    [Senate Hearing 109-827]
    [From the U.S. Government Publishing Office]

                                                     S. Hrg. 109-827, Pt. 3

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                      2007

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

                                    HEARINGS

                                   before the

                          COMMITTEE ON ARMED SERVICES
                              UNITED STATES SENATE

                           ONE HUNDRED NINTH CONGRESS

                                 SECOND SESSION

                                       ON

                                    S. 2766

         TO AUTHORIZE APPROPRIATIONS FOR FISCAL YEAR 2007 FOR MILITARY
    ACTIVITIES OF THE DEPARTMENT OF DEFENSE, FOR MILITARY CONSTRUCTION, AND
       FOR DEFENSE ACTIVITIES OF THE DEPARTMENT OF ENERGY, TO PRESCRIBE
    PERSONNEL STRENGTHS FOR SUCH FISCAL YEAR FOR THE ARMED FORCES, AND FOR
                                 OTHER PURPOSES

                                   ----------

                                     PART 3

                        READINESS AND MANAGEMENT SUPPORT

                                   ----------

                     FEBRUARY 7, MARCH 2, 15; APRIL 5, 2006

             Printed for the use of the Committee on Armed Services
    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                 2007--Part 3  READINESS AND MANAGEMENT SUPPORT

                                                     S. Hrg. 109-827, Pt. 3

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                      2007

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

                                    HEARINGS

                                   before the

                          COMMITTEE ON ARMED SERVICES
                              UNITED STATES SENATE

                           ONE HUNDRED NINTH CONGRESS

                                 SECOND SESSION

                                       ON

                                    S. 2766

         TO AUTHORIZE APPROPRIATIONS FOR FISCAL YEAR 2007 FOR MILITARY
    ACTIVITIES OF THE DEPARTMENT OF DEFENSE, FOR MILITARY CONSTRUCTION, AND
       FOR DEFENSE ACTIVITIES OF THE DEPARTMENT OF ENERGY, TO PRESCRIBE
    PERSONNEL STRENGTHS FOR SUCH FISCAL YEAR FOR THE ARMED FORCES, AND FOR
                                 OTHER PURPOSES

                                   __________

                                     PART 3

                        READINESS AND MANAGEMENT SUPPORT

                                   __________

                     FEBRUARY 7, MARCH 2, 15; APRIL 5, 2006

             Printed for the use of the Committee on Armed Services

                         U.S. GOVERNMENT PRINTING OFFICE
    30-349 PDF                 WASHINGTON DC:  2008
    ---------------------------------------------------------------------
    For Sale by the Superintendent of Documents, U.S. Government Printing Office
    Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512�091800
    Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001

                          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 Readiness and Management Support

                         JOHN ENSIGN, Nevada, Chairman

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

                                      (ii)
    ?

                                C O N T E N T S

                                  ----------

                        CHRONOLOGICAL LIST OF WITNESSES
                           Contracting Issues in Iraq
                                february 7, 2006

                                                                       Page
    Bolton, Hon. Claude M., Jr., Assistant Secretary of the Army for
      Acquisition, Logistics, and Technology.........................     4
    Johnson, MG Ronald L., USA, Deputy Chief of Engineers/Deputy
      Commanding General, U.S. Army Corps of Engineers...............    12
    Bowen, Stuart W., Jr., Special Inspector General for Iraq
      Reconstruction.................................................    13

    Military Installations, Military Construction, Environmental Programs,
                   and Base Realignment and Closure Programs
                                 march 2, 2006

    Grone, Hon. Philip W., Deputy Under Secretary of Defense,
      Installations and Environment..................................    76
    Eastin, Hon. Keith E., Assistant Secretary of the Army for
      Installations and Environment..................................    90
    Penn, Hon. B.J., Assistant Secretary of the Navy for
      Installations and Environment..................................    99
    Anderson, Hon. William C., Assistant Secretary of the Air Force
      for Installations, Environment, and Logistics..................   112

                            Ground Forces Readiness
                                 march 15, 2006

    Lovelace, LTG James J., Jr., USA, Deputy Chief of Staff for
      Operations and Plans, United States Army.......................   180
    Huly, Lt. Gen. Jan C., USMC, Deputy Commandant, Plans, Policies,
      and Operations, United States Marine Corps.....................   185
    Vines, LTG John R., USA, Commanding General, XVIII Airborne Corps   196
    Sattler, Lt. Gen. John F., USMC, Commander, United States Marine
      Corps Forces Central Command, and Commanding General, I Marine
      Expeditionary Force............................................   199

                        Improving Contractor Incentives
                                 april 5, 2006

    Walker, Hon. David M., Comptroller General, United States
      Government Accountability Office...............................   262
    Krieg, Hon. Kenneth J., Under Secretary of Defense for
      Acquisition, Technology, and Logistics.........................   274

                                     (iii)

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                      2007

                                  ----------

                           TUESDAY, FEBRUARY 7, 2006

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

                           CONTRACTING ISSUES IN IRAQ

        The subcommittee met, pursuant to notice, at 2:30 p.m. in
    room SR-222, Russell Senate Office Building, Senator John
    Ensign (chairman of the subcommittee) presiding.
        Committee members present: Senators Ensign, Akaka, and
    Dayton.
        Also present: Senators Levin and Reed.
        Majority staff members present: William C. Greenwalt,
    professional staff member; and Elaine A. McCusker, professional
    staff member.
        Minority staff member present: Peter K. Levine, minority
    counsel.
        Staff assistants present: Jessica L. Kingston and Benjamin
    L. Rubin.
        Committee members' assistants present: John A. Bonsell,
    assistant to Senator Inhofe; D'Arcy Grisier and Alexis Bayer,
    assistants to Senator Ensign; Russell J. Thomasson, assistant
    to Senator Cornyn; Stuart C. Mallory, assistant to Senator
    Thune; Elizabeth King, assistant to Senator Reed; Darcie
    Tokioka, assistant to Senator Akaka; Kimberly Jackson,
    assistant to Senator Dayton; and Andrew Shapiro, assistant to
    Senator Clinton.

           OPENING STATEMENT OF SENATOR JOHN ENSIGN, CHAIRMAN

        Senator Ensign. This afternoon, the Subcommittee on
    Readiness and Management Support meets to receive testimony on
    Iraq contracting issues in review of the National Defense
    Authorization Request for Fiscal Year 2007. I am pleased to
    welcome today's witnesses for the hearing, Claude M. Bolton,
    the Assistant Secretary of the Army for Acquisition, Logistics,
    and Technology; Major General Ronald L. Johnson, Deputy Chief
    of Engineers and Deputy Commanding General, U.S. Army Corps of
    Engineers; and Stuart W. Bowen, the Special Inspector General
    for Iraq Reconstruction.
        As part of its general oversight of military expenditures,
    the Senate Armed Services Committee and this subcommittee in
    particular have conducted numerous hearings and briefings on
    acquisition oversight and reform and initiated numerous
    investigations by the Government Accountability Office (GAO)
    and a Department of Defense (DOD) Inspector General (IG) on DOD
    acquisition practices and programs.
        Contracting issues in Iraq are a subset of this overall
    effort. In addition, the full committee has held a number of
    Iraqi-related hearings and briefings where Iraqi contracting
    issues have been discussed and conducted frequent bipartisan
    staff briefings on specific Iraq contracting issues. The
    subcommittee met specifically on Iraq contracting practices in
    May 2004. At that hearing, the subcommittee looked at the
    adequacy of DOD contract oversight in Iraq, the appropriateness
    of functions that are being contracted out and how contractor
    security functions should operate in the U.S. military chain of
    command. Since our last hearing, there has been a significant
    amount of change in oversight structure and authorities for
    contracting in Iraq.
        As such, this is an appropriate time for the subcommittee
    to gain a better understanding of current DOD roles and
    responsibilities for Iraq contracting and to review lessons
    learned from the reconstruction effort. There have been a
    number of negative reports on problems with some Iraq
    contracts. To a certain degree, all Federal contracting is
    susceptible to fraud, waste, abuse, and even honest mistakes.
    Key questions for Congress to answer are whether Iraq
    contracting is more susceptible to these problems, and are
    there adequate controls and remedies in place to find the bad
    actors and to punish them, thus deterring additional fraud,
    waste, and abuse. Are the auditors, the Special IG for Iraq
    Reconstruction, the DOD IG, and Defense Contract Audit Agency
    (DCAA) up to the task, and is there adequate contracting
    experience on the ground to prevent fraud and wasteful
    spending? The Iraq and Afghanistan experience should have
    plenty of lessons learned from emergency contracting that
    Congress should explore for application in future
    contingencies.
        For example, having contracting vehicles in place, such as
    the Army's Logistics Civil Augmentation Program (LOGCAP)
    contract, can quickly mobilize contractors to meet DOD's needs.
    However, one should ask at what point is it appropriate to
    transition from sole-source cost-plus task orders, to firm,
    fixed-price competitive contracts. Should the next LOGCAP
    contract be awarded to more than one contractor, and should
    task orders be competed at an appropriate time? Other issues to
    explore include: does the DOD need to improve its contingency
    contracting procedures and workforce for future operations.
    Last year's National Defense Authorization Act (NDAA) asked DOD
    to review its policies and procedures in this area.
        In addition: does DOD have adequate visibility and control
    over Federal contractors and especially security contractors in
    a war zone?
        Finally: what additional mechanisms and authorities are
    needed to oversee contracting in major contingencies such as
    Iraq? Tens of billions of taxpayers' dollars are being expended
    in Iraq. I look forward to hearing from our witnesses on what
    needs to be done to ensure that the money is spent
    appropriately and wisely. As soon as Ranking Member Senator
    Akaka gets here, I'll defer to him to make an opening
    statement, but at this point, I'd like to, so that we have as
    much time as possible, hear from the witnesses and to ask
    questions. Can we start with Mr. Bolton, if you would start
    with your testimony, and we'll go Mr. Bolton, Major General
    Johnson, and Mr. Bowen.
        [The prepared statement of Senator Ensign follows:]

                   Prepared Statement by Senator John Ensign

        This afternoon, the Subcommittee on Readiness and Management
    Support meets to receive testimony on Iraq contracting issues in review
    of the National Defense Authorization Request for Fiscal Year 2007.
        I am pleased to welcome today's witnesses for this hearing: Claude
    M. Bolton, the Assistant Secretary of the Army for Acquisition,
    Logistics and Technology; Major General Ronald L. Johnson, Deputy Chief
    of Engineers and Deputy Commanding General, U.S. Army Corps of
    Engineers; and Stuart W. Bowen, the Special Inspector General for Iraq
    Reconstruction.
        As part of its general oversight of military expenditures, the
    Senate Armed Services Committee and this subcommittee have conducted
    numerous hearings and briefings on acquisition oversight and reform and
    initiated numerous investigations by the Government Accountability
    Office and the Department of Defense (DOD) Inspector General on DOD
    acquisition practices and programs. Contracting issues in Iraq are a
    subset of this overall effort. In addition, the committee has held a
    number of Iraqi related hearings and briefings where Iraqi contracting
    issues have been discussed, and conducted frequent bipartisan staff
    briefings on specific Iraq contracting issues.
        Our subcommittee met specifically on Iraq contracting practices in
    May 2004. At that hearing, the subcommittee looked at the adequacy of
    DOD contract oversight in Iraq, the appropriateness of functions that
    are being contracted out, and how contractor security functions should
    function in the U.S. military chain of command. Since our last hearing,
    there has been a significant amount of change in oversight structure
    and authorities for contracting in Iraq. As such, this is an
    appropriate time for the subcommittee to gain a better understanding of
    current DOD roles and responsibilities for Iraq contracting and to
    review lessons learned from the reconstruction effort.
        There have been a number of negative reports on problems with some
    Iraq contracts. To a certain degree, all Federal contracting is
    susceptible to fraud, waste, abuse, and even honest mistakes. Key
    questions for Congress to answer are whether Iraq contracting is more
    susceptible to these problems and are there adequate controls and
    remedies in place to find the bad actors and punish them--thus
    deterring additional fraud, waste, and abuse. Are the auditors--the
    Special IG for Iraq Reconstruction, the DOD IG and Defense Contract
    Audit Agency--up to the task and is there adequate contracting
    experience on the ground to prevent fraud and wasteful spending?
        The Iraq and Afghanistan experience should have plenty of lessons
    learned for emergency contracting that Congress should explore for
    application in future contingencies. For example, having contracting
    vehicles in place such as the Army's LOGCAP contract can quickly
    mobilize contractors to meet DOD's needs. However, one should ask at
    what point is it appropriate to transition from sole-source cost-plus
    task orders to firm-fixed-price competitive contracts. Should the next
    LOGCAP contract be awarded to more than one contractor and should task
    orders be competed at an appropriate time?
        Other issues to explore include does the DOD need to improve its
    contingency contracting procedures and workforce for future operations?
    Last year's National Defense Authorization Act asks DOD to review its
    policies and procedures in this area. In addition, does DOD have
    adequate visibility and control over Federal contractors and especially
    security contractors in a warzone? Finally, what additional mechanisms
    and authorities are needed to oversee contracting in major
    contingencies such as Iraq? Tens of billions of taxpayers' dollars are
    being expended in Iraq. I look forward to hearing from our witnesses on
    what needs to be done to ensure that this money is spent appropriately
    and wisely.

