Hamre's proposal, at least as I understand it, would be to:

          1. Further stymie the Department's already lagging efforts to 
        ensure that important new equipment and weapons systems are 
        ``born joint.'' Service-unique ``requirements'' are likely to 
        take on even greater importance, to the detriment of improved 
        interoperability.
          2. Reverse the major progress that has been made by DOD 
        towards ``presenting a single face to industry,'' thereby 
        significantly increasing the cost of contract administration, 
        and requiring increased industrial investment in Service-unique 
        manufacturing equipment and processes.
          3. Reduce the ability of the Secretary of Defense to 
        construct and manage coherent, efficient long-range program 
        plans within the resources provided by the President and 
        Congress.

    Mr. Anderson. As stated before, I believe the assumption that the 
Service Chiefs are excluded from the acquisition process is incorrect. 
If the roles of the Service Chiefs are changed, a possible unintended 
consequence would be span of control issues.
    Most importantly, this organizational change could have the 
unintended consequence of loss of focus on the broader systemic issues 
as presented earlier that affect acquisition outcomes from a Department 
of Defense perspective.

    7. Senator McCain. Dr. Hamre, Mr. Porter, and Mr. Anderson, with 
respect to accountability, what advantage do you foresee in returning 
the Service Chiefs to the chain of command for acquisition?
    Dr. Hamre. If you return the Service Chiefs to the acquisition 
chain of command, you eliminate the primary fault line in the 
Department. There are three primary functions for the military 
departments--stipulating requirements, budgeting resources, and 
acquiring goods and services. If the Service Chiefs are excluded from 
the acquisition process, you create structural nonaccountability.
    Mr. Porter. I believe that the advantage in accountability would be 
superficial at best. The Department's big, complex acquisition programs 
require careful planning and diligent execution over a period of many 
years. The best approach to this is the continued improvement of the 
professional Defense Acquisition Corps that acts under the direction of 
qualified, Senate confirmed, civilian, acquisition executives. The 
tenure of Service Chiefs is shorter than most acquisition programs, and 
the mechanisms for holding them, or their Major Systems Commanders, 
accountable for the progress of the myriad acquisition programs within 
the Department are highly problematic. Primary accountability should 
instead be vested with the relevant acquisition executive who decides 
what will be proposed for acquisition, how it will be acquired--the 
acquisition strategy--and who is (or should be) empowered to work 
within the Department's resource allocation system to minimize 
inappropriate funding instability. Finally, the Department's highly 
qualified program managers can and should be held directly accountable 
for meeting the program goals established each ensuing year soon after 
the appropriated funds are decided.
    Mr. Anderson. I see neither advantages nor disadvantages from an 
accountability standpoint. In effect, such a change would be neutral in 
terms of accountability because of the other systemic issues previously 
noted, and could potentially drive acquisitions to be more service 
centric at the expense of jointness. Improving acquisition outcomes 
rests more on developing a climate and processes that recognize 
corporate accountability across the entire enterprise.

                        EFFICIENT ACCOUNTABILITY

    8. Senator McCain. Dr. Hamre and Mr. Christle, the Packard 
Commission expressed concern that poor overall coordination in defense 
contract auditing has reduced efficiency and allowed harmful 
duplication of effort. The DOD Inspector General (IG) conducted an 
investigation and found that 13 different DOD organizations and the GAO 
were involved in auditing weapon manufacturers. These duplicative 
efforts lead not to improved accountability, but loss of confidence in 
the system. This has led some to observe that DOD's current acquisition 
system is based on a ``lack of trust,'' and ``substitutes oversight for 
accountability.'' What specific changes to statute, regulations, 
policy, or organization are required to reverse this system's features 
or culture, and make accountability the defining feature?
    Dr. Hamre. As I said in earlier questions, I believe the lack of 
accountability is structural. Return the Service Chiefs to the chain of 
command, scale back the staff at OSD, and demand honest budgeting.
    Mr. Christle. If we want fundamental changes we need to change how 
we do business. I cannot say it any better than did Peters and 
Waterman: ``all of us know that much more goes into the process of 
keeping a large organization vital and responsive than the policy 
statements, new strategies, plans, budgets, and organization charts can 
possibly depict. But all too often we behave as though we don't know 
it. If we want change, we fiddle with the strategy. Or we change the 
structure. Perhaps the time has come to change our ways.'' I will 
address specifics in the later accountability questions.

                       LIMITING DEVELOPMENT TIME

    9. Senator McCain. Ms. Schinasi and Mr. Anderson, the years it 
takes to develop today's weapons systems seem to be continually 
growing. The F/A-22 has taken over 20 years to develop. The Army's FCS 
may take nearly as long. We seem to be continually trying to develop 
every capability into the base model of the weapon system, which only 
seems to extend development times. What benefits do you believe there 
are to putting a limit on the development cycle time--and do you 
believe that 5 years is the proper amount of time?
    Ms. Schinasi. Most importantly, placing a time limit on development 
cycles appropriately establishes that decisions made in the 
requirements, acquisition, and funding processes will be focused where 
they need to be, that is, on delivering capability to the warfighter. 
Shorter development times can serve to limit the initial product's 
requirements; allow for more frequent assimilation of technologies into 
weapon systems thereby speeding new technology to the warfighter; allow 
for a sound business case to be developed before program start; put 
programs into production more frequently, which would allow for 
competition not now available to the Department and alignment with 
industrial base profitability through efficiency improvements; and 
increase program manager accountability by aligning the time required 
for development with the span of the manager's tenure. The increased 
stability that would result on each individual program would also have 
beneficial effects on the modernization accounts as a whole as the 
continual battle for funding between programs would be ameliorated. 
Although we differ on the causes, instability in programs is 
universally seen as one of the major problems confronting DOD's 
acquisition of major weapon systems. We have reported (GAO-06-110) on 
the importance that leading commercial firms place on limiting 
acquisition cycle times for many of the reasons stated above. DOD 
itself has suggested that product development should be limited to 
about 5 years. It is a strategy worth trying.
    Mr. Anderson. The key benefit is that weapons systems will be 
fielded quicker. Additional benefits include potentially reduced 
development risk leading to more accurate cost estimates and reduced 
costs. Accomplishing shorter development cycles mandates the following 
conditions exist:

          (1) definitive operational requirements;
          (2) off-the-shelf systems and/or truly low risk technology 
        developments;
          (3) the development is affordable and fully funded at the 
        most likely cost in the fiscal years defense plan; and
          (4) agreement that new/additional requirements will be 
        addressed in subsequent block upgrades or spirals.