    STATEMENT OF HON. CLAUDE M. BOLTON, JR., ASSISTANT SECRETARY OF
          THE ARMY FOR ACQUISITION, LOGISTICS, AND TECHNOLOGY

        Mr. Bolton. Thank you and good afternoon to you, Mr.
    Chairman, and to the members of the subcommittee and full
    committee who are present today. I'm Claude Bolton, and I serve
    as the Assistant Secretary of the Army for Acquisition,
    Logistics, and Technology, and it's my privilege to testify on
    the important subjects that have come under my purview with
    regard to contracting in Iraq and reconstruction efforts in
    that country.
        Mr. Chairman, I'm also pleased to be here today with Major
    General Ron Johnson, the Deputy Commanding General for the Army
    Corps of Engineers, and with Stuart Bowen, the Special
    Investigator Inspector General for Iraq Reconstruction. Both
    are invaluable associates in the continuing important
    reconstruction mission in Iraq that is being directed by the
    Secretary of State through Secretary Rice and through the Chief
    of Mission, Ambassador Salazar.
        Mr. Chairman, as my prepared statement reflects, the United
    States Army has been hard at work executing, as directed by
    State, on the largest portion, approximately $13 billion of the
    $18.4 billion, on the projects and other requirements that have
    been generated from the fiscal year 2004 through fiscal year
    2006 Iraq Relief and Reconstruction Fund (IRRF) appropriated by
    Congress. At the same time, we've also been very busy
    supporting the warfighter in a variety of requirements that
    have arisen in the theater since 2003. With regard to
    reconstruction in Iraq, I refer you to the slide attachments of
    my prepared statement for the quickest read on the size and
    scope of the operational tempo of the efforts. Behind you on
    your left, you'll see a poster that highlights the country of
    Iraq. In 2000, a number of red dots and blown-up, the city of
    Baghdad, with green dots, those represent, in just 2005, the
    number of projects completed. Wrapping up a project and
    contracting effort that has gone literally from 0 to 60 in the
    last 18 to 24 months has been an enormous challenge.
        During this time, we have been directed first by Coalition
    Provision Authority (CPA) and now by the Department of State
    (DOS), and those agencies began to analyze Iraq's massive
    requirements and embark on a plan. During the same time, we
    have been agile enough to work with those in the lead as they
    have worked through the several changes in Iraq's government at
    the cabinet and ministerial levels.
        The scale, timeline, and intense security environment of
    this enormous undertaking are unprecedented. We have built a
    series of organizations, acquisition strategies, and systems in
    response to an adaptive, cunning enemy that does not wish for
    us to succeed, and a workplace that is 8,000 miles from home
    and staffed by the military and civilian volunteers.
        Importantly, we have worked with the Iraqi people
    themselves, the vast majority of whom welcome our efforts
    despite decades of isolation from the modern world. We've
    adjusted the reconstruction ideas and requirements of a new and
    evolving Iraqi democracy as the Iraqis go to the polls and
    select their representatives and leaders.
        We're working hard to understand and to meet the
    sustainment needs of the projects that have been or will be
    completed, and we're fully engaged with the DOS on Iraq's
    capacity-building needs with regard to the reconstruction
    process. At each step in the process, the Army Corps of
    Engineers has been with us, demonstrating time and time again
    why they are the very best at what they do.
        In early 2005, we began a process that culminated with the
    preliminary consolidation of the Project and Contracting Office
    (PCO) and the Corps of Engineers' efforts in Iraq. We're
    working to expand that consolidation as we arrive at a point
    where our respective efforts are joined. As we enter the third
    year of this program, more than 80 percent of the $13 billion
    of the $18.4 billion in the reconstruction funding directed to
    the Army has been obligated.
        In total, 7,500 contract actions for the reconstruction and
    critical non-construction material and services, and over 2,800
    projects have been started by the Army's PCO. Over 2,000
    projects have been completed, and we're largely on schedule to
    finish obligating 100 percent of the PCO funds in the next
    several months.
        Today, we have around 60 percent disbursements of the funds
    for which the PCO is responsible. To facilitate the sustainment
    operation of our reconstruction projects, our contractors are
    required to transfer their technical knowledge and skills to
    the Iraqi personnel through thousands of hours of training, and
    the provision of contract deliverables, including operations
    and maintenance manuals, preventative maintenance plans, and
    databases that contain information on both subcontracting
    activities and efforts to develop the capacity needed to
    sustain the infrastructure being built.
        Along this journey, we have learned much, improved a great
    deal and have worked very hard. We know that the better and
    faster we do our job, the better and faster the new Iraqi
    Government can assume its full responsibilities, and our
    soldiers can return home. Subject to your questions, Mr.
    Chairman, this concludes my remarks. Please allow me to express
    our profound gratitude for all the Members of Congress who have
    done such a great job in supporting the Army, past, present,
    and future. Thank you.
        [The prepared statement of Mr. Bolton follows:]

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

                                  introduction

        Mr. Chairman and distinguished members of the Subcommittee on
    Readiness and Management Support of the Senate Armed Services
    Committee, thank you for the opportunity to report to you on the status
    of Iraq reconstruction and contracting within the boundaries of our
    responsibilities for approximately $13 billion of the fiscal year 2004
    funding appropriated for Iraq under the Iraq Relief and Reconstruction
    Fund (IRRF) appropriated funds. Today, it is my privilege to represent
    the Army leadership and the military and civilian members of the
    combined reconstruction program management and contracting workforce
    team. Allow me to echo the President's message last Tuesday to Congress
    and to the Nation that we have learned much from our experience in
    Iraq. Just as we have adjusted our military tactics, we have changed
    and refined our approach to reconstruction as the situation on the
    ground has warranted.
                         history--how did we get here?
        As you are aware, the Army is the Executive Agent for the
    Department of Defense's (DOD) reconstruction and relief mission in Iraq
    as outlined in the IRRF. The requirements writer and interagency
    leader, first the Coalition Provisional Authority (CPA) and then the
    Department of State (DOS), has directed that the Army execute
    approximately $13 billion of the $18.4 billion for projects in Iraq.
    The following brief history of this monumental effort is provided to
    show in simple terms how we have arrived at this point.
        At first, responsibility for providing humanitarian assistance and
    aiding in the reconstruction of post-war Iraq initially fell to the
    Office of Reconstruction and Humanitarian Assistance (ORHA), which was
    tied to both the DOD and the U.S. Agency of International Development
    (USAID). Later, the CPA was established and responsibility for the
    reconstruction was shifted to that organization as Congress
    appropriated monies. The CPA, which existed from May 2003 to June 2004,
    was originally charged only with responsibility for the oversight and
    expenditure of the Development Fund for Iraq and the initial funds
    appropriated in April 2003 under the first emergency supplemental for
    Iraq. However, with the appropriation of the $18.4 billion into the
    Iraq IRRF, under Public Law 108-106 in November 2003, the CPA's
    reconstruction mission expanded. The Army was asked to serve as
    Executive Agent in two separate actions for ORHA in May 2003 and,
    again, for CPA in June 2003; responsibilities that it readily accepted.
    In an effort to immediately support this Executive Agency
    responsibility, and as the Army's Senior Acquisition Executive, I
    initially designated a Head of Contracting Activity (HCA) for CPA, and
    an office was established to assist Ambassador J. Paul Bremer.
        In January 2004, the Program Management Office (PMO) was
    established by, and within CPA, to provide programmatic and contracting
    support for the IRRF. It was at this same time that the Army was asked
    to expand its Executive Agency responsibilities to specifically include
    acquisition and program management support. In February 2004, I
    designated a one-star general officer as the HCA for Iraq
    reconstruction, and the contracting mission was expanded in staffing
    and scope. In fact, during this initial reconstruction phase when there
    was less than optimal information on reconstruction requirements, the
    Army awarded $5 billion in Indefinite Delivery-Indefinite Quantity
    Design-Build construction contracts to seven separate contractors. This
    took only 90 days with full and open competition and in full compliance
    with the Federal Acquisition Regulation (FAR). Furthermore, there were
    no contract protests. Normally, this process would have taken nearly 18
    months.
        The next phase of the Army's acquisition and program management
    responsibilities in Iraq occurred in June 2004, upon the standdown of
    the CPA and the establishment of the U.S. Embassy for Iraq. The DOS
    assumed overall control of the reconstruction program through the Iraq
    Reconstruction Management Office (IRMO). IRMO was given the
    responsibility of managing all assistance efforts in Iraq, to
    coordinate all U.S. efforts, to set the priorities and to set the
    requirements for all parts of the IRRF with the Army and USAID serving
    as the implementers of the State Department's priorities for the
    reconstruction. In preparation for this transition, the Project and
    Contracting Office (PCO) was established to replace the PMO and moved
    under my direct supervision. In Iraq, PCO was placed under IRMO and
    Chief of Mission authority. A Principal Deputy was added to my office
    to direct my office's efforts with the PCO as the Director of Iraq
    Reconstruction and Program Management. Additionally, my Deputy
    Assistant Secretary of the Army for Policy and Procurement improved
    oversight of the contracting mission by establishing the Office of the
    Deputy Assistant Secretary of the Army for Policy and Procurement-Iraq
    (DASA (P&P)-Iraq). The PCO-Washington and the DASA (P&P)-Iraq offices
    are co-located and work together to bring full cooperative reach-back
    support to the program and contracting personnel on the ground in Iraq.
        In October 2004, the U.S. Central Command designated the Army as
    the lead component for contracting for Operation Enduring Freedom in
    the Combined Joint Operations Area, Iraq and Afghanistan, and the Joint
    Contracting Command-Iraq/Afghanistan (JCC-I/A) was established. JCC-I/A
    provides contracting support under my authority as the Army Acquisition
    Executive to both the Iraq reconstruction effort and to our combatant
    commanders in Iraq and Afghanistan. The JCC-I/A is headed by a two-star
    general officer who has been designated by me as HCA for Iraq and
    Afghanistan. This joint command has over 160 people in two theatres of
    war who are working in dangerous and difficult conditions.
        Today, we are in another phase of the Army's mission to support the
    reconstruction. As the majority of our projects have moved from design
    to construction, we have responded to this development by asking the
    U.S. Army Corps of Engineers, Gulf Region Division (GRD), to expand its
    responsibilities for on-the-ground construction management. PCO has
    consolidated and streamlined its organization in association with the
    GRD in order to increase efficiencies and continue efforts to reduce
    costs and complete the mission. As of December 4, 2005, the PCO
    Director in Iraq is the GRD commander. This three-stage evolution from
    the CPA and PMO, to the PCO, and currently to GRD/PCO and JCC-I/A is
    truly a good news story that demonstrates how effectively the Army can
    organizationally readjust and respond to the changing circumstances in
    a war-time environment and at the same time provide consistent policy
    guidance and oversight.
                              current performance
        Together the GRD/PCO and the JCC-I/A are working as a team, with
    IRMO and the Department of State, in rebuilding Iraq. The GRD/PCO and
    JCC-I/A operate in full compliance with the Federal Acquisition
    Regulations and have many success stories that demonstrate our
    abilities to streamline and adapt acquisition processes to the complex
    and dynamic environment. As we enter into the third year of this 4 year
    program, more than 80 percent of the $13 billion of the $18.4 billion
    in reconstruction funding allocated to the Department of Defense has
    been obligated. (Attached to this statement is a chart titled Iraq
    Reconstruction Program that depicts the committed, obligated and
    disbursed dollars).
        In total, JCC-I/A has completed over 7,500 contract actions for the
    reconstruction and critical non-construction material and services, and
    over 2,800 projects have been started by PCO. Over 2,000 projects have
    been completed, including nearly 800 schools where more than 300,000
    students are being educated; 13 major oil projects to assist in
    increasing Iraqi oil production; and Army's electricity projects have
    added or re-habilitated over 1,400 additional megawatts in generation
    capacity to the National electrical grid. When all water projects are
    completed, roughly 3.6 million people will have safe drinking water.
    One hundred and seventy-six water treatment projects have been
    completed to date, and 90 more are underway. Approximately 3.6 million
    Iraqis will have access to drinking water with the completion of these
    water projects. The majority of these projects were awarded directly to
    local contractors and local water authorities. We are currently
    renovating 16 hospitals, constructing a number of new primary health
    care facilities; restoring the country's railroad system; and
    constructing 500 kilometers of roadways. Lastly, the GRD/PCO
    spearheaded a joint effort of all U.S. Government agencies to
    successfully reconstruct the badly damaged Port of Umm Qasr. By the
    latter part of 2004, $3.5 billion in material and goods had moved
    through the port. (Attached is a map titled Iraq Reconstruction
    Projects, December 2005, Completed Projects that depicts the
    distribution of the completed reconstruction projects).
        To facilitate the sustainable operations of our reconstruction
    projects, our contractors are required to transfer their technical
    knowledge and skills to Iraqi personnel through thousands of training
    hours and the provision of contract deliverables including operations
    and maintenance manuals preventative maintenance plans and databases
    that contain information on both subcontracting activities and efforts
    to develop the capacity needed to sustain the infrastructure being
    built. In the water sector alone, contractors have held more than
    140,000 hours of training and capacity development to over 78,000 Iraqi
    ministry personnel ranging from the facility to the ministry level.
        In October 2004, DOS, GRD/PCO, and JCC-I/A began shifting the
    acquisition strategy to make greater use of local Iraqi firms through
    direct contracting as the local contractor base matured and stabilized.
    Projects that have been directly contracted to Iraqi firms include
    electricity transmission and distribution, potable water, roads, and
    numerous others. Direct contracting has allowed certain projects to be
    completed faster, cheaper, safer, and more visible to Iraqis. In the
    Oil Sector, we have tailored the IRRF projects toward engineering and
    procurement where the state-owned operating companies are directly
    responsible for construction. To date, over 40 percent of all projects
    started, or 1,100 projects, have been through direct contracts with the
    Iraqis. Stated differently, in dollar volume, we have obligated $1.3
    billion to Iraqi companies. Iraqi employment under GRD/PCO
    reconstruction projects exceeds 50,000 people.
        The success that we see on the ground in-theater by IRMO, the GRD/
    PCO and JCC-I/A is being achieved with a dedicated group of military,
    civilian and contractor personnel. Both offices operate long hours, 7
    days a week under extremely volatile conditions. On January 29, 2005,
    we lost two of our own, Barbara Heald and Navy Lieutenant Commander
    Keith Taylor, who were killed at their desks by a rocket attack on the
    U.S. Embassy compound in Baghdad. These are the heroes and the role
    models for all of us working this important mission supporting
    democracy.
                     accountability in iraq reconstruction
        I also want to emphasize the following very important point. The
    reconstruction program in Iraq has been one of most audited efforts
    ever undertaken by our government. From the beginning, we welcome this
    ``good government'' look at our work. In addition to the Special
    Inspector General for Iraq Reconstruction (SIGIR), we also have been
    audited by the Government Accountability Office (GAO), the Defense
    Contracting Audit Agency (DCAA), the Department of Defense Inspector
    General (DODIG), the Department of State Inspector General (DOS IG),
    and the Army Audit Agency (AAA). Our policy throughout this mission has
    been to work side-by-side with all auditors in order to ensure the
    proper expenditure and oversight of U.S. taxpayer money allocated by
    the U.S. Congress. We have also found that they serve a valuable role
    in helping us execute our mission better and with greater care. As an
    example, auditors have given us recommendations, which we have worked
    hard to implement, on improving cost-to-complete estimates, improving
    the documentation of our award fee process for the design-build
    contractors, and the establishment of a centrally coordinated approach
    to sustainment issues. In our opinion, the number of auditors both in
    theatre and in Washington, along with their associated cost, has not
    been lacking.
        Let me also assure you that we work continuously to uphold all U.S.
    laws and regulations, and that contracts are awarded in complete
    conformance with the Federal Acquisition Regulations.
                                   conclusion
        This historic effort continues to be a temporary program about to
    begin its third year. As we close year two, over 80 percent of the work
    is on contract and over 50 percent of the payments have been made on
    completed projects.
        In addition to the Iraqi people, the winners in our successful Iraq
    reconstruction program are the soldier, the centerpiece of the Army,
    and the civilians and contractors who have also made the ultimate
    sacrifice on the battlefield while undertaking this critical national
    priority. The scale, timeline, and intense security environment of this
    enormous undertaking are unprecedented. We have built a series of
    organizations and systems in response to an adaptive and cunning enemy.
    We have adjusted to the ideas and requirements of a new and evolving
    Iraqi democracy as they have been presented. We are working hard to
    understand and to meet the sustainment needs of the projects that have
    or will be completed; and we are fully engaged with the Department of
    State on Iraq's capacity building needs with regard to the
    reconstruction process.
        While the challenges have been daunting at times, we have
    maintained a tremendous sense of urgency and intense operational tempo
    with regard to our reconstruction mission. We are proud of our
    accomplishments, and we want the people of this great Nation and
    Congress which represents them to know of this effort.
        In summary, we are an Army at war, a full member of the Joint and
    Interagency Team, and we are fighting the global war on terror while
    bearing the enormous responsibilities associated with reconstruction.
    The Army is constantly working to improve the way we do business so
    that we can better support our soldiers, civilian volunteers, and
    contractor personnel in the field. Again, to echo President Bush, we
    benefit from responsible criticism that aims for success. With your
    continued support, we will succeed.

        Senator Ensign. I'll turn to my colleague, somebody who I
    enjoy working with a great deal, Senator Akaka.

                  STATEMENT OF SENATOR DANIEL K. AKAKA

        Senator Akaka. Thank you very much, Mr. Chairman. This is
    our first meeting for this year of the Subcommittee on
    Readiness and Management Support, and I look forward to working
    with you this year, and I want to wish you well under your
    leadership and chairmanship of this subcommittee as we pursue
    the issues that are important to all of us.
        On January 26, 2006, the Special IG for Iraq Reconstruction
    (SIGIR) reported on his review of 907 contracts awarded by the
    CPA. The IG reported that 17 percent of the contracts were not
    competitively awarded. Ten percent of the contracts were paid
    in full at the time of contract signing, and the completion of
    project work was never verified, and 31 percent of the
    contracts failed to contain documentation showing that the
    required work was performed.
        Other IG reports show a similar picture. For example, on
    April 30, 2005, the IG issued two reports, one addressing 300
    contracts valued at more than $300 million paid for out of Iraq
    funds, and the other addressing 17 contracts valued at almost
    $200 million paid for out of U.S. funds.
        The IG determined that more than half of the contracts paid
    for out of Iraqi funds and more than 20 percent of the
    contracts paid for out of U.S. funds failed to contain evidence
    that the goods or services we paid for had ever been received.
    There are many reasons for these contracting failures. I would
    like to focus for a moment on one source of the problem, our
    chronic understaffing of acquisition positions in Iraq.
        Last April, the SIGIR issued two reports in which he traced
    significant mismanagement issues to inadequate staffing. The
    first report had stated, ``According to PCO management, the
    Aegis contract is one of approximately 6,500 contracts and task
    orders administered by the PCO, and PCO staffing is not
    adequate for the considerable workload entailed in the
    administration of the Aegis contract. The PCO has authorized 69
    contract specialists, civilians, contractors, and military. At
    that time, our audit field work was concluded. The organization
    was able to only staff 41 of these positions. The Aegis
    contract is one of approximately 50 contracts administered by 1
    contracting officer. This situation is further exacerbated by
    high PCO staff turnover. At the time of the audit, the Aegis
    contract had four contracting officers and three contracting
    officer representatives since its inception less than a year
    earlier.''
        The second report stated, ``The PCO contracting activity
    was understaffed by 23 contracting personnel according to its
    organization chart dated September 2004. During the audit, we
    observed that the PCO contracting administrator (CA)
    contracting personnel worked 7 days per week. PCO CA personnel
    also told us that they worked 13 to 15 hours each day, 6 days a
    week, with a shortened shift of 6 to 11 hours on the seventh
    day. As one contracting officer stated to us, a contracting
    officer in the United States would normally have a team of
    contracting specialists who assist in the procurement process.
    However, in Iraq, contracting officers work the majority of the
    contract actions from start to finish without assistance.''
        Mr. Chairman, these problems are symptomatic of our broader
    failure to hire, train, and retain the acquisition workforce we
    need to support our military. It is just not fair to our
    contracting professionals, whether in Iraq or in the United
    States, to ask them to work 13 to 15 hours a day, 7 days a
    week, and then blame them when the results are not up to our
    expectations. We owe them better.
        I look forward to the testimony of the witnesses, Mr.
    Chairman. Thank you.
        [The prepared statement of Senator Akaka follows:]

                 Prepared Statement by Senator Daniel K. Akaka

        Mr. Chairman, thank you for calling this hearing. On January 26,
    2006, the Special Inspector General for Iraq Reconstruction reported on
    his review of 907 contracts awarded by the Coalition Provisional
    Authority. The Inspector General reported that 17 percent of the
    contracts were not competitively awarded; 10 percent of the contracts
    were paid in full at the time of contract signing and the completion of
    project work was never verified; and 31 percent of the contracts failed
    to contain documentation showing that the required work was performed.
        Other Inspector General reports show a similar picture. For
    example, on April 30, 2005, the Inspector General issued two reports--
    one addressing 300 contracts valued at more than $300 million paid for
    out of Iraqi funds and the other addressing 37 contracts valued at
    almost $200 million paid for out of U.S. funds. The Inspector General
    determined that more than half of the contracts paid for out of Iraqi
    funds and more than 20 percent of the contracts paid for out of U.S.
    funds failed to contain evidence that the goods or services we paid for
    had ever been received.
        There are many reasons for these contracting failures. I would like
    to focus for a moment on one source of the problem: our chronic
    understaffing of acquisition positions in Iraq. Last April, the Special
    Inspector General for Iraq Reconstruction issued two reports in which
    he traced significant mismanagement issues to inadequate staffing. The
    first reported stated:

            ``According to Project and Contracting Office (PCO) management,
            the Aegis contract is one of approximately 6,500 contracts and
            task orders administered by the PCO, and PCO staffing is not
            adequate for the considerable workload entailed in the
            administration of the Aegis contract. The PCO is authorized 69
            contract specialists (civilian, contractors, and military). At
            the time our audit fieldwork was concluded, the organization
            was able to only staff 41 of these positions. The Aegis
            contract is one of approximately 50 contracts administered by 1
            contracting officer. This situation is further exacerbated by a
            high PCO staff turnover. At the time of the audit, the Aegis
            contract had four contacting officers and three contracting
            officer representatives since its inception [less than a year
            earlier].''

        The second report stated:

              ``The Project and Contracting Office Contracting Activity
            (PCO CA) was understaffed by 23 contracting personnel according
            to its organization chart dated September 2004. . . . During
            the audit, we observed that the PCO CA contacting personnel
            worked 7 days per week. PCO CA personnel also told us that they
            worked 13 to 15 hours each day, 6 days a week; with a shortened
            shift of 6 to 11 hours on the seventh day.
              ``As one contracting officer stated to us, a contracting
            officer in the United States would normally have a team of
            contracting specialists to assist in the procurement process.
            However, in Iraq, contracting officers work the majority of
            contract actions from start to finish without assistance.''

        Mr. Chairman, these problems are symptomatic of our broader failure
    to hire, train and retain the acquisition workforce we need to support
    our military. It is just not fair to our contracting professionals--
    whether in Iraq or in the United States--to ask them to work 13 to 15
    hours a day, 7 days a week, and then blame them when the results are
    not up to our expectations. We owe them better.
        I look forward to the testimony of our witnesses.

        Senator Ensign. Thank you, Senator Akaka. General, do you
    have an opening statement?
        General Johnson. Yes, sir, I do.
        Senator Ensign. Excellent.

        STATEMENT OF MG RONALD L. JOHNSON, USA, DEPUTY CHIEF OF
        ENGINEERS/DEPUTY COMMANDING GENERAL, U.S. ARMY CORPS OF
                               ENGINEERS

        General Johnson. Mr. Chairman and members of the
    subcommittee, good afternoon. I'm Major General Ron Johnson.
    I'm the Deputy Commanding General of the U.S. Army Corps of
    Engineers. I had the honor and privilege of leading the Corps's
    dedicated soldiers and civilians as the first commanding
    general of the Corps of Engineers Gulf Region Division in Iraq.
    During this time, I was also dual-hatted as Admiral Dave Nash's
    deputy, U.S. Deputy, in the Program Management Office of the
    CPA. Support to this country's global war on terror continues
    to be the Corps of Engineers's number one priority.
        Prior to January 2004, nearly 6,000 U.S. Army Corps of
    Engineers personnel, and I should add, both civilian and
    soldier, had deployed in support on the global war on terror.
    Primarily civilian volunteers, these men and women worked in
    Iraq, Afghanistan, and Kuwait in support of the reconstruction
    effort.
        To date, the Corps of Engineers has had approximately 2,500
    personnel deployed in support of the global war on terror with
    many people volunteering for more than one deployment. These
    deployments ranged from 120 days to a year or more. While only
    2,500 were forward-deployed, we had the ability to harness the
    experience and knowledge of all 34,000 civilian employees
    virtually using our total engineering capability. This expands
    our capabilities while reducing the number of personnel in
    harm's way.
        The Gulf Region Division Office and three district offices
    located in Mosul, Baghdad, and Tallil currently operate with
    555 U.S. personnel deployed to Iraq and 240 local nationals for
    a total of 795 personnel. Corps employees have filled vital
    positions in the Program Management Office/Projects and
    Contracting Office from its inception in the fall of 2003.
        When the Gulf Region Division stood up in January 2004, we
    teamed with the Program/Project Management Office (PMO) and PCO
    to become the Construction Management Directorate for the
    organization. Then recently, when the majority of the effort
    shifted from programming and planning to construction
    management, the Gulf Region Division and PCO merged into the
    single organization that we are today.
        Mr. Chairman, the U.S. Army Corps of Engineers stands ready
    to continue to support the global war on terror, and I would be
    happy to answer any questions that you or your committee
    members may have.
        Senator Ensign. Thank you, Major General.
        Mr. Bowen.