    I do not believe we want to lock ourselves into a ``one-size-fits-
all'' developmental construct. That said, evolutionary acquisition, 
where there is an expectation of fielding a meaningful capability in 3-
5 years, where the above conditions have been met, aligns with a time 
specific developmental cycle. I note that Defense Acquisition 
Performance Assessment recommends that acquisition shift to a ``time-
certain development'' period from Milestone A of 6 years.

              MAKING AND FOLLOWING ACQUISITION DIRECTIVES

    10. Senator McCain. Mr. Anderson and Mr. Christle, the Defense 
Acquisition System is the management process that guides all DOD 
acquisition programs. The DOD Directive 5000.1, The Defense Acquisition 
System, provides the policies and principles that govern the defense 
acquisition system. The DOD Instruction 5000.2, Operation of the 
Defense Acquisition System, in turn establishes the management 
framework that implements these policies and principles. Do you believe 
the regulations in the 5000 series is useful to DOD?
    Mr. Anderson. Yes, the 5000 series is very useful for DOD. The DOD 
5000 Acquisition Management Framework provides a flexible process for 
rational management of the development and fielding of very complex 
systems. Further, the DOD 5000 series serves to provide the field with 
the top-level policy and procedure for review and oversight of 
acquisition programs.
    Mr. Christle. Yes. We need a framework within which to operate and 
the 5000 series is a reasonably good framework. The policy is not the 
problem. The next question addresses the problem.

    11. Senator McCain. Mr. Anderson and Mr. Christle, do you believe 
that DOD follows its own regulations? If not, what is your opinion as 
to why DOD does not follow its own directives?
    Mr. Anderson. Yes, overall DOD follows its own regulations. I note 
that the 5000 series regulations provide needed flexibility. This 
flexibility can, at times, make it appear that programs are not 
adhering to regulatory requirements. However, in actuality the 
provisions of the regulations have been tailored for the specific 
acquisition program. To the extent that there is a perception of not 
following regulations, more emphasis must be focused on ensuring 
program managers carefully document and fully explain the rationale for 
tailoring or eliminating regulatory provisions in their acquisition 
strategy so that the logic and benefits of tailoring are obvious to 
all.
    Mr. Christle. There are few personal consequences for not following 
our policies. We are talking about behavior, and there are two ways to 
alter behavior: Do something before the behavior occurs or do something 
after it occurs. In the behavioral scientists' terminology, this is 
called antecedent and consequence, respectively.
    Antecedents consist of things such as policies, goals, practices, 
and other forms of enterprise expectations, and while they are 
necessary they will not, by themselves, sustain a desired level of 
performance or behavior. Only the nature and likelihood of consequences 
can do that and too often consequence is missing from the acquisition 
environment. We substitute more and more policy antecedents (revising 
DOD 5000.X for example) to obtain the acquisition behavior we want but 
we fail to realize that the lack of consequences becomes an antecedent 
that negates our attempted policy fix. When the workforce perceives 
there are limited, if any, consequences for following or not following 
policies and practices, that lack of consequence becomes an antecedent 
and little changes.

    12. Senator McCain. Mr. Anderson and Mr. Christle, what changes, if 
any, would you recommend to the 5000-series regulations?
    Mr. Anderson. We must continuously look for ways to streamline the 
5000 series regulations and make it more user friendly. I agree with 
the recommendations made by the DAPA team and others that integrating 
the three decisionmaking processes is beneficial and will entail 
restructuring acquisition regulations.
    Mr. Christle. None. Changing a policy that is either misunderstood 
or not followed, simply changes things at the margin. My previous 
answer addressed the real problem.

          STRUCTURING ACQUISITION AROUND COMBATANT COMMANDERS

    13. Senator McCain. Dr. Hamre, the CSIS report, ``Beyond Goldwater-
Nichols: U.S. Government and Defense Reform for a New Strategic Era, 
Phase 2'' stated ``that the structures of advocacy in government must 
be clear. In the DOD context, this means that those charged with 
executing missions should set the requirements for the capabilities 
they need.'' The study team recommended that the process for 
identifying and advocating joint capability requirements be 
restructured around the combatant commanders, with Services competing 
to supply the capabilities required by the combatant commanders. This 
would entail Service Vice Chiefs being replaced by the commandant 
command deputies, and adding civilians responsible for requirements 
policy. Would you please expand on this recommendation and explain what 
impact this shift could have on the defense acquisition process?
    Dr. Hamre. The Department is too large and complex to be run by an 
integrated staff. So we have created a system where we counter-pose 
advocates for various points of view, and bring those advocates in 
front of the Secretary so he can decide what to do. The problem we have 
is ambiguous advocacies. The primary voice of ``demand'' are the 
combatant commanders and the Chairman of the JCS. The primary advocates 
for ``supply'' are Service Chiefs. We balance supply and demand by 
bringing both voices to a forum chaired by the Secretary. The problem 
is that the primary method for developing requirements--``demand''--is 
managed by the chief ``supply'' advocates in the building. This needs 
to change in order to create cleaner lines of responsibility and 
accountability.

    14. Senator McCain. Dr. Hamre, how would this change have affected 
the FA-22 program that after 20 years of development has experienced 
significant cost growth and, some would argue, only provides capability 
in a very select mission area?
    Dr. Hamre. It is not likely to affect the F-22. As you point out in 
your question, we have the momentum of 20 years of history that cannot 
now be untangled by this change.

                  INCREASING JOINT HEADQUARTERS STAFF

    15. Senator McCain. Dr. Hamre, the CSIS report proposes increasing 
Joint Headquarters staff, particularly the J-8 (Directorate of Resource 
Management) function, to build capacity for the combatant commanders to 
rigorously define and advocate specific requirements, and so increase 
their voice in resource allocation. Specifically, how would your 
proposal prevent debacles such as the Army's Aerial Common Sensor where 
the airframe was too small for the sensor system?
    Dr. Hamre. I am afraid I don't know anything about the Army's 
Aerial Common Sensor program. These problems develop usually when there 
are inadequate checks and balances in the programming and budgeting 
process. I believe stronger debate is the best antidote to these 
problems.

    16. Senator McCain. Dr. Hamre, how would this recommendation 
prevent ``requirements creep,'' given that it would not be the 
combatant commanders but the Services that would pay the bill to 
acquire these systems?
    Dr. Hamre. I don't personally believe requirements creep is such a 
big problem. In my view, it is far worse that we have over-specified 
goals at the outset of a program, with inadequate tradeoff of costs and 
performance at the very early stages of determining requirements and 
establishing acquisition strategies.

                             PROGRAM REVIEW

    17. Senator McCain. Dr. Hamre, my understanding is that the DOD 
currently does not have a clear method for program reviews prior to 
approving each milestone in the life of a program. How would you 
recommend the Office of the Secretary of Defense (OSD) better organize 
to review program execution?
    Dr. Hamre. We used to have a clear method for program assessment 
prior to milestone reviews. If it is not currently in place, it could 
and should be restored.

    18. Senator McCain. Dr. Hamre, based on this recommendation, what 
criteria should OSD apply to correct or terminate a struggling program?
    Dr. Hamre. This is a very difficult question. The budget pressures 
cause program managers to hide serious performance or cost problems 
until near the breaking point, and then we face a crisis. Invariably, 
we need the weapon system, but the problems are so serious that 
termination is nearly always up for discussion. The resolution 
invariably produces a half-fixed/half-broken compromise. It isn't good. 
So what do we do about it? First, and I hate to sound like a broken 
record, but we need to get the acquisition system aligned with the 
resource allocation system. If the Service Chief has to pay the bills, 
he will do a much better job of policing performance on the part of 
program managers. Second, we need an oversight system that spends less 
time on trivial management questions and more time on big questions. 
Adding technical assessment to the CAIG might be one path we should 
explore. But I need to think more about this difficult problem.

    19. Senator McCain. Dr. Hamre, according to the GAO, the cost 
growth in the F-22 fighter program is topping out over 180 percent. A 
program totaling nearly $70 billion can now only buy less than a third 
of the total number of aircraft once envisioned for the same amount of 
money. How would CSIS's office of implementation and execution review 
have kept this program on track?
    Dr. Hamre. I don't think our recommendation can fix the problems 
facing the F-22. Hopefully the recommendations we offer would help 
avoid future problems like the F-22.

                      MANAGING THE INDUSTRIAL BASE

    20. Senator McCain. Dr. Hamre, in your statement you mention that 
``we do not honor the [defense industrial base's] important role by 
good management on the part of the government. We do not really know 
how to manage the defense industrial base today. We continue to use the 
mindset and the rules and regulations of the mid-1980s.'' Would you 
please expand on this suggestion and give some recommendations on how 
to better manage the defense industrial base in an environment of fewer 
suppliers and more restrictive defense funding?
    Dr. Hamre. We continue to have a regulatory environment and mindset 
grounded in the mid-1980s when we had 20 prime contractors, frequent 
new starts for weapon systems, high production rates, etc. So we 
continue to think we can manage this industrial base through 
competition. That is improbable. We can't live without any one of our 
prime contractors, and we don't hold enough competitions now to make 
that threat viable. We now have a contractor environment that is more 
analogous to public utilities and public utility commissions. That 
suggests that we need a different approach to regulation that is more 
interactive and at different dimensions. This will be a hard transition 
from the current approach, which is rather adversarial.

                       QUADRENNIAL DEFENSE REVIEW

    21. Senator McCain. Dr. Hamre, the 1997 and 2001 QDRs, have a 
record of being consensus products with respect to examining and 
apportioning Services roles and missions. Press reports seem to 
indicate that the current QDR will be of a similar character. This 
document should guide requirements decisions for the next 4 years. How 
would you suggest that the QDR process be revised so that it promotes a 
healthy competition of ideas between the Services to better support the 
combatant commanders and ensure that they are provided with the most 
capable and cost-effective solutions to their military challenges?
    Dr. Hamre. I participated in two QDRs and have watched two more. My 
experience is that every QDR starts by trying to pose major policy 
directions, but always ends up patching holes in budgets. This is 
inevitable. Small problems in programs usually get deferred until the 
point where they become critical and then require a major review. The 
establishment of the QDR process (created by Congress, as I recall) 
simply shifts this deferral/crisis/solution process to a once-every-4 
years process. Generally, QDRs are heavily dominated by the ``supply'' 
side of the Department. We do not have comparable emphasis from the 
``demand'' side of the Department. I think the Bush administration has 
tried to correct that, but we will have to wait until the next year to 
see if this is working.

            TECHNOLOGY MATURITY, REBASELINING, AND AUDITING

    22. Senator McCain. Ms. Schinasi, in 2002, Congress directed DOD to 
report on the maturity of technology at initiation of major defense 
acquisition programs based on language in the DOD 5000.2 instruction 
which states, ``The project shall exit Technology Development when an 
affordable increment of militarily-useful capability has been 
identified, the technology for that increment has been demonstrated in 
a relevant environment, and a system can be developed for production 
within a short time frame (normally less than 5 years).'' The reporting 
requirement is scheduled to expire in 2006. Do you believe this 
reporting requirement should be extended?
    Ms. Schinasi. The reporting requirement should not be allowed to 
expire. However, unless DOD decisionmakers actually implement DOD 
policy on individual programs, outcomes will not change. We continue to 
find that programs begin product development with immature technologies 
despite the section 804 requirement. In March 2005, we reported that 
only 15 percent of the programs we reviewed began product development 
with all their critical technologies mature (GAO-05-301).

    23. Senator McCain. Ms. Schinasi, what can be done to strengthen 
the Nunn-McCurdy provision mandated by Congress, to include any 
recommendations on how to deal with the abused practice of rebaselining 
programs?
    Ms. Schinasi. My answer has two parts. First, as we reported last 
year (GAO-05-182), DOD has interpreted Nunn-McCurdy in a way that 
eliminates important program elements in calculating a program's 
divergence from its baseline. DOD's interpretation excludes the effects 
of quantity reductions or capability increases when making Nunn-McCurdy 
threshold determinations. If these adjustments had not been allowed, 
DOD would have reported between 50 and 90 percent more Nunn-McCurdy 
breaches between fiscal years 2001 and 2003. We recently reported on 
the specifics of a Nunn-McCurdy calculation for the Global Hawk program 
that also illustrated this point (GAO-06-222R). We have recommended 
that DOD change the way it assesses Nunn-McCurdy breaches and that 
Congress consider whether DOD's policy of using programmatic 
adjustments in determining Nunn-McCurdy thresholds is appropriate and 
provides the information it needs on changes in the value DOD is 
getting for the funds it spends. Second, however, is that unless there 
is a way to assign accountability and penalties to program breaches, 
outcomes are not likely to improve. As one alternative, Congress could 
consider stricter measures such as automatically de-authorizing 
programs that have cost growth of a certain magnitude.