     STATEMENT OF STUART W. BOWEN, JR., SPECIAL INSPECTOR GENERAL
                        FOR IRAQ RECONSTRUCTION

        Mr. Bowen. Thank you. Mr. Chairman, Ranking Member Akaka,
    and members of the subcommittee, I'm Stuart Bowen, the SIGIR.
    Tomorrow evening, I will leave for my 11th visit to Iraq since
    being appointed IG almost exactly 2 years ago to continue the
    important work of my office in providing oversight, oversight
    that works and works hard on the ground in Iraq performing
    audits, investigations, and inspections.
        I thank you for the opportunity to address you today on the
    important matters regarding the role of the United States in
    the reconstruction of Iraq. I hope for a productive exchange of
    views and ideas in this hearing, and that it will help
    illuminate some of the issues underlying that effort, in
    particular, those challenges we're facing in the contracting
    sector. To date, SIGIR has completed a total of 70 audits and
    inspections since inception, and they provide an important
    perspective on U.S. progress in reconstruction in Iraq.
    Seventeen of our audits speak directly to the issue of
    contracting.
        To summarize them overall, they tell a story of some fairly
    significant problems early on; as we've heard already, some
    tied to manpower, and other issues that we've identified. But
    the good news is is that contracting has substantially
    improved, and things continue to get better. Early on, there
    were instances in poor internal controls, missing contracts or
    incomplete files, and administrative problems. We made specific
    recommendations on tightening up award fee procedures, and that
    happened, saving taxpayer dollars. A recent audit identified
    issues related to the Prompt Payment Act, and corrective
    measures are underway to address that.
        Over the last 12 months, we have seen significant
    improvements in the performance of overall contracting
    operations within the Joint Contracting Command, Iraq. We've
    also built on our knowledge from our audits through additional
    research, interviews, and a lessons-learned initiative that is
    looking closely at the entire history of our experience in Iraq
    reconstruction and in particular, at contracting. We are in the
    midst of editing our draft of a detailed review of the history
    of contracting in Iraq, and I expect that that will be
    published this spring.
        Our report on human capital management will be out this
    month, and we will also have a lessons-learned forum on program
    management in late spring. Essentially, we have found that
    cooperation and collaboration among agencies engaged in
    reconstruction is the overarching requirement needed for
    successful post-conflict reconstruction contracting.
        Based on our research thus far, SIGIR has the following key
    recommendations for improving reconstruction contracting,
    whether in Iraq or any future overseas reconstruction endeavor:
    First, include contracting staff at the beginning of
    contingency planning. That was not part of the Iraq experience,
    and thus, we were a little bit behind the power curve when it
    came to deploying contracting staff to CPA.
        Second, use more flexible contracting mechanisms in special
    contracting programs. The Commanders Emergency Response Program
    (CERP), which we've audited twice, has been a relatively
    successful program in Iraq, providing local and immediate
    answers to the needs of Iraqis. Programs like that should be
    considered in any future endeavor.
        Third, the need for more concrete requirements formulations
    when it comes to contracting. This addresses the form and the
    type of contracting mechanism used and is reflected in Iraq as
    we've moved from reliance on large design-build cost-plus
    contracts to more direct contracting mechanisms.
        Fourth, better integration of the security situation's
    impact into contract planning and execution certainly has been
    an issue that's impeded the overall effort in Iraq, and we've
    had to alter our allocation of reconstruction dollars to
    address stabilization needs, specifically security
    infrastructure.
        Last, sustainment. It's an issue of great importance right
    now in Iraq. By sustainment, I mean ensuring that there is
    sufficient funding for operations and maintenance of the
    infrastructure we've provided the Iraqis and that there's been
    capacity building, that they have been empowered to operate
    that infrastructure and to grow their economy.
        Such advances that we've seen include the development of
    civilian and military partnerships, the creation of centralized
    contracting coordination, more flexible contracting mechanisms,
    and pre-deployment preparations of contracting personnel. These
    are all improvements, lessons learned, that we've seen applied
    in the course of the Iraqi experience. A detailed analysis of
    all of this history, including the ongoing successes, will be
    out when our report is released.
        I'm proud of my staff's commitment and willingness to serve
    in the lethal environment that is Iraq today, far from their
    families, as we vigorously carry out our duties and
    responsibilities assigned by Congress.
        I appreciate this opportunity to participate in this
    hearing and look forward to answering any questions the
    committee may have. Thank you.
        [The prepared statement of Mr. Bowen follows:]

                   Prepared Statement by Stuart W. Bowen, Jr.

                                  introduction

        Mr. Chairman, Ranking Member Akaka, and members of the
    subcommittee--thank you for the opportunity to address you today on
    important matters regarding the role of the United States in the
    reconstruction of Iraq and the oversight of such efforts provided by my
    office, the Special Inspector General for Iraq Reconstruction (SIGIR).
    I hope for a productive exchange of views and ideas in this hearing to
    illuminate issues and challenges regarding Iraq reconstruction that we
    are now confronting.
        This hearing is particularly timely as I released last week the
    January 30, 2006 Quarterly Report to Congress and to the Secretaries of
    State and Defense containing seven new audit reports detailing
    challenges, issues and concerns in Iraq reconstruction efforts. SIGIR
    has now completed a total of 70 audit reports and project inspections.
    Among our 41 audit reports, almost half have dealt with contracting
    issues. Together, these provide an important perspective on U.S.
    progress in Iraq.
        Throughout 2005, SIGIR provided independent, aggressive oversight
    to prevent waste, fraud, and abuse in the dangerous operating
    environment in Iraq. My emphasis on real-time auditing--where guidance
    is provided immediately to management authorities upon the discovery of
    a need for change--enables rapid improvements that can save taxpayers
    money.
        In our discussion of contracting issues arising from Iraq relief
    and reconstruction, I will include some information on how we are
    deriving lessons learned from the experience. I would like to
    illustrate one important lesson--oversight delayed is oversight denied.
        Last week, an individual who had been employed by the CPA to manage
    reconstruction funds in South-Central Iraq, was convicted of bribery
    and fraud--the conclusion of a criminal case opened by SIGIR
    investigators in 2004. This individual is one of four subjects
    currently identified in connection with criminal activities involving
    Iraqi money that was intended for the benefit of the Iraqi people.
        Court documents released last week contained a number of electronic
    messages between these individuals as they coordinated their criminal
    activities. Many of these e-mails were transmitted in January 2004--a
    period when their activities, which had already gone on for months,
    were in full swing,
        Coincidentally, on January 20, 2004, I was appointed as the
    Coalition Provisional Authority Inspector General. This appointment was
    the first formal, substantive measure to provide oversight of the
    entire range of Iraq reconstruction programs and operations.
    Unfortunately, the establishment of an inspector general came months
    too late to deter these particular criminal activities.
        However, while we were not in place to keep these crimes from
    occurring, the trails of those who committed crimes in Iraq are still
    warm enough for us to follow. In partnership with the Department of
    Homeland Security Bureau of Immigration and Customs Enforcement, the
    Internal Revenue Service Criminal Investigation, and the Department of
    State (DOS) Inspector General, we have created an interagency Special
    Investigative Task Force for Iraq Reconstruction (SPITFIRE). With our
    SPITFIRE partners, and with the strong cooperation of the Department of
    Justice, we will continue to identify, arrest, and prosecute those
    relative few who dishonored our Nation's efforts in the reconstruction
    of Iraq.
        Thus, the important lesson is that oversight works, and it works
    well when it works hard. But, it works more efficiently the earlier it
    is put in place. Provisions for formal oversight of Iraq reconstruction
    should have been established at the very beginning of the endeavor.
        While there has been much attention given to our work involving the
    Iraqi funds that were used by CPA for Iraq reconstruction, our current
    work chiefly involves the funds appropriated in the Iraq Relief and
    Reconstruction Fund (IRRF). I believe it is important to address
    apparent confusion in reports about the funds that were lost from the
    criminal activities we are investigating: we have found limited
    evidence of crimes involving appropriated funds provided by the
    American taxpaying public. Corruption is not a pervasive problem on the
    U.S. side of the reconstruction program. While we have found and
    reported inefficiencies and waste in the management of reconstruction
    contracts, projects, and finances, the problems and lack of controls in
    spending appropriated funds were far less serious than those that we
    found, and investigated, in the management of Iraqi funds used in
    reconstruction.
        Even under the difficult conditions of Iraq, we have observed
    continuous improvement. The multiple organizations engaged in Iraq
    reconstruction have improved their coordination. The recent
    reorganization to integrate the Project and Contracting Office (PCO)
    with the Gulf Regional Division of the Army Corps of Engineers has
    contributed to these improvements.
        Today, to help you to focus on contracting issues in Iraq
    reconstruction, I will discuss the findings from our audits that looked
    into contracting issues. SIGIR has conducted 17 audits into contracting
    matters since we began our work in Iraq in the spring of 2004:
    Award of Sector Design--Build Construction Contracts (SIGIR-04-005--
            July 23, 2004)

             The Department of Defense (DOD) components used
            competitive procedures to award the design-build construction
            contracts for rebuilding the Iraqi infrastructure. However,
            except for the two contracts for the oil sector, the contract
            awards were limited to sources from designated countries,
            including the United States, Iraq, coalition partners, and
            force-contributing nations.
             On awarding these contracts, Army components properly
            advertised the requirements, developed source selection plans,
            and had sufficient controls to ensure that the plans were
            followed.
             As a result, the U.S. Government obtained the benefits
            of competitive contracting, but the PMO faces challenges in
            ensuring that tasks performed under these contracts fully meet
            the U.S. Government's requirements and are economically and
            efficiently executed.
    Coalition Provisional Authority's Contracting Processes Leading Up To
            and Including Contract Award (SIGIR-04-013--July 27, 2004)
             The audit found that the CPA's Contracting Activity
            did not consistently provide oversight and technical
            supervision to the contracting officers awarding contracts on
            behalf of the CPA and Iraqi ministries.
             Specifically, the Procuring Contracting Officer (PCO)
            did not ensure that:

                     management information was accurate
                     contract files contained all the required
                    documents
                     a fair and reasonable price was paid for the
                    services received
                     contractors were capable of meeting delivery
                    schedules
                     contractors were paid in accordance with
                    contract requirements

             The CPA-IG recommended the Head of Contracting
            Activity attempt to recoup unsupported costs associated with a
            contract reviewed during the audit.
    Task Order 0044 of the Logistics Civilian Augmentation Program III
            Contract (SIGIR-05-003--November 23, 2004)
             During the audit, SIGIR identified several problems
            concerning cost data submitted by Kellogg Brown & Root (KBR) to
            the CPA for work performed under Task Order (TO) 0044 (to
            provide for logistics and life support for personnel assigned
            to the CPA mission). First, KBR did not provide sufficiently
            detailed cost data to evaluate overall project costs or to
            determine whether specific costs for services performed were
            reasonable. As a result, the ACO did not receive sufficient or
            reliable cost information to effectively manage TO 0044.
             Second, the lack of certified billing or cost and
            schedule reporting systems hampered effective monitoring of
            contract costs.
             Third, because the contractor did not provide detailed
            cost information to support actual expenses incurred, resource
            managers were unable to accurately forecast funding
            requirements to complete TO 0044.
             Based on limited audit work, SIGIR also believes that
            Federal Acquisition Regulations (FAR) Clause 52.216-26,
            Payments of Allowable Costs Before Definitization, should be
            enforced because of the lack of definitization for TO 0044.
    Compliance with Contract No. W911SO-04-C-0003 Awarded to Aegis Defence
            Services Limited (SIGIR-05-005--April 20, 2005)
             Specifically, Aegis did not provide sufficient
            documentation to show that all of its employees who were issued
            weapons were qualified to use those weapons or that its Iraqi
            employees were properly vetted to ensure that they did not pose
            an internal security threat.
             Aegis was not fully performing several specific
            responsibilities required by the contract in the areas of
            personal security detail qualifications, regional operations
            centers, and security escorts and movement control.
             Further, SIGIR identified deficiencies in the
            monitoring of the contract by the Project and Contracting
            Office (PCO).
             As a result, there is no assurance that Aegis is
            providing the best possible safety and security for government
            and reconstruction contractor personnel and facilities as
            required by the contract.
    Administration of Iraq Relief and Reconstruction Fund Contract Files
            (SIGIR-05-007--April 30, 2005)
             The PCO did not adequately maintain the 37 contracts
            and associated contract files SIGIR reviewed, valued at more
            than $184 million, to fully support transactions relating to
            the performance of contract administration processes.
             Further, the PCO could not produce 21 percent, or 10
            of the 48 randomly selected contract files for SIGIR's review.
             The PCO generally awarded contracts that contained
            adequately prepared statements of work, specific contract
            deliverables, and clearly negotiated contract terms. However,
            the audit identified significant deficiencies in contract
            administration processes and controls.
             Consequently, there was no assurance that the contract
            file data was available, complete, consistent, and reliable or
            that it could be used to effectively monitor and report the
            status of contracted project activity for the IRRF.
             The audit identified material management control
            weaknesses in the administration of contract files.
            Consequently, there was no assurance that fraud, waste, and
            abuse did not occur in the management and administration of
            IRRF contracts.
             Management agreed with the finding and recommendations
            made in this report. The report contained seven
            recommendations. Actions have been taken or are underway to
            correct the reported deficiencies.
    Administration of Contracts Funded by the Development Fund for Iraq
            (SIGIR-05-008--April 30, 2005)
             PCO did not fully comply with the requirements
            described in a memorandum from the Iraqi Interim Government
            Minister of Finance to monitor DFI contract administration.
             PCO and the Joint Area Support Group--Central (JASG-C)
            comptroller could not accurately identify the current value of
            obligations, payments, and unpaid obligations for DFI
            contracts. However, cash payments appeared to be made in a
            timely manner.
             PCO lacked the necessary controls and adequate
            documentation to effectively perform their responsibilities to
            monitor and administer contracts funded by the DFI.
             The audit identified material management control
            weaknesses in the accounting for DFI contract liabilities and
            in contract administration.
             Consequently, there was no assurance that fraud,
            waste, and abuse did not occur in the management and
            administration of contracts funded by the DFI, that DFI funds
            were used in a transparent manner, or that DFI funds were used
            for the purposes mandated by UN Security Council Resolution
            1483.
             The report contained six recommendations. Management
            from PCO and JASC-C agreed with the findings and
            recommendations made in this report. Actions have been taken or
            are underway to correct the reported deficiencies.
    Reconciliation of Reporting Differences of the Source of Funds Used on
            Contracts After June 28, 2004 (SIGIR-05-009--July 8, 2005)
             During the course of this audit, SIGIR found that it
            could not fully address the overall objective because 21 of the
            69 contracts identified for review could not be located by
            government officials.
             SIGIR concluded that the 48 contracts reviewed
            disclosed no instances of incorrect obligations of DFI funds.
             SIGIR also concluded that the Joint Contracting
            Command-Iraq (JCC-I) current contract data files were not
            accurate and not adequately supported.
             Review showed that 48 of the 69 contracts contained
            data entry errors in documenting the date of the contract award
            or the source of the funding.
             JCC-I officials stated that the 21 contracts that
            could not be located may have been destroyed by a rocket that
            struck the Presidential Palace in January 2005 or that some of
            these contracts were turned over to Iraqi ministry officials
            after contract completion and final review by contracting
            officials. However, the JCC-I had no records to support these
            conjectures.
             During the audit, the JCC-I corrected the Contract
            Management Information System reporting errors identified by
            the audit. SIGIR believes that these actions sufficiently
            corrected the identified deficiencies.
    Attestation Engagement Report concerning the Award of Non-competitive
            Contract DACA63-03-D-0005 to Kellogg, Brown and Root Services,
            Inc. (SIGIR-05-19--September 30, 2005)
             The Director of the Defense Reconstruction Support
            Office-Iraq (DRSO) asked SIGIR to provide an attestation on a
            non-competitively awarded contract that Kellogg, Brown and Root
            obtained before the 2003 Iraq war.
             SIGIR performed the attestation based on agreed-upon
            procedures of both DRSO and the U.N. International Advisory and
            Monitoring Board.
             The purpose of the attestation was to determine
            whether the non-competitive award of the contract was
            appropriately justified and whether the goods and services
            delivered and billed for were those required under the
            contract.
             SIGIR concluded that the use of the non-competitive
            contract was appropriately justified and that the goods and
            services delivered and billed for were those required under the
            contract.
    Management of Commander's Emergency Response Program for Fiscal Year
            2004 (SIGIR-05-014--October 13, 2005)
             The overall objective of this audit was to evaluate
            the adequacy of controls over Commander's Emergency Response
            Program (CERP) funds.
             Funds available for CERP during the period under
            review amounted to more than $727.1 million, of which
            approximately $140 million were appropriated funds. SIGIR
            reviewed CERP transactions made by the U.S. Central Command's
            Multi-National Force-Iraq (MNF-I).
             SIGIR concluded that, while CERP-appropriated funds
            were properly used for their intended purposes, overall
            controls over CERP processes required improvement.
    Acquisition of Armored Vehicles Purchased through Contract W914NS-05-M-
            1189 (SIGIR-05-018--October 21, 2005)
             SIGIR performed this audit after receiving a Hotline
            complaint
             SIGIR concluded that MNSTC-I purchased seven armored
            Mercedes-Benz vehicles that did not have the required level of
            armored protection.
             In addition, MNSTC-I could not locate one of the
            vehicles after delivery was made.
             Thus SIGIR concluded that MNSTC-I may have paid
            $945,000 for armored vehicles that will not meet the purpose
            intended and may not be available for use.
             SIGIR recommendations included that Commanding
            General, JCC-I/A, purchase armored vehicles by using standard
            supply contracts rather than commercial items contracts.
             Management from MNSTC-I and JCC-I/A agreed with the
            recommendations made in this report. Actions have been taken or
            are underway to implement the recommendations.
    Award Fee Process for Contractors Involved in Iraq Reconstruction
            (SIGIR-05-017--October 25, 2005)
             This audit was to determine whether award fees
            provided to contractors performing IRRF-funded projects are
            adequately reviewed, properly approved, sufficiently
            substantiated, and awarded according to established standards.
             In general, cost-plus award-fee contracts include a
            base award fee (for simply meeting contract requirements) and a
            merit-based award fee for performance that exceeds contract
            expectations. For 16 of the 18 contracts reviewed, the base fee
            component was 3 percent, the highest base fee allowed by the
            DOD FAR Supplement.
             However, the 18 contracts did not contain the required
            criteria with definable metrics. This missing component created
            the potential for inflated contractor performance evaluations.
             For 9 of the 11 design build contracts, the award fee
            plans allowed awards of an additional 50-74 percent of the
            award fee pool for average results.
             For the 7 program management-and-support (PMAS)
            contracts, the award fee plans permitted awards of an
            additional 60-70 percent of the award fee pool for some
            performance above standard while still allowing several
            weaknesses in performance to remain.
             SIGIR found that the Award Fee Evaluation Board
            recommendations and determinations of fees were not documented
            in sufficient detail to show that the integrity of the award
            fee determination process had been maintained. Thus, the
            documentation SIGIR reviewed in contract files was insufficient
            to substantiate the award fees that were approved.
             JCC-I/A concurred with SIGIR's findings and
            recommendations. Actions have been taken to comply with this
            report.
             As a result, award fees are now based on quality
            performance rather than providing contractors higher fees than
            deserved.
    Management of Rapid Regional Response Program Grants in South-Central
            Iraq (SIGIR-05-015--October 25, 2005)
             This audit report was one of a series of reports
            addressing controls over cash, contract management, and grants
            management for the Coalition Provisional Authority (CPA) South-
            Central Region. This audit report discussed the processes used
            for the authorization, award, execution, and oversight of
            grants within the CPA South-Central Region.
             SIGIR found that South-Central Region personnel, under
            the direction of the CPA, did not effectively manage 74 grants
            awarded through the Rapid Regional Response Program (R3P)
            amounting to $20.8 million.