    24. Senator McCain. Ms. Schinasi, should Congress mandate GAO 
complete an audit at every major phase of DOD's acquisition process for 
its major weapon system to ensure proper accounting principles or can 
DOD adequately evaluate the readiness to move to successive milestones?
    Ms. Schinasi. GAO can--and does--play an important role in 
evaluating the status of individual programs and in identifying the 
causes of poor outcomes that exist across programs, based on the depth 
and breadth of our individual reviews. Our annual ``quick look'' report 
(GAO-05-301), which provides status information on over 50 programs, as 
well as the dozen or so more extensive system reviews that we conduct 
every year, have proven to be a more accurate predictor of risk than 
DOD's evaluations. However, DOD can itself adequately evaluate 
readiness to move to successive milestones. In fact, DOD's current 
acquisition policies are aligned with recommendations we have made on 
knowledge-based decisionmaking. However, decisionmakers are rarely held 
accountable for following DOD's own policies. DOD needs to maintain 
responsibility for proper program execution and for determining 
accountability internally for program outcomes. I believe our detailed 
reviews of individual programs and our annual assessments of major 
weapon programs strike a good balance of providing independent analysis 
without becoming a part of the process. We remain committed and open to 
ways we can improve our coverage and enable needed changes.

    25. Senator McCain. Ms. Schinasi, I recognize the need to modernize 
the Abrams tank and Bradley Fighting Vehicle so I support the Army's 
FCS concept and program. However, 2 years ago the program moved past 
Milestone B, the start of a formal acquisition program, without 
achieving the level of technology maturity normally required by DOD. In 
fact, the GAO reported that today there is still only one out of more 
than 50 critical technologies considered mature. If the DAB does not 
even follow DOD's internal directives to demonstrate technology is 
ready for development prior to entering the development stage, what 
recommendations would you give this committee to ensure DOD is 
following its own directives?
    Ms. Schinasi. DOD has endorsed a knowledge-based approach in the 
DOD 5000 acquisition regulations, but has not been enforcing its policy 
when approving major acquisitions to proceed into development. The 
Army's FCSs is only one example of beginning development with low 
levels of technological maturity. Other recent examples include the 
Transformational Satellite Communications System, which began 
development with six out of seven critical technologies immature; the 
Advanced Deployable System; the Warfighter Information Network-
Tactical; the E-2D Advanced Hawkeye; the Aerial Common Sensor; and the 
Joint Land Attack Cruise Missile Defense Elevated Netted Sensor System.
    The most powerful way to ensure directives are followed is to say 
``no'' to funding programs that ignore the directives. If the Services/
branches propose an acquisition that flies in the face of best 
practice, policy, and lessons learned, but is approved by OSD, then OSD 
sanctions that violation of policy. If Congress subsequently approves 
that program for funding, then Congress implicitly sanctions that 
violation of good practice as well. Money speaks volumes. Every 
program, taken by itself, makes a compelling case that it is different. 
Every program is the exception. True policy then is revealed by the 
predominant practice--committing to major investments without 
understanding the implications within an individual program or the 
eventual impact on other programs. The need to protect sunk costs often 
seems to be the basis of DOD's decisions as a program proceeds. I would 
offer, instead, the need to look at the opportunity costs of each 
decision. We have reported in the past that DOD has not instituted the 
necessary controls to ensure that it is capturing the necessary 
knowledge at critical junctures and basing the decision to proceed with 
a program on that knowledge.

                               CORRUPTION

    26. Senator McCain. Ms. Schinasi, when examining the KC-767 tanker 
lease proposal, Congress found that the Air Force's Operational 
Requirements Document (ORD) had been tailored to match the aircraft's 
characteristics. Rather than faithfully represent the warfighter's 
needs, arguably, the ``requirement'' served as an advertisement for the 
Boeing 767 and corrupted the acquisition process. Please tell me how we 
can bring the requirements, budgetary, and acquisition processes into 
alignment if one of those sub-processes is corrupt?
    Ms. Schinasi. The requirements, budgetary, and acquisition 
processes collectively can create incentives to overpromise performance 
while underestimating cost and schedule. The best guard against these 
processes collectively or individually skewing acquisition decisions is 
to have a solid, transparent business case for proceeding with each 
acquisition. At a fundamental level, this means following the axiom, if 
it is the right thing to do, then do it right. Each process must be 
disciplined to guard against undue influence. For example, the 
requirements process must show that a need is valid and that the 
solution chosen is the best alternative for the Government. Of concern, 
also, is the need to manage the contractor. As stated earlier, the 
match that needs to occur before committing to a product development 
has requirements on one side, and resources of time, cost, technology, 
and the Government's management capacity on the other. As contractors 
play increasingly larger roles in DOD's requirements, funding, and 
acquisition processes, this capability becomes even more critical.

    27. Senator McCain. Ms. Schinasi, what steps can you recommend to 
strengthen the requirements process against subversion by external and 
inappropriate pressure?
    Ms. Schinasi. As mandated in the 2006 National Defense 
Authorization Act, we are embarking on a study of the requirements and 
budgetary processes, so I will defer an answer at this time. Generally 
speaking, however, requirements should not be considered in isolation, 
but need to be constrained by available funding, mature technology, and 
joint considerations, while balancing DOD's cross-portfolio near- and 
long-term needs. We will keep the committee informed as we progress 
with this study.

                    COMBATANT COMMANDER INVOLVEMENT

    28. Senator McCain. Mr. Porter, your statement notes the success of 
Goldwater-Nichols in improving joint operations, but not in improving 
joint planning and budgeting, and joint acquisition. Why do you think 
that is and what should be done about it? For example, would changing 
the composition of the JROC from the Vice Chiefs to the combatant 
commanders increase the likelihood that a truly joint perspective would 
come out of the process?
    Mr. Porter. The Goldwater-Nichols Act resulted in the Services 
assigning their most promising officers to joint billets, and in 
greatly expanding the Chairman's Joint Staff. The result has been a 
cadre of excellent officers who are much better educated on the 
abilities of their sister Services than was formerly the case. This has 
been well demonstrated in all recent military operations. But joint 
budgeting and joint acquisition is very different than joint 
warfighting. Each military Service has a long and proud tradition of 
preparing for hostilities in the ways their doctrines demand. These 
Service-centric doctrines have grown out of a long history when each 
Service operated with a greater degree of autonomy than is now possible 
on most combined-arms battlefields.
    While officers from different Services in the field are able to 
work together to establish procedures for conducting the operation at 
hand, it is highly unfair to expect them, when working in joint 
budgeting and acquisition councils in the Pentagon, to adopt positions 
and make recommendations that are at odds with the doctrine of their 
parent Service and against the wishes of the senior officers on whom 
they are dependent for promotion.
    This is a knotty problem of long standing to which the solution is 
not obvious. The problem has been more or less recognized by every 
Secretary since the Department of Defense was established. The primary 
solution in the past has been the use of a civilian secretariat for the 
development and analysis of issues that cross Service boundaries, 
including the interoperability of equipment. Enthusiasm for this 
arrangement has waxed and waned with the desires of the successive 
secretaries to raise and deal with such issues.
    One potential and controversial approach that has not been 
seriously considered to my knowledge would be to establish a separate 
joint promotion board and assignment system by and for ``joint 
officers'' above a certain pay grade. Officers assigned to such a 
promotion and assignment track would be assured that their future 
careers were more contingent on their performance in response to joint 
warfighting, planning, budgeting, and acquisition needs than to the 
preferences of their original Service. Joint officers would progress 
through joint staff and joint command assignments, and non-joint 
officers would remain as subject matter experts within their parent 
Service organization. This approach, of course, raises the hoary 
specter of a ``general staff,'' a specter that has been widely 
discounted, but that still has potency.
    Replacing the Service Vice Chiefs on the JROC with representatives 
of the combatant commanders certainly has the potential to broaden the 
joint perspective of the JROC. Unfortunately it would also, almost 
surely, attenuate the time horizon of the JROC.
    At present, the combatant commands are organized, trained, staffed, 
and equipped to deal primarily with this year's problems--and maybe 
next year's. On the other hand, the JROC deals almost exclusively with 
developing advice concerning weapons systems that can't and won't be 
fielded for up to a decade or more. Assessing the need for weapons 
systems that will entail major advances in technology requires an 
extensive understanding of potential threats a decade hence, as well as 
the likely DOD funding environment during the intervening years. 
Although each of the combatant commanders have considerable personal 
expertise in these areas by virtue of their seniority and diverse 
experiences, at present it is only the Services that are staffed to 
make the types of systematic long-range threat and technology 
assessments that are needed by the JROC. For the combatant commanders 
to acquire such planning capabilities would require either a major 
expansion of their staffs, or a transfer of staffs from the Services.

                         OVERSIGHT COUNCIL ROLE

    29. Senator McCain. Mr. Porter, over the past several years, 
Congress has authorized and appropriated funding for up-armored humvees 
above the budget request. Over the same period, we have seen an upward 
growth in up-armored High-Mobility Multipurpose Wheeled Vehicle (HMMWV) 
requirements. It does not appear that the Department has a firm handle 
on requirements nor a process for synchronizing requirements. The new 
Vice Chairman of the Joint Chiefs of Staff, Admiral Giambastiani, has 
stated that he intends to improve the JROC. What recommendations would 
you give him to improve the JROC's role in the acquisition process?
    Mr. Porter. Historically the JROC has focused on providing advice 
via the Chairman of the Joint Chiefs of Staff concerning the 
Department's long-term needs for new weapons systems that have certain 
performance characteristics. It has not sought to make recommendations 
regarding the total inventory of such weapons that it believes 
appropriate and affordable, nor on near-term needs that emerge from 
ongoing operations. In the latter case, which includes the HMMWV need 
cited in the question, I believe that the relevant combatant 
commander's direct reporting relationship to the Secretary should prove 
adequate. The Secretary has the authority to direct the reallocation of 
resources to meet such needs without requiring a formal review by the 
JROC.

                    COMPETITION BETWEEN THE SERVICES

    30. Senator McCain. Mr. Porter, many researchers, such as Owen Cote 
of MIT, argue that interservice competition for roles and missions has 
highly beneficial effects, including driving innovation in weapons 
system design or employment, making public the most informed criticisms 
about weapons systems, and generating weapon or technology options that 
would not normally exist.
    Some contend that interservice competition has waned considerably 
since the late 1950s because Services perceive that their budget shares 
are fixed, and their funding will not rise or fall if their relevance 
to current defense policy changes. Public disputes among the Services 
are often condemned by civilian political leaders as examples of the 
Services' inability to work together, and their persistence led to 
growing calls for more centralized control over the Services and less 
overlap among their various roles and missions. Thus the Services are 
motivated to avoid public disputes, present a united front to civilian 
oversight, and remain largely content to live within the predictable 30 
percent division of the annual defense budget. What are your views on 
whether it is possible to generate more competition among the military 
Services for roles and missions and how would the competition benefit 
the defense acquisition process?
    Mr. Porter. My view is that the mechanism for interservice 
competition is already in place. Each year, the Secretary provides 
broad strategic guidance to the components, together with preliminary 
fiscal guidance. In response to this guidance, which can be construed 
as a competitive Request for Proposals (RFP), the components respond 
with Program Objective Memoranda (POMs) that propose programs intended 
to meet the Secretary's guidance. It is well within the Secretary's 
authority and historical practice to assess the relative cost-
effectiveness of the various Service proposals and decide on the 
specific mix of component programs that he will recommend the President 
include in his next budget proposals. There are no legal barriers that 
prevent the Secretary from making decisions that would result in 
incremental changes in the component's budget shares over time.
    It would be highly disruptive, if not dysfunctional, to establish a 
process that resulted in the reassignment of an important military 
mission to a different Service and its associated weapons systems, 
every 2-3 years. A military capability based on complex modern weapons 
systems can take more than a decade to develop, field, and perfect. As 
a practical matter, I believe that such roles and missions assignments 
should be made very early in the cycle of new weapons systems and be 
based on the best possible cost-effectiveness analysis. Future Service 
budget shares should be continually adjusted to ensure that national 
priorities are being pursued efficiently.

                    ACCOUNTABILITY DESPITE TURNOVER

    31. Senator McCain. Mr. Anderson, one frequently cited 
accountability problem is that weapon system program managers typically 
do not stay in their jobs for the entirety of the acquisition process. 
Indeed, most weapon acquisition programs have 5, 10, sometimes even 
more program managers. Since this is often the case, which program 
manager do we make accountable or impose consequence on--the one in 
position when a problem is found, or the one who left the position 
years ago when the requirements were set, costs were estimated, or 
schedules established?
    Mr. Anderson. Your point regarding program manager turn-over and 
accountability is well taken. Short tenure is problematic. However, as 
stated in my answer to Question 1, inadequately integrated decision 
processes make it extremely difficult to fairly hold a single person 
accountable because of the separate decision processes where many 
decisions are made by different decisionmakers.
    If we move to shorter development cycles as discussed in Question 
9, and the conditions cited are put in place, then it is reasonable to 
expect a single program manager to have the program from inception to 
fielding and he/she should be held accountable for program outcomes. 
This is easily discussed but this is very complex and implementation 
would be extremely difficult and represent a significant culture 
change.