                     South-Central Region personnel could not
                    account for $20,541,000 in DFI funds provided for R3P
                    grants, and they made payments of $2,633,500 that
                    exceeded the total value of grants awarded.
                     CPA South-Central Region personnel disbursed
                    $23,471,500 through 74 grants, although the award value
                    of these grants was only $20,838,000.

             SIGIR concluded that the South-Central Region failed
            to manage its R3P grant program.
             Management generally concurred with SIGIR
            recommendations.
    Management of the Contracts, Grant, and Micro-purchases Used To
            Rehabilitate the Karbala Library (SIGIR-05-020--October 26,
            2005)
             SIGIR found that, in the management of contracts, a
            grant, and micropurchase contracts using Rapid Regional
            Response Program funds, South-Central Region personnel:

                     circumvented guidance by splitting
                    requirements into more than one contract to avoid
                    seeking the required funding-level approval or to avoid
                    required documentation
                     issued contracts for dollar amounts that
                    exceeded requirements
                     did not monitor any contracts, the grant, or
                    micro-purchase contracts; did not make any site visits;
                    did not issue performance reports; did not prepare
                    post-award assessments; did not act on the reports that
                    the contractor was not performing to the standards set
                    in the contracts
                     disbursed funds on contracts, a grant, and
                    micro-purchase contracts for which work was not
                    performed, work was not contracted, equipment and
                    services were not delivered, or the contracted amount
                    was exceeded
                     paid contract amount in full on the day the
                    contracts, grant, and micropurchase contracts were
                    signed and did not require that progress payments be
                    tied to project performance
                     did not maintain files with accurate or
                    required documentation

             South-Central Region personnel, under the direction of
            the CPA, did not comply with applicable guidance and did not
            properly manage R3P funds provided through 5 contracts, 1
            grant, and 33 micro-purchase contracts used to rehabilitate the
            Library. Specifically, South-Central Region needlessly
            disbursed more than $1.8 million for contracts, a grant, and
            micro-purchase contracts for which work was not performed, and
            the contracted amount was exceeded.
             Further, more than $2.3 million in R3P funds was
            disbursed despite the fact that the total value of the
            contracts, grant, and micro-purchase contracts awarded for the
            Library was about $2.1 million.
             The Director of IRMO, the Commanding General, JCC-I/A,
            and the Commander, JASG-C Baghdad concurred with the finding
            and recommendations.
    Management of the Contracts and Grants Used To Construct and Operate
            the Babylon Police Academy (SIGIR-05-016--October 26, 2005)
             SIGIR found that, in the management of contracts and
            grants using R3P funds, South-Central Region personnel:

                     entered into an unauthorized land grant and
                    violated conflict-of-interest rules
                     circumvented guidance by splitting
                    requirements into more than one contract to avoid
                    having to seek the appropriate funding-level approval
                    and needlessly expended funds because work was not
                    consolidated into a single contract
                     did not make site visits, did not issue final
                    performance reports, and did not properly prepare
                    certificates of completion forms
                     disbursed funds before contracts and grants
                    were signed
                     did not establish the required separation of
                    duties as a control over the disbursement of funds
                     did not maintain files that contained accurate
                    or required documentation

             As a result, South-Central Region personnel, under the
            direction of CPA, did not comply with applicable guidance and
            did not properly manage approximately $7.3 million of R3P
            funds. Specifically, South-Central Region needlessly expended
            almost $1.3 million in contract funds for duplicate
            construction projects; unnecessary or overpriced equipment; and
            requirements not identified in contract documents.
             Further, the South-Central Region could not account
            for more than $2 million of disbursed grant funds.
             Management concurred with the recommendations made in
            this report. Actions have been taken or are underway to
            implement the recommendations.
    Management of Rapid Regional Response Program Contracts in South-
            Central Iraq (SIGIR-05-023--January 23, 2006)
             SIGIR found that South-Central Region personnel, under
            the direction of CPA, did not effectively manage 907 contracts
            and 1,212 micro-purchase contracts that were awarded through
            the RRRP, amounting to $88.1 million. As a result:

                     4 projects, using 20 contracts (2.2 percent)
                    and several contract modifications, totaling
                    approximately $9.1 million, apparently split
                    requirements to keep the contract awards below the
                    $500,000 approval threshold so as to circumvent the
                    required reviews and reporting.
                     158 contracts (17.4 percent), totaling
                    approximately $16.3 million, were either not
                    competitively awarded or lacked documentation that
                    showed a competitive process had taken place, and 26
                    contract files (3.0 percent), totaling approximately
                    $2.6 million, did not contain a signed contract.
                     11 contracts (1.2 percent), totaling more than
                    $5.6 million, were issued without proper authorization,
                    and 38 contracts (4.2 percent), totaling approximately
                    $7.0 million, were awarded after the transfer of
                    responsibility for the DFI to the Iraqi government on
                    June 28, 2004.
                     91 projects (10.7 percent), totaling
                    approximately $11.6 million, were paid in full at the
                    time of contract signing, and the completion of the
                    project work was not verified; 11 contracts (1.2
                    percent) were overpaid by $571,823; approximately
                    $515,000 was disbursed for CPA salaries and operations
                    in violation of Program Review Board Guidance 06.2
                    (amended); approximately $47,000-$87,000 in cash was
                    lost but not reported to the CPA Comptroller; and
                    approximately $23 million was transferred to
                    unauthorized personnel, but documentation showed only
                    $6.3 million disbursed to contractors resulting in the
                    loss of oversight of $16.7 million.
                     286 contract files (31.5 percent), totaling
                    approximately $31 million, did not contain certificates
                    of completion, yet $24 million had been disbursed for
                    the projects. Other contract files were missing
                    documentation for approximately $12.6 million in
                    disbursements and consequently, it could not be
                    determined whether contractors were properly paid for
                    work actually performed.
                     A property record book to document the
                    property purchased with RRRP funds was not maintained;
                    contract files for 160 vehicles, totaling approximately
                    $3.3 million, did not document the receipt of the
                    vehicles, and there was limited documentation in the
                    contract files to identify whether the beneficiary
                    actually received the vehicles; ammunition and weapons
                    were purchased, but detailed records of deliveries and
                    distribution were not maintained; and not all of the
                    weapons could be located.
                     346 micro-purchase contracts (28.5 percent)
                    exceeded the micro-purchase dollar limitation of $5,000
                    yet did not maintain the required documentation in the
                    files for awards greater than $5,000; 387 micropurchase
                    contract files (31.9 percent) did not contain
                    disbursement documentation; 786 files (64.9 percent)
                    did not contain a vendor invoice; and 838 files (69.1
                    percent) did not have a completion document.

             SIGIR also identified material internal control
            weaknesses. U.S. Government agents and coalition partners did
            not comply with applicable guidance and did not properly
            control and account for Iraqi cash assets. Further, SIGIR found
            indications of potential fraud and referred these matters to
            the SIGIR Assistant Inspector General for Investigations for
            action. Related investigations are continuing.
             Based on the documentation examined, SIGIR concluded
            that CPA South-Central Region failed to adequately manage its
            RRRP contracts and micro-purchases
             Both the Commanding General, JCC-I/A and the
            Commander, JASG-C concurred with the findings and
            recommendations. Both Commands have actions underway to
            implement the recommendations, and the comments to all
            recommendations are fully responsive.
    Management of the Commander's Emergency Response Program (CERP) for
            Fiscal Year 2005 (SIGIR-05-025--January 23, 2006)
             SIGIR found that MNF-I had made considerable progress
            to improve the management of CERP. This included the improved
            alignment of projects with MNF-I strategic objectives,
            centralized tracking of project status and management of
            project records, and coordination of CERP with other U.S.
            reconstruction programs.
             SIGIR found, however, that the project data MNF-I used
            to track the progress of projects and report the status of
            projects to higher headquarter units contained several errors,
            and MNF-I units still did not fully comply with requirements
            for project records. In addition, SIGIR found that MNF-I lacked
            a consistent process to coordinate CERP projects with DOS and
            USAID when CERP was used in conjunction with other
            reconstruction programs in Iraq, and that it did not coordinate
            with DOS for the sustainment of large CERP construction
            projects.
             During the course of this audit, SIGIR notified MNF-I
            of its concerns about errors in the project-tracking tool. As a
            result, MNF-I initiated its own review of its fiscal year 2005
            project data. In addition, MNF-I and the U.S. Embassy-Iraq
            published a Joint Mission Statement on December 6, 2005, which
            stated that all political, military, and economic tools
            available to U.S. agencies in Iraq will be integrated in fiscal
            year 2006 to maximize the effectiveness of U.S. efforts to
            rebuild Iraq.
             On behalf of MNF-I, the Multi-National Corps-Iraq
            (MNC-I) concurred or partially concurred with four of five
            recommendations of the report. SIGIR generally agreed with the
            comments provided by MNC-I and, in some cases, changed its
            report accordingly. USAID also provided technical comments for
            this report. SIGIR agreed with the comments and changed the
            audit report accordingly. The comments received are fully
            responsive.
    Prompt Payment Act: Analysis of Expenditures Made from the Iraq Relief
            and Reconstruction Fund (SIGIR 06-002 February 3, 2006)
             In fiscal year 2005, approximately $1.4 million in
            interest penalty payments were made by the Army against Iraq
            Relief and Reconstruction Fund disbursements of about $5.275
            billion made by DOD organizations because of late payments of
            contractor invoices.
             This amount of interest exceeded an Army management
            goal that there be no more than $85 in interest penalty
            payments for every million dollars disbursed; the $1.4 million
            in interest penalties paid amounted to about $259 in interest
            penalties per million disbursed and exceeded the Army goal by
            304 percent.
             As a result, interest penalties paid to contractors
            from the Iraq Relief and Reconstruction Fund appropriation
            reduced, dollar-for-dollar, the availability of funds
            appropriated for the reconstruction of Iraq and for the benefit
            of the Iraqi people.
             The Office of the Assistant Secretary of the Army
            (Financial Management and Comptroller) concurred with the
            finding and recommendation and the comments to the
            recommendation are fully responsive.