    32. Senator McCain. Mr. Anderson, with this kind of program manager 
turn-over, how can we improve accountability?
    Mr. Anderson. Again, I agree with your point regarding program 
manager tenure and my perspective is captured in my answer to the 
preceding question. Also, I believe that tenure management will be 
addressed in the QDR.

                 RECOMMENDATIONS FOR ACQUISITION REFORM

    33. Senator McCain. Mr. Anderson, most experts agree that the DOD 
acquisition workforce needs help, but to date, little in the way of 
specifics has been suggested by the DOD. What is your recommendation as 
the President of the Defense Acquisition University (DAU) to create a 
more capable and larger acquisition personnel workforce?
    Mr. Anderson. The USD(AT&L) shares your concerns regarding the 
workforce and has consolidated all human capital planning, workforce 
initiatives, and training under the President of DAU. In addressing the 
future direction of the USD(AT&L) workforce, he has established ``High 
Performing, Agile, and Ethical Workforce'' as his Number One Goal. He 
is actively involved in shaping the details and objectives for this 
goal.
    Some of the objectives to be accomplished include the delivery of 
an AT&L Human Capital Strategic Plan by June 2006; creation of a 
capability to deliver recurring workforce analysis; development of 
retention and recruiting strategies; deployment of a performance 
management construct; and development of a competency management 
construct.
    In the area of workforce training, objectives include providing the 
workforce with real-time, point-of-need access to job-relevant content 
and learning assets. This will provide the workforce with embedded 
learning assets; more assignment-specific and tailored courses; and 
shorter, modular executive training. These learning assets will feature 
more interactive delivery to include simulations, role-play, case-based 
scenarios, real world dilemmas, and action training.
    As stated, the Honorable Ken Krieg has tasked me to deliver a Human 
Capital Strategic Plan by June 2006. At that point, I would welcome the 
opportunity to share with you specific recommendations for the DOD 
acquisition workforce. We are engaging all the Services in this 
process. Consequently, shortly after June would be the most appropriate 
time for DOD to address acquisition workforce size.

    34. Senator McCain. Mr. Anderson, how do we retain experienced 
acquisition professionals when their skills are in demand by 
contractors?
    Mr. Anderson. We must continue to emphasize the importance of 
public service and appeal to those intrinsic motivational factors that 
cause people to seek a higher purpose and not to view salary as the 
only, or most important factor, in evaluating a career choice. We have 
been successful in doing this in the past and we must adapt our 
retention strategies so that we continue to be successful in the 
future. I have been recruited for positions that would have paid me 
more money but I chose to stay with Federal service, and I am not the 
only one--many others have made the same choice. We do not have to 
match pay scales in the private sector, but we must ensure we provide 
competitive pay. We must never lose focus on appealing to a higher 
calling and all senior leaders across Federal service must properly 
represent this ideal, and encourage others to serve.
    A specific concern that I have in this regard is that with all the 
attention focused on improving the acquisition process, there is a 
tendency to ignore the great accomplishments of the acquisition 
workforce in support of the military mission. Another concern that I 
have is the DOD is losing many military acquisition professionals to 
industry. As a recruiting strategy we must do more to enable 
acquisition professionals who leave the military to easily and quickly 
transition to civil service.
    Any career, especially one in the defense acquisition business, 
must address, and to a large degree satisfy, both an individual's 
intrinsic and extrinsic goals. Intrinsic work goals include ensuring 
that the work is challenging; that an individual's work outcome is 
recognized and valued; that management listens to workers; that there 
are opportunities for advancement based on performance; and that 
rewards are related to performance.
    This is not to downplay extrinsic factors such as competitive 
compensation; job security; ethical and positive work environment; and 
flexibility in work hours and work arrangements based on differing 
circumstances. It is true that the Federal sector cannot compete with 
the private sector dollar for dollar. However the NSPS, when 
implemented, will foster a performance-oriented environment that more 
fully rewards and recognizes individual performance and contributions. 
The DOD believes that the pay banding aspects of the NSPS will aid in 
recruiting and retaining acquisition personnel.
    Other initiatives that address extrinsic factors include flexible 
work schedules, alternative work schedules, and the family friendly 
leave policy. Further, DOD encourages other programs appropriate to 
specific situations, and many DOD organizations offer Employee 
Assistance Programs (EAP); part-time and job sharing positions; child 
and elder care resources, information and incentives for adoption, and 
other child support services.
    Finally, I must note that retention is an area where the Honorable 
Ken Krieg has placed special emphasis. His focus is to move to a 
performance management environment where we recognize our best 
employees, ensure we have appropriate developmental opportunities for 
all employees, and we develop appropriate strategies to make everyone 
proud to be a part of the acquisition workforce.

                             ACCOUNTABILITY

    35. Senator McCain. Mr. Christle, in 2001, the Secretary of Defense 
asked rhetorically, ``Why has there been little fundamental change in 
the Department's acquisition process despite the 128 different studies 
that have chronicled the ills of the procurement system?'' No matter 
what changes to the process have been made or are recommended in the 
future, they may never be effective because of one missing element--
accountability. There is a marked lack of accountability throughout the 
entire acquisition process, from setting requirements through 
development and fielding.
    In the operational side of the Navy we see what some might term a 
severe example of the principle of accountability. Since 1999, they 
have relieved over 80 commanding officers for poor performance or loss 
of confidence. In the Norfolk Virginian Pilot newspaper, Admiral John 
Nathman, the Deputy Chief of Naval Operations, said that commanding 
officers will be held to a higher standard. Many may not agree with 
their methods, but the Navy certainly holds its leaders accountable for 
their decisions and actions. We should be able to bring at least some 
portion of that same element of accountability to the business side of 
DOD.
    In a recent case, the Army's Aerial Common Sensor, an $879 million 
contract for a new spy plane, was awarded to Lockheed Martin. But 
today, because of excessive weight and cooling issues with the 
preferred aircraft, the Secretary of the Army has stopped work on the 
program. My understanding is that the program manager and the program 
executive officer that led the program into this problem are still 
directing the program. They have not been held accountable. Do you 
believe they should be held accountable and if so, in what way?
    Mr. Christle. Senator, I don't know enough about the specifics to 
answer that question but I know where to look. The Milestone Decision 
Authority (MDA) who approved the program took on the responsibility to 
ensure a proper requirement and acquisition strategy and is therefore 
accountable in the same way the ship's captain who is asleep in the 
middle of the night when his ship runs aground is accountable. The MDA 
should then hold the appropriate procurement and requirements 
functionals accountable. Whether or not the program manager or 
executive officer should be held to account depends on specifics that I 
don't know. The point is, senior decisionmakers must be held 
accountable so as to motivate them to execute their responsibility to 
establish the structure and processes that will ensure future successes 
and avoid negative consequences for themselves and their organizations.

    36. Senator McCain. Mr. Christle, what can be done to improve the 
accountability within the DOD?
    Mr. Christle. Accountability will not be changed unless we 
understand what it is. The Oxford Dictionary defines accountability as 
the ``Liability to give account of and answer for, discharge of duties 
or conduct; responsibility.'' But, this definition is not sufficient to 
understand what changes need to be made. The accountability equation 
requires a person (or institution) to be held accountable, and someone 
willing to do the accounting. The first part is easy--the second part 
is often difficult for many people and requires real leadership.
    The acquisition leadership must communicate three things to all 
levels and elements of the acquisition community:

          1. That they will be called to account;
          2. That there will be consequences for not meeting 
        expectations; and
          3. What they will be held accountable for.

    My recommendations would be:

          1. The USD(AT&L) should establish a new oversight process 
        that maximizes trust, promotes teamwork throughout the 
        acquisition community, and recognizes tiered accountability by 
        placing responsibility and accountability where it belongs, 
        with the Component Acquisition Executives (CAEs), not the DOD 
        staff.
          2. Each CAE should be responsible and accountable for his/her 
        programs. They should determine when their programs are ready 
        for a milestone review and they should have the authority to 
        schedule such reviews with the Defense Acquisition Executive 
        (DAE).
          3. The USD(AT&L) should abolish or severely cut back on the 
        size and function of the Overarching Integrated Product Team 
        (OIPT) structure.

                     tying position to performance
    37. Senator McCain. Mr. Christle, some have argued that a lack of 
accountability in the acquisition system allows acquisition officials 
to progress through their careers regardless of their performance as 
leaders of programs. If this is true, one might conclude that tying an 
acquisition professional's career progression to their successful 
leadership of a program could improve accountability. Do you agree with 
this opinion and implication? Why or why not?
    Mr. Christle. I agree in principle on tying career progress to 
performance but there are some practical issues. I believe this issue 
has more to do with uniformed officers at the O-6 and higher levels. 
Below the O-6 level, acquisition career progression is probably related 
to prior performance if the officer is actually in an acquisition 
billet. The problem is that most uniformed people have relatively short 
acquisition careers (especially in the Army and Navy) so there is 
limited opportunity for performance-based progression. Movement above 
the O-6 level must contend with the flag officer management process. To 
the extent the CAE can influence that process the component will 
probably get the right flag officers. The problem for civilians is that 
for whatever reason, they tend to be scarce in the upper levels of 
acquisition. When they are in program manager or program executive 
officer positions, they appear to reflect appropriate acquisition 
performance histories.
    In a side note, one of the problems with civilians in critical 
acquisition positions is the inability to force them to relocate to 
where they are needed. Another issue for both uniformed and civilian 
acquisition workforce members is the regulatory constraint on 
succession planning. These issues might benefit from regulatory and 
statutory action.
                                 ______
                                 
           Questions Submitted by Senator Joseph I. Lieberman

                           ACQUISITION ROLES

    38. Senator Lieberman. Dr. Hamre, please discuss what role you 
believe the Deputy for Defense Research and Engineering (DDR&E) and the 
rest of the DOD technology community--labs, Defense Advanced Research 
Projects Agency (DARPA) etc.--should have in strengthening Pentagon 
acquisition programs and policy.
    Dr. Hamre. DDR&E used to be the third most powerful position in the 
Department of Defense pre-Goldwater-Nichols. It is no longer. The 
position is hugely diminished, and I think that is unfortunate. I 
believe we should diminish the ``gunsmithing'' aspects of acquisition 
oversight and strengthen the ``marksmanship'' aspects. Those 
marksmanship aspects are best grounded in DDR&E. I would personally 
reinvigorate the traditional DDR&E role inside a retooled USD(AT&L).

    39. Senator Lieberman. Dr. Hamre, should the roles and authority of 
the DDR&E be expanded to allow him to more fully participate in making 
DOD a smart buyer?
    Dr. Hamre. Absolutely. But a smart ``strategic'' buyer, freed from 
the tactical aspects of acquisition, which I believe belong with the 
military departments.

                         BASIC RESEARCH FUNDING

    40. Senator Lieberman. Mr. Porter, in your prepared testimony you 
noted the role that basic research plays in developing technologies 
that are used in major acquisition programs. You also pointed out the 
recent work of Norm Augustine in a National Academy of Sciences study 
highlighting the need for more R&D investment. Can you provide specific 
examples of how under-investment in science and technology, or a lack 
of scientific understanding of how systems may function, has affected 
the development and deployment of major programs either causing large 
cost overruns or worse yet, causing casualties on the battlefield?
    Mr. Porter. It is obviously impossible to ``prove'' a causal 
relationship between any specific funding deficiency in the 
Department's support for basic research, and problems in major systems 
development. The best I can do is point to the fact that some of the 
major programs that are most in the news for their cost growth are 
programs whose key technologies were insufficiently mature to warrant 
proceeding into full scale system design and development under the 
Department's own guidelines. Increased funding alone cannot assure 
adequate technical maturity by any date certain, but inadequate levels 
of funding surely delay achieving such maturity levels.
    With regard to casualties on the battlefield, I would speculate 
that heavier and earlier investment in the technologies needed to 
detect IEDs and to non-destructively halt vehicles and suspicious 
personnel could well have had beneficial effects. Land mines and car 
bombs are not new problems.