        All SIGIR audit reports are available to the public on our Web site
    at www.sigir.mil.
        In addition to providing these typical products of inspector
    general oversight, SIGIR has also undertaken development of a
    retrospective analysis of the U.S. reconstruction experience in Iraq.
    This lessons-learned initiative is unfolding in three parts: human
    capital management, contracting, and program management.
        Our lessons-learned process is rigorous. In addition to the
    significant data we have collected in our normal oversight activities,
    we have gathered information from a broad range of sources, especially
    from those who had boots-on-the-ground Iraq reconstruction experience.
    As well, we have been successful in attracting the participation of
    experts, in and out of government, to help us to understand clearly,
    what our Nation must learn from the Iraq reconstruction experience.
        As this hearing is intended to encompass contracting for Iraq
    reconstruction, I offer a preview of our Lessons Learned project on
    Contracting.
        SIGIR began research on Iraq Reconstruction contracting in early
    autumn 2005. In December 2005, we completed a draft Contracting Lessons
    Learned Report, which we presented to two forums made up of experts
    involved with Iraq Reconstruction contracting. The first forum was for
    government officials, academics, and officials of non-profit
    organizations and think tanks. The second forum was for private sector
    personnel who held (or hold) Iraq reconstruction contracts from USAID
    and/or DOD. We are currently in the process of incorporating the
    information gained from these two events, further research, and
    interviews into the draft report. The revised paper will then be sent
    to Forum members and other appropriate persons for vetting, before
    final publication.
        Based on our research thus far, SIGIR has made the following key
    observations concerning Iraq Reconstruction contracting:
        The need for cooperation and collaboration is the overarching
    requirement for successful post-conflict reconstruction contracting.
    The job in Iraq proved just too big for one agency or contractor. U.S.
    agencies and departments have various capacities, flexibilities, and
    differing areas of expertise in terms of contracting and program
    management. In Iraq, efforts seemed to be most successful when
    different agencies understood and leveraged each other's mandates,
    needs, skills, and strengths. Unfortunately, SIGIR research found many
    situations in which agencies' lack of cooperation contributed to
    contracting inefficiencies.
        Other Observations:
             Inclusion of Contracting Staff from the Beginning of
            Any Reconstruction Effort. SIGIR research found that there was
            general agreement among agencies concerned with Iraq
            Reconstruction that contracting plays a central role in mission
            execution and cannot be an afterthought in the planning
            process. Whether for stabilization or reconstruction,
            contracting officials can provide an accurate and holistic
            picture of the resources needed to efficiently contract for a
            given mission. This understanding extends to the number of
            personnel required, their skills and functional areas, and the
            systems and procedures required for them to operate
            efficiently.
             Use of Flexible Contracting Mechanisms. There is mixed
            opinion in the government contracting community about whether a
            ``wartime FAR'' or other additional contracting regulations are
            required for post-conflict reconstruction efforts. Our
            information to date indicates that there needs to be a broader
            understanding of the flexibilities that currently exist in the
            FAR and its supplements, as well as the acceptable use of
            waivers and other provisions that apply when speed and
            flexibility are critical. SIGIR research indicates that not all
            contracting personnel in Iraq were properly informed about FAR
            flexibilities and thus were sometimes hesitant to use them,
            fearing that they might be subject to penalties for incorrect
            or improper use of these options. Methods are needed that would
            ensure personnel have the necessary knowledge and also the
            confidence to use such flexible mechanisms when necessary.
             The Need for Better Requirements. In order to
            efficiently procure an item or a service, contracting personnel
            must be provided with an adequate description of customers'
            needs. The inability to properly define and prepare these
            ``requirements statements'' for projects appears to be a
            significant and continuing shortcoming of the Iraq
            Reconstruction process. To remedy this, customers and
            contracting personnel must work closely together on a
            continuing basis. There also needs to be sufficient personnel
            on the customer side--both in the field and in the US--capable
            of laying out requirements with appropriate detail and
            accuracy. Moreover, in Iraq, this ability must be transferred
            to local personnel through capacity building, in order to
            strengthen long-term contracting capabilities.
             Use of Special Contracting Programs. During the
            reconstruction effort in Iraq, various programs containing
            flexible funding and contracting mechanisms were used in order
            to enable quick execution of small-scale projects. Some of
            these, such as USAID's Office of Transitional Initiatives
            (OTI), predated the U.S. intervention in Iraq, while others
            apparently evolved out of necessity during the conflict, such
            as the Commanders' Emergency Response Program (CERP) and the
            Commanders' Humanitarian Relief and Reconstruction Program
            (CHRRP). Other such programs included CPA's ``Accelerated Iraq
            Reconstruction Program (AIRP)'' and the Project and Contracting
            Office's (PCO) Rapid Contracting Initiative for the electricity
            sector.

                     The focus of these programs was to meet
                    immediate needs--especially employment generation that
                    would help ameliorate security conditions--and not
                    necessarily the long-term reconstruction of the
                    country. Yet, these smaller programs appear to be vital
                    to creating an environment conducive to and able to
                    absorb larger, more sustainable reconstruction efforts.
                     Given the generally positive performance of
                    these programs, it would be important in future
                    reconstruction efforts to make available designated
                    pools of flexible funds for such initiatives, and to
                    create standardized, but unconstrictive, mechanisms for
                    contracting and managing these funds. It should be
                    noted, however, that these programs can present
                    accountability challenges due to their speed and
                    flexibility.

             Sustainment of Advances and Innovations. Lessons have
            been learned throughout the experience of Iraq Reconstruction
            contracting, resulting in improvements to contracting and
            related processes. Examples include: the development of
            civilian-military partnerships, creation of centralized
            contracting coordination, flexible contracting mechanisms, and
            personnel who arrive in country better prepared to carry out
            their required tasks. This gain in understanding and capability
            needs to be institutionalized within the concerned U.S.
            Government agencies for application in future post-conflict
            reconstruction events.
    Overall Impact of the Security Situation on Contracting
        This is an area where SIGIR continues to carry out research and
    looks forward to providing more information as our findings develop.
                                   transition
        2006 is a year of transition for the U.S. reconstruction program in
    Iraq. The successful December 2005 elections launched Iraq into a new
    phase of its history. The first government elected under Iraq's new
    constitution is now forming and will soon assume responsibility for
    managing Iraq's economy and infrastructure.
        By the end of this fiscal year, the U.S. expects to have fully
    obligated the Iraq Relief and Reconstruction Fund (IRRF). IRRF dollars
    represent only a portion of the amount estimated by the World Bank and
    United Nations (U.N.) to be necessary to restore Iraq's infrastructure.
    The IRRF has provided a substantial down payment on what will be a
    lengthy restoration process. The progress made thus far with U.S.
    reconstruction funds has supplied the new Iraqi government with a
    significant start toward establishing an effective infrastructure and
    eventual prosperity.
        As more and more IRRF-funded projects are completed, the U.S.
    agencies and elements that currently manage and implement the overall
    U.S. reconstruction effort, including the Iraq Reconstruction
    Management Office (IRMO), U.S. Agency for International Development
    (USAID), and the U.S. Army Corps of Engineers Gulf Region Division
    Project and Contracting Office (GRD-PCO), will implement transition
    strategies to ensure that completed projects and related assets are
    turned over to the appropriate Iraqi officials who have the training
    and budgetary resources necessary to sustain them.
        As the transition process gains momentum, the U.S. reconstruction
    presence in Iraq should begin to shift toward foreign assistance
    programs managed by the DOS and the U.S. Agency for International
    Development (USAID).
        Regarding the reconstruction transition, SIGIR has several
    concerns:

             Do all of the U.S. reconstruction implementing
            agencies in Iraq have strategic plans in place for
            transitioning their respective parts of the reconstruction
            program?
             Are there sufficient resources to support capacity
            development for national and local government officials,
            operations and maintenance, infrastructure security?
             Have Iraqi officials sufficiently budgeted and planned
            for the essential maintenance of the new, U.S.-provided
            infrastructure?
             Is the United States prepared to sustain the
            reconstruction presence required to complete planned projects
            that may take another 3 or 4 years to complete?

        There are significant signs that transition planning is being
    implemented--the Iraq Reconstruction and Management Office, DOS and DOD
    are reviewing critical issues of funding and transition. The importance
    of this issue compels SIGIR to announce a new audit to review all
    reconstruction transition planning.
                               reconstruction gap
        SIGIR introduced the concept of the Reconstruction Gap with our
    October 30 Report to Congress. We define the Reconstruction Gap as the
    difference between what was originally planned for reconstruction in
    the various sectors and what will actually be delivered.
        To be clear, this is not an alarm bell, but merely an observation
    of a current reality: Changing conditions in Iraq, including
    deteriorating security conditions and evolving political and economic
    priorities, required IRRF reprogramming that altered sector funding
    levels and projected outcomes.
        During the last quarter, we conducted an audit to examine the
    Reconstruction Gap further. We found that the U.S. Government will not
    complete the number of projects anticipated by the IRRF program
    allocations in the November 2003 legislation. Our audit found these
    shortfalls:

             Of the 136 projects originally planned in the Water
            sector, only 49 (36 percent) will be completed. Most of the
            projects planned in sewerage, irrigation and drainage, major
            irrigation, and dams have been cancelled .
             Of the 425 projects originally planned by CPA in the
            Electricity sector, only 300 (70.5 percent) will be completed.
            Of the 3,400 additional megawatts planned for the Generation
            sub-sector, 2,200 megawatts will be delivered.

        These shortfalls are substantially attributable to the autumn 2004
    IRRF reprogramming, which increased the funding available for security
    by reducing the allocations to the Water sector from $4.3 billion to
    $2.1 billion (down 51.2 percent). The Electricity sector dropped from
    $5.560 billion to $4.309 billion (down 22.5 percent). Allocations to
    certain other sectors in addition to security increased: the Private
    Sector Development sector grew from a very low by 420 percent, and the
    Justice, Public Safety, Infrastructure, and Civil Society sector rose
    by 70 percent.
        A number of factors combined to make these program changes
    necessary, the most significant being the rise of the insurgency. A new
    strategy that was more responsive to the new security and political
    situation in Iraq resulted in the reallocation of a total of $5.6
    billion in IRRF funding since August 2004. Additionally, administrative
    costs of the U.S. agencies implementing IRRF programs caused another
    $425 million in programcuts. Another $350 million is now budgeted for
    new sustainment activities that were not included in original planning.
    Finally, the following factors have also contributed to the
    reconstruction gap:

             inadequate or non-existent cost estimates for many
            projects in the original November 2003 plan
             increased costs of materials, particularly in the Oil
            and Gas sector, aggravated by smuggling of subsidized
            construction materials across Iraq's borders
             high costs of contractor security
             high costs of project delays caused by intimidation
            and violence
             evolving reconstruction priorities to fit the Multi-
            National Force-Iraq campaign plan and political requirements
             lack of oversight of reconstruction projects as they
            developed

        I believe that more resources must be allocated to sustainability--
    the ability of a program to deliver its intended benefits for an
    extended period of time after major financial, managerial, and
    technical assistance from an external donor is terminated.
        But the story of the Reconstruction Gap is fundamentally about
    security needs driven by a lethal and persistent insurgency. In
    addition to the reallocation by DOS of $1.8 billion to training and
    equipping Iraqi security forces, the costs for the security of
    contractors have risen on average to more than 25 percent.
        While this security spending reduces the funds available for actual
    reconstruction, it is vital. This is demonstrated most clearly by the
    number of contractors killed, kidnapped, or wounded. Intimidation of
    workers continues to delay projects, and the insecure environment has
    driven away critically needed foreign technicians in the essential
    service sectors.
        It is difficult to overstate the impact of violence on the
    reconstruction program. Often, those commenting on Iraq reconstruction
    begin by stating that electrical capacity is lower than pre-war levels.
    They are correct. However, not many realize that electrical capacity
    grew above pre-war levels in mid-2004 and peaked in July 2005. Since
    then, however, the insurgents have targeted the electrical
    infrastructure, sabotaging the towers that carry high-voltage lines to
    Baghdad from generating facilities in the south. As well, increasing
    demand for electricity, provided to consumers at no cost, the influx of
    new appliances and new customers, and the creation of new industries,
    businesses, factories and jobs also contribute to nationwide shortages.
                                 sustainability
        A SIGIR audit report published October 24, 2005 noted: ``There is a
    growing recognition that the Iraqi government is not yet prepared to
    take over the near- or long-term management and funding of
    infrastructure developed through the IRRF projects.'' Key
    recommendations from the October Quarterly Report--including the
    creation of a Sustainment Coordinator--have been implemented, but the
    coordinative function should continue to be a high priority for
    reconstruction managers in Iraq.
        SIGIR audits conducted this quarter made these key sustainability
    recommendations:

             Create a single database of IRRF-related assets and
            provide it to the Iraqi government to support planning and
            budgeting.
             Coordinate plans and funding for the sustainment of
            Commander's Emergency Response Program (CERP) construction
            projects with DOS, IRMO, GRD-PCO, and USAID.