                             INDUSTRIAL R&D

    41. Senator Lieberman. Mr. Porter, in your prepared testimony you 
suggested that we should strive to make ``early phases of R&D activity 
. . . profitable in their own right'' without even the promise of 
future production buys to help a company recoup its investments. How 
would you propose to do this?
    Mr. Porter. There are many potential contractual vehicles to 
develop and deliver a paper design, or a technology test bed, or a 
prototype, for evaluation, ranging from small time-and-materials and 
level-of-effort contracts carrying a fixed fee, i.e. profit, to 
substantial cost-plus-fixed and/or award fee contracts. Not that this 
is a simple issue since one would not want to prohibit the contractor 
from bidding on a subsequent acquisition contract for a similar item, 
even if such follow-on work had not been envisioned at the time of the 
initial award.
    Because uncertainty is the very nature of technology development, 
it is exceedingly difficult for a source selection authority to 
evaluate the accuracy of each bid for a new technology. Pure ``cost-
based'' competitions are sometimes disparaged as ``liars games'' and 
have been largely supplanted by negotiated ``best value'' source 
selections. Under these procedures technically qualified government 
personnel thoroughly vet the technical merits of each proposal, such 
that the source(s) can be selected primarily on technical merit and 
past performance, rather than just on promised cost.

    42. Senator Lieberman. Mr. Porter, what role does the Government's 
own set of laboratories play in the R&D and acquisition process?
    Mr. Porter. In my view, Government laboratories--and the 
specialized laboratories of some FFRDCs and university affiliated 
research centers (UARCS)--play a very important role as centers of 
excellence for technologies and specialized system engineering skills 
and practices that are vital to U.S. military prowess. They are the 
keepers of the basic knowledge that underlies many of our modern 
weapons systems--knowledge that does not routinely reside or advance in 
the private sector. Examples include underwater acoustics, specialized 
explosives and fuses, and directed energy phenomena. The existence of 
these centers of excellence facilitates the Government's ability to 
formulate sound responses to emerging needs for new military equipment, 
and also serves as a source of expertise for evaluating the technical 
readiness of new acquisition programs to proceed into their next phase.
                                 ______
                                 
                Questions Submitted by Senator Jack Reed

    ROLE OF OPERATIONAL TESTING AND SYSTEMS ENGINEERING IN IMPROVED 
                         ACQUISITION PROCESSES

    43. Senator Reed. Dr. Hamre and Mr. Porter, today's testimonies 
indicated the important role that testing plays in the successful 
development and deployment of new weapons systems. Mr. Porter 
specifically stated that ``. . . there is no major new threat so 
imminent that sound system engineering management practices need to be 
sacrificed in order to accelerate the fielding of unproven technology 
and equipment.'' I am particularly concerned about the Department's 
development and deployment of ballistic missile defense (BMD) and 
information technology (IT) systems. Do you feel that the Department is 
using all appropriate and sound systems engineering and testing 
(including developmental and operational testing) principles, and 
practices in its development and deployment of BMD and information 
technology systems today?
    Dr. Hamre. No. I don't think that we have subjected our BMD work to 
the kind of testing we would insist on for a normal weapon system. As 
such, we don't know if the system we are currently buying is going to 
be at all effective, and if it fails its capabilities, what caused the 
failures and what does it take to fix it.
    Mr. Porter. I believe the segment of my statement that was cited in 
the question is applicable in principle to both missile defense and IT 
systems developments. The timing of a future ballistic missile threat 
to the U.S. by rogue nations appears to me to be such that well proven 
systems engineering practices could logically prevail. The development 
of new information systems appears to me to be less driven by specific 
threats than by an eagerness to reap the very real operational and 
cost-effectiveness benefits that accrue from fielding IT systems that 
can help reduce the fog of war, increase weapon system effectiveness by 
reducing sensor to shooter delays, and improve logistic efficiency. 
Press reports would suggest that pressures to field equipment in both 
areas are outstripping prudent testing guidelines, but I have no direct 
insights into the actual status of either program area.

    44. Senator Reed. Dr. Hamre and Mr. Porter, what shortfalls do you 
see in the current regimen of testing for these types of programs?
    Dr. Hamre. I think there are major problems with operational 
testing in general. There are too many testers, frankly. The number of 
programs has been cut dramatically during the past 20 years, but the 
number of testers has gone largely unchanged. So we are doing far more 
testing to occupy the work of all the testers. I think testing should 
become integral to the development process, and not a pass-fail test at 
the end of it.
    Mr. Porter. As indicated earlier, I have no direct knowledge of the 
specific status of the testing for the major components of the MDA 
program or for the emerging major new IT systems. Nevertheless, I know 
of no reason for not following prudent engineering practices in both 
areas, considering both the financial stakes and the operational needs.

    45. Senator Reed. Dr. Hamre and Mr. Porter, what are the potential 
problems in terms of performance and cost that could result for the 
Department if these deficiencies are not corrected?
    Dr. Hamre. I can't give you an estimate, but the potential is huge.
    Mr. Porter. Although I have no specific knowledge of the 
deficiencies in the testing regimens of these particular programs, I am 
well aware of the historical costs of insufficient testing of systems 
before they are fielded. As a former submarine officer, I was well 
schooled in the problems encountered early in World War II when many 
brave submariners died while trying to employ ineffective torpedoes 
against enemy ships. To this day, the U.S. submarine force has a strong 
tradition of insisting on thorough testing of all of its equipment, 
systems, and weapons as a prerequisite to full fielding.
    Not only does poorly tested equipment result in needless deaths of 
American service personnel, it results in needless additional cost to 
the taxpayers. Equipment that has been allowed to be fielded without 
adequate testing frequently requires major redevelopment expenditures.

    46. Senator Reed. Dr. Hamre and Mr. Porter, does the Department 
have sufficient in-house expertise to adequately test or manage large 
IT programs?
    Dr. Hamre. No. I suspect we are no different from major 
corporations in the private sector which need to secure competent 
external support to properly test IT systems.
    Mr. Porter. The decline in the Department's in-house technical 
expertise has been widely recognized, including in testimony before 
this subcommittee. Fortunately, the Department has at its disposal 
several highly-qualified FFRDC and UARCs that have a history of 
providing objective technical support to the testing and management of 
complex systems, including IT systems. Nevertheless, as the new, even 
more complex, IT systems needed to implement such networked equipment 
as the Army's FCS and such cross-Service and cross-agency concepts as 
Maritime Domain Awareness in support of homeland security/defense 
proceed through development, I expect the Department's ability to 
manage and test such programs to be increasingly taxed, even with full 
use of the available FFRDCs and UARCs.

    [Whereupon, at 4:13 p.m., the subcommittee adjourned.]

                                 
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