        Through our project inspections, which are conducted by teams of
    SIGIR auditors and engineers, we also gain insight into the
    sustainability of reconstruction projects.
                                cost-to-complete
        The cost-to-complete a project is defined as the total estimated
    cost of the project, less the actual cost of work performed to date.
    Nearly a year ago, SIGIR reported that the U.S. reconstruction program
    did not have reliable cost-to-complete estimates for its projects. The
    failure to compile and report cost-to-complete information, as required
    by Public Law 108-106, has made it difficult for implementing agencies
    to exercise effective fiscal management of IRRF dollars. Without
    current and accurate cost-to-complete data, management cannot determine
    whether sufficient funds will be available to complete ongoing work,
    nor can it project the availability of funds for any new programs or
    projects. This has also deprived SIGIR of the financial visibility I
    need to execute my oversight responsibility.
        For the past year, SIGIR auditors have continually pressed for
    accurate cost-to-complete data. DOS confronted the issue last spring:
    in March 2005, a DOS team went to Baghdad to press for cost-to-complete
    data from agencies implementing the IRRF. This effort has produced
    limited success.
                             anticorruption efforts
        Success in the reconstruction could be eroded in the long term
    unless Iraq is successful in developing and implementing substantial
    anticorruption measures. SIGIR is committed to intensifying U.S.
    efforts to promote an effective anticorruption system within the Iraqi
    government and commends the U.S. Mission's efforts thus far to support
    anticorruption institutions in Iraq. In the October 2005 Quarterly
    Report, we urged the Ambassador to hold an anticorruption summit, which
    he did in November 2005. The summit resulted in a proposal for a joint
    U.S.-Iraqi Anticorruption Working Group and initial agreement on the
    need for more training for officials from the Board of Supreme Audit,
    the Commission on Public Integrity, and the Inspectors General of the
    Iraqi ministries. The Embassy Anticorruption Working Group previously
    identified several major priorities, including:

             promoting market reforms and reducing subsidies
             helping to reinforce the weak law enforcement
            structure
             creating a public education campaign on the corruption
            issue

        SIGIR continues to support the Iraqi Inspectors General system
    since its inception in 2004. The Iraqi IGs are charged with auditing,
    investigating, and reviewing the accountability and integrity of the
    ministries, and with preventing, deterring and detecting waste, fraud
    and abuse. Although this is a new system in Iraq, and in the region,
    and will take time to function effectively, the continued development
    and progress is encouraging.
        In addition, the Board of Supreme Audit (BSA), though a holdover
    from the prior regime, is well respected by senior Iraqi officials and
    provides effective audit work across all ministries. Despite the
    hazardous environment in which we all find ourselves working, the BSA
    has expressed interest in using SIGIR's audit work in its own efforts.
        As the anticorruption efforts continue, SIGIR will audit to
    evaluate progress.
                                 the way ahead
        As I have noted, 2006 is a year of transition for Iraq
    reconstruction, and of course, Congress will face key decisions. As of
    February 1, the State Department reports that 84 percent of the $18.4
    billion Iraq Relief and Reconstruction Fund is obligated, under
    contract. What remains is less than $3 billion, which we estimate will
    not permit the completion of all projects that were envisioned when the
    requirement for $18.4 billion was being determined in late 2003.
        While SIGIR has identified a Reconstruction Gap based on these
    initial requirements, and noted that water and electrical projects will
    not be completed, I reiterate that this is an observation--not an alarm
    bell.
        Our conclusions on this matter do not constitute an evaluation of
    the original list of projects. We are not saying that all of these
    problems must be finished to complete successfully the U.S. investment
    in the reconstruction of Iraq. In our view, rather than to focus the
    remaining resources on finishing up this list of projects, our
    investment in ensuring the sustainment of projects that are or will be
    completed, and efforts toward building the capacity of the Iraqis to
    take over the repair of their infrastructure will bring a much higher
    return.
        Also, among the improvements we have observed in the past year is
    the development of an integrated information management system to
    provide a more accurate picture for program management.
        I am pleased to say that the cooperation that this inspector
    general is receiving from those engaged in Iraq reconstruction is
    refreshing. When I return to Iraq later this week, I will be in regular
    contact with senior reconstruction management, including IRMO director
    Ambassador Dan Speckhard, Army Corps of Engineers Gulf Regional
    Division commander Brigadier General Bill McCoy, and Major General
    Darryl A. Scott, who recently relieved Major General John Urias, as
    Commander, Joint Contracting Office--Iraq. As well, I regularly meet
    with Ambassador Zalmay Khalilzad and the Multi-National Force--Iraq
    Commanding General, George W. Casey, Jr. Our relations are positive and
    productive and they are providing our 45 SIGIR auditors, inspectors,
    engineers and investigators in Iraq the access they need to provide
    this important oversight.
        In Washington, I met with Secretary of State Condoleezza Rice and
    Deputy Secretary of Defense Gordon England, and it is clear to me that
    they support our oversight.
                                   conclusion
        We at SIGIR are vigorously carrying out the duties and
    responsibilities assigned by Congress in a very hazardous environment.
    I am proud of my staff's commitment and willingness to serve in a
    dangerous land far from their families. We will continue to ensure
    effective oversight and timely reporting, and to promote the success of
    the Iraq reconstruction plan.
        I am gratified that Congress has recognized the impact of my office
    through the extension of our tenure. On November 10, the Congress
    passed Foreign Operations, Export Financing, and Related Programs
    Appropriations Act, 2006 containing an amendment to extend the duration
    of SIGIR oversight by modifying the SIGIR termination clause to base it
    upon the level of IRRF expenditures, instead of obligations. I will
    continue to serve Congress and the Secretaries of State and Defense by
    providing rigorous oversight to prevent waste, fraud and abuse in Iraq.
        I appreciate this opportunity to participate in this important
    hearing, and I look forward to answering any questions that the
    committee may have.

        Senator Ensign. I thank all the witnesses. I want to get
    right to questioning. I want to start asking a big-picture
    question, and it has to do with competitive contracts at a
    fixed-price versus what, Mr. Bowen, you mentioned about design-
    build at cost-plus type contracts.
        In Nevada, and looking at some of the projects that we've
    done on infrastructure projects in our State, we have both
    situations, as most States have. Talking to people, for
    instance, the Nevada Department of Transportation, their
    experience has been less costly, more on time, better
    experienced, basically, with the design-build concept. But it
    seems like in Iraq, that the problems have been more with the
    cost-plus type of contracts. So, would any of you like to
    comment on that general aspect and why maybe there's a
    difference of what happens over here versus what happens in a
    theater of war with those type of contracts.
        Mr. Bolton. I'll kick it off. With the design-build, and we
    were not involved in the determination on that, that was back
    during the CPA days, but I think the thought was, based upon
    what had happened after the Gulf War the first time, what
    Saddam had done to the oil fields, that the design-build was
    the approach to go. Basically, you have a prime contractor
    who'll get the right subs, and then he'll go get the job done.
    So, it was logical to assume that approach would work again.
    It's worked in other countries.
        As the CPA got into it, as they understood what was going
    on, basically, you have no infrastructure, you have no banking
    system, you have no information technology (IT) system, you
    have no financial accounting system, you have no set of laws,
    and you need to get Iraqis working. The notion on the design-
    build started the change, and we saw that in the types of
    contracts that were being released and also the end efforts,
    direct contracting, as the IG has already pointed, to Iraqi
    firms and people. I think today, we have over 40 percent of the
    contracts for which we're responsible are direct with the
    Iraqis. That puts more of them to work, reduces some security
    concerns, and then it's a matter of making sure that the
    projects are done.
        Now, I've been out on a limb here because as I said, I was
    not involved with the early thinking on this, but as an
    observer looking at it, that appears to be what happened and as
    the infrastructure has grown in Iraq. So, we can have better
    accountability. We're able to move into a number of different
    modes of contracting. A lot focused on the direct to the
    Iraqis, but cost-plus, fixed-price, direct and less design type
    of contracts are there, and perhaps the IG, Stuart, would have
    more to add on that.
        Senator Ensign. Mr. Bowen, maybe you could address also, in
    the context of this, when is it appropriate if you start with
    the design-build, however you want to call it, that we did, for
    instance, with the oil fields as the example, at what point is
    it appropriate, how long into this is it appropriate to switch,
    because from what I understand, some of the way the contracting
    was done was the need for speed, the need to get things done. I
    think everybody understands that, but at what point is it
    appropriate, then, how long is long enough, I guess, is one
    question, to where you can get to this other model of
    competitive bidding?
        Mr. Bowen. I think there's a lot there. First of all, the
    design-build approach was chosen because a decision was made
    early on to rebuild the infrastructure of Iraq by executing
    very large projects. The President identified that as a
    weakness early on, and it's something we have, of course,
    changed and moved to smaller local projects that meet more
    immediate needs.
        The design-build process unfolded after the November 2003
    appropriation, $18.4 billion. There was the competitive phase
    that unfolded, and our audits looked at that competitive phase
    and found it appropriate. In other words, it was executed well.
    It did not comment on whether it was the right policy.
        The challenge of indefinite delivery, indefinite quantity
    cost-plus contracts, which is what the design-build contracts
    are, is that they empower the contractor to go forward and
    without any specifications, as opposed to a fixed-price
    contract, you don't know how much you're going to spend. You
    aim for a point where you're going to definitize, but that's a
    gradual process. They bear the risk, and the balance is they
    bear the risk of going into an environment where they don't
    know what the challenges are going to be. On the other hand,
    we've agreed to fund those contracts up to $500 million each.
    They are large-scale contracts from which task orders are
    issued.
        Now, what we didn't anticipate and where we did run into, I
    think, waste and a lot of U.S. dollars not going to actual
    bricks and mortar, was the insurgency that inhibited the
    execution of the plan. In the summer of 2003, as those who were
    in Iraq remember, people were going downtown into Baghdad and
    they weren't inhibited in their comings and goings. That
    dramatically changed as we moved into the fall and winter. In
    2004, the insurgency was in full swing since April 2004,
    excepting the 2 months immediately after last January's
    election, it has been a fundamentally-inhibiting factor to the
    execution of the reconstruction program.
        But when Ambassador Negroponte came onboard in 2004, he
    immediately began an appropriate review of how the money for
    the IRRF was allocated, and it resulted in $5.8 billion being
    moved from bricks and mortar into, what I call, direct security
    costs. That is, the funding of the standup of the Iraqi Police,
    the Iraqi Security Forces, the Iraqi Army, an appropriate
    investment, because without stabilization, you can't have
    reconstruction.
        But throughout that period, we were paying overhead for
    contractors who were in the field, yet were not engaged in
    turning dirt. January 2005, that changed. The effects of
    stabilization and from the security investment began to be
    realized. There was a period when the insurgency went down for
    a bit, and the level of construction, the pace of construction,
    dramatically increased. Last year was a year of rapid
    construction throughout Iraq and a great accomplishment. It
    doesn't change the fact that in 2004, not a lot got done. We
    now have an audit that is ongoing to look at what's called the
    administrative task orders. That's contract speak for overhead.
        Administrative task orders, some of the design-build
    contracts had them, to pay for how much it cost to keep a
    contractor in-country ready to work. So, that's going to look
    at exactly how much we spent on that. We're also looking at
    exactly the issue you raised, Mr. Chairman, and that is the
    benefits to direct contracting versus design build, and we have
    an audit looking precisely at that issue that will be out in
    our April report.
        But the bottom line is, is that the move away from design-
    build has been dramatic since mid last summer. Indeed, I would
    say that over 80 percent now of contracting actions are direct
    contracting actions, and they are fixed-price contracts, and I
    think that as a result, taxpayer dollars are being spent better
    now than before.
        Senator Ensign. Thank you. Senator Akaka.
        Senator Akaka. Thank you very much, Mr. Chairman. Mr.
    Bowen's reports provide a breakdown of the staffing of our
    contracting function in Iraq in 2004 and 2005. According to one
    report, ``Although the PCO CA was authorized to staff 69
    contracting personnel, the onboard staff was comprised of 46
    personnel.'' I'm not sure that it is appropriate for the
    contractor employees to act as an integral element of a
    contracting office in this way.
        My concern is exacerbated by the February 2, 2006,
    Washington Post article which reports that a former contracting
    officer for the CPA in Iraq has agreed to plead guilty to
    accepting more than a million dollars worth of cash, cars,
    jewelry, and real estate in return for favoritism in the
    bidding process. According to the article, the individual
    involved was hired by a Native American company that had a
    contract to provide experts to the CPA despite a previous fraud
    conviction and was not even a Federal employee.
        I would like to ask each of you this question, is it proper
    to allow a contractor employee to act as a contracting officer?
    Would you agree that we need to exercise far greater care in
    the future in the roles that we allow contractor employees to
    play in our contracting organizations? Mr. Bolton?
        Mr. Bolton. Yes, the incident you're referring to was prior
    to my standing up with the PMO, later the PCO. To answer your
    last question there, it is not proper to have a contractor
    acting for the government. It is not part of the way we do
    business. It's not our rules. When we stood up with the PMO, I
    put a one-star in charge who was fully qualified to do that
    job. We populated that office with professionals who have the
    experience and warrants to accomplish the job, and then we
    enhanced that when the PCO stood up.
        I read the article, and I was as appalled as anybody else.
    We take very seriously the job that we do, and I must tell you
    that the vast majority, 99.9 percent of the folks who are doing
    the job over there, have the highest professional ethics, and
    do the job exceedingly well, and we take great displeasure when
    we find that someone acting on our behalf has done that in
    violation of the trust that we put into people.
        I know when I first came to this position it was my task
    within the first month to dismiss a contracting officer in
    another command, far from what we're talking about here, and
    he's now in the Federal penitentiary along with someone else. I
    do not tolerate that. The people that we put in charge, first a
    one-star and then a two-star, and the folks who surround him
    have done an excellent job. The reports that I've gotten back
    from the special IG, from the DOD IG, from the GAO, from the
    Army IG, from the DOS IG, and from the audit agencies say
    they're doing the job, and doing it well.
        Senator Akaka. General Johnson.
        General Johnson. Yes, sir. I would like to answer this from
    a couple of perspectives, first as a commander in the field.
    First of all, Senator, all of these great selfless civilians
    are volunteers, and all of them were influenced, indeed, by
    maybe what they saw on the news at night. Early on, in my
    division alone, it was very difficult to get people to want to
    volunteer to come to a place where they could make the ultimate
    sacrifice.
        So, while we have a great defense acquisition work program,
    we have a strategic workforce plan, we have talented people.
    Number one, they're volunteers, and they volunteer to come in
    harm's way. Number two, unlike a commanding general of the
    First Cavalry Division, as a commanding general of the Gulf
    Region Division or the Pacific Ocean Division, as you remember
    me from, I cannot leave my home station and say see you when I
    get back, because I still have work that I have to do back in
    the Pacific Ocean Region.
        So, all the people we were pulling together, for example,
    in my division, were volunteers that we were taking from our
    other divisions around the U.S. Army Corps of Engineers and
    other agencies who supported us, and so, we were challenged by
    that.
        To answer your question, no, it is absolutely not proper
    because that contracting officer duty is considered to be
    inherently governmental. The purpose of that job is to make
    sure that the United States Government is getting a dollar's
    worth of stuff for a dollar spent. So, no, it is not proper.
        Senator Akaka. Mr. Bowen?
        Mr. Bowen. Senator Akaka, you were reading from one of five
    audits that we've conducted regarding the wrongdoing in Hilla
    during CPA. Hilla was one of three regional offices the CPA set
    up to manage funds, reconstruction funds, throughout Iraq. The
    others were in Basra and Mosul.
        Robert Stein was the comptroller whom you referred to and
    who has now agreed to plead guilty and will be convicted and go
    to the penitentiary for a good while, and he was a bad actor
    and a man who'd been previously committed of fraud, a Federal
    felony conviction, who snuck under the radar here in the chaos
    that was the early days in Iraq and took advantage of an
    environment where there was a lot of cash. It was really a
    cash-only environment. There was no electronic funds transfer.
    There was $120 million, as we identified, in Iraqi money,
    Development Fund for Iraq (DFI) dollars that was allocated to
    that region for grants and contracts. Our audits showed that
    over $90 million of it didn't have adequate receipts or any
    documentation to substantiate its use. Almost $10 million was
    simply missing. As we got in deeper, I sent three auditors who
    spent 4 months there looking at it. We found that there were
    massive irregularities in contracting and grants, work not
    performed, and then I deployed three investigators down there.
    A result of a 9-month investigation, we now have one
    conviction. We've had three other arrests and more--the
    Department of Justice is fully engaged, and there will be more
    penalties to pay from this wrongdoing.
        The lesson here is that oversight needs to be present, on
    the ground, and aggressive, in Iraq to deter. This happens--
    actually, the criminal scheme unfolded before I was appointed.
    This was in the late fall of 2003 and into the beginning of
    2004. We first became aware of it in the late spring of 2004,
    of a potential problem, and have been working on it ever since.
    The fact that deterrence worked was evidenced when we knocked
    on Robert Stein's door. When our investigators knocked on his
    door, he wasn't surprised to see us. He'd been reading our
    audits, and he knew it was a matter of time before we would
    catch him. We have 57 other investigations ongoing, and I
    expect we'll have the same reaction from some of those people
    over time as we bring them to closure.
        Senator Ensign. Just real quickly on what he was asking,
    that was the past. Do we currently have enough oversight on the
    ground? Just a quick yes or no by each one of you.
        Mr. Bowen. Yes, I think so, and let me associate my
    remarks--my agreement with Secretary Bolton's remarks. Well
    over 95 percent of the people there are giving their all to
    honor their country and service in Iraq.
        Senator Ensign. That's the way it always is.
        Mr. Bowen. It's a small group.
        Senator Ensign. That's the way I--but to prevent those
    other small percentage, you all agree, affirmatively nodding
    yes.
        Mr. Bolton. Yes.
        General Johnson. Yes.
        Senator Ensign. Thank you.
        Senator Dayton.
        Senator Dayton. Thank you, Mr. Chairman. Mr. Inspector
    General, I'm a bit surprised by your glowing summary of the
    reconstruction progress that has occurred in Iraq, it seems to
    be in significant contrast to your January 30, 2006 report,
    your quarterly report. Just to highlight a couple of those
    matters, electricity generation is lower in late November 2005
    than in March 2003, you go on to say that as a result, Iraqis
    living in Baghdad have an average of just 3.7 hours of power
    per day in early January 2006. Oil production is below prewar
    levels. Water and sanitation projects have not provided even
    half the Iraqis or, I'm sorry, before the war, half the Iraqis
    had access to water, affordable, drinkable water. November
    2005, only 32 percent had access. As Chairman Warner said this
    morning and Senator Levin also, the failure to make adequate
    progress on these reconstruction projects has a direct bearing
    on the safety of the lives of our troops as well as the success
    of their mission and the overall mission.
        So, the deficiencies and the failures that have been
    identified by your own analysis, and then by others
    specifically, have a direct bearing on our support for our
    troops and their ability to complete their mission and come
    home safely and alive to their families.
        We have attempted, because of the failure of this committee
    to exercise aggressive oversight, and I don't refer to your
    subcommittee, Mr. Chairman, but to the full committee, to look
    into these contracting procedures and open public hearings. The
    Democratic Policy Committee has attempted to do so. I regret
    that it has had to be under the auspices of something
    associated with just one party. It should be by this committee.
    But in the absence of that, this has been necessary. It's been
    accused of focusing on Halliburton, Kellogg Brown and Root
    (KBR) exclusively, and it has certainly given them a primary
    attention in part because according to the information I have,
    they have now 52 percent, over half, of the total contract
    value of the contracts in Iraq with the DOD and also because--
    and I hope that we could have a chance to hear from the DCAA.
    It has now identified $1 billion, $474 million either
    questioned costs or unsupported costs by KBR as a result of the
    contracts that has been awarded most of which are sole-source
    contracts to date.
        Mr. Chairman, if I take the figures that I have here about
    the contracts funded in Iraq of about $25.4 billion by the DOD,
    and if Halliburton has half of those, that figure, $1.4--almost
    $1.5 billion has been questioned, that's about 10 percent
    roughly, and maybe you could refine that for me, Mr. Secretary,
    but about 10 percent of the total costs that have been billed
    by Halliburton and paid have been questioned subsequently by
    the DCAA.
        Just taking, for example, one contract, the Restore Iraqi
    Oil (RIO) contract, which again, as we described earlier, is
    vital to its reconstruction. Under this contract, the Army
    issued 10 task orders worth about $2.5 billion. The DCAA
    questioned over 10 percent of those contracts, found that they
    weren't supported of their costs on which the audit--which were
    not considered acceptable, and yet at the same time, Mr.
    Secretary, the contract, the RIO contract, was awarded on a
    sole-source basis despite the PARK staff person primarily
    responsible, writing a note herself on the contract before she
    submitted it to you because she didn't think it was appropriate
    to award that for 2 more years on a sole-source basis with a 3-
    year option. That was the recommendation on her part.
        I guess it was ignored or at least rejected by you because
    you did sign it, and it's my information that in December 2003,
    when the DOD auditors preliminarily concluded that Halliburton
    was charging excessive amounts for fuel imports from Kuwait and
    Iraq the same time, just days later, the Department granted
    Halliburton a special waiver releasing the company from
    providing certified costs and pricing data from its Kuwaiti
    fuel contractor.
        Specifically, December 11, 2003, DCAA auditors held a press
    conference announcing that their draft audit had found
    Halliburton had billed for as much as $61 million in excess of
    costs to import gasoline from Kuwait into Iraq. The auditors
    indicated that Halliburton has not demonstrated: They did an
    inadequate subcontract pricing evaluation prior to the award of
    the--rather than cooperate with this audit, Department
    officials took the opposite action. They granted Halliburton a
    waiver that eliminated Halliburton's responsibility to provide
    any cost and pricing data from its Kuwaiti subcontractor. This
    seems to me to be the opposite of what you've asserted, that
    these are controls that have been established and that they're
    being improved.
        In fact, it indicates the opposite, that these contracts
    have been awarded on a sole-source basis without a competitive
    bid, and then they haven't even, after that point, been
    monitored properly. When there have been variances, they're
    granted waivers so that they don't have to be held accountable.
    Could you respond, sir?
        Mr. Bolton. The first contract that you referred to was
    before my watch, and that doesn't solve the problem here today.
    It's the only sole-source contract that I've been able to find,
    the RIO contract to which you're referring, a 1-year base with
    2-year extension. We did grant a 1-year extension. That is up
    in May of this year. No decision's been made as to whether or
    not to exercise the option for the third year.
        With regard to the others, there seems to be a mix of
    LOGCAP and RIO contracts here, and I would have to separate
    those out. The only other sole-source contract that I'm aware
    that is taking place--and by the way, we've not done any in the
    PCO, they've all been competitive, was to Lucent, and that was
    to complete a first-responder network so that we could provide
    the right security for the elections. That's the only other
    sole-source that I'm aware.
        All the others to which you refer, we have had the audits
    reports. We've had the lawyers take a look at it. We've done
    our own in terms of looking at the definitization of those
    contracts and the task orders and so forth.
        Senator Dayton. Mr. Secretary, the audits have been
    performed, but the Department and the Army Corps have evidently
    ignored the audit findings. Another example, and my time is up,
    but let me just say and ask for a response. On December 31,
    2004, the DCAA issued a flash report alerting the Department
    about significant deficiencies in Halliburton's cost-estimating
    system. It goes on to elaborate on some of their other
    financial weaknesses. Based on the flash report, auditors sent
    a second memo on January 13, 2005, warning that Halliburton
    could not adequately estimate its costs for work in Iraq. On
    January 16, 2004, just 3 days after that memo was sent, the
    second one of a flash warning about Halliburton's deficiencies,
    the Army Corps of Engineers awarded Halliburton a new $1.2
    billion contract to restore and operate the oil infrastructure
    in the southern half of Iraq, an infrastructure which we now
    learned is failing to be revived at an acceptable rate.
        In response to questions about why the Corps disregarded
    the auditor warnings, an Army spokesman stated we have our own
    internal audit process, and we haven't turned up any serious
    wrongdoing or major problems. So, what's the point of having
    audits if they're just ignored and these contracts are awarded
    anyway?
        Mr. Bolton. I think that last sentence or two is very
    important, that we had our folks go and take a look, and they
    could not find and justify what had been alleged, and I have to
    rely upon them. They're the experts, I'm not in that area.
        With regards to the others, which go to task orders 59 and
    later on, the 80 series, we actually put a team together in the
    government and went through and definitized those by March of
    that year, and there were monies withheld because I could not
    find the documentation to substantiate that.
        Senator Dayton. I'll return to this as soon as the opening
    of the second round of questioning, Mr. Chairman.
        Senator Ensign. Senator Reed.
        Senator Reed. Thank you very much, Mr. Chairman, and thank
    you, gentlemen. Senator Dayton pointed out some of the overall
    shortfalls in reconstruction, which you illustrate in your
    report, Mr. Bowen, reduction from prewar energy levels, potable
    water, also crude oil production, which is critical to the
    economy. I think it raises a question, which the chairman also
    raised about the overall strategy we have, and let me try to
    break it up into pieces. We have lost some of that $18 billion
    on security costs, we have diverted some of the $18 billion
    into smaller projects, we get more bang for the buck, which
    leaves the question: Do we have enough money still there or in
    the pipeline to finish these major projects, bring oil
    production up to levels that are at least prewar--water,
    electricity? Can you make that assessment?
        Mr. Bowen. You addressed several issues there, but first,
    let me address the prewar versus current output question, and
    it's a challenge just to look at prewar and current because a
    lot happened in the interim. Prewar in electricity, the number
    was about 4,500 megawatts. It is now below 4,000, 3,900. As a
    matter of fact, the latest is down. It dropped again. It's down
    to about 3,700. But last summer, it was at 5,300, so we were
    800 megawatts above prewar at the end of last July. What
    happened? What happened is that a focused insurgency began
    targeting the infrastructure, and they have repeatedly hit the
    Baiji Baghdad powerline. It resulted--they just hit it Monday,
    and we had an all-day blackout in Baghdad as a result of that.
    This is an insurgency that is insidious and carefully planned,
    and their focus continues to be on infrastructure: oil.
        Look at last September. They launched a series of attacks
    last September. We were above prewar in July in oil output.
    Those attacks in September pushed us now well below. There's
    just no getting around the fact that the investment in security
    that was done in 2004 has been borne out in experience in 2005,
    and that is this is an aggressive insurgency. It's going to
    take time to suppress. Before it's suppressed, they will
    continue to hit the infrastructure, some of which we've built,
    like the Al Fatah pipeline and river crossing.
        Senator Reed. Right.
        Mr. Bowen. It's a RIO project. Indeed, when we address in
    our latest report, and we have some real concerns about how
    that unfolded. The history of that project is not a good one,
    but the current history is defined by it being one of the most
    dangerous places to work in Iraq right now. It's now working,
    the money that's being spent on the Al Fatah Pipeline River and
    Canal Crossing Project. It's moved from KBR to Parsons
    International Joint Venture. It's one of several in the oil
    sector, punitive steps that PCO has taken with respect to KBR.
    They have been under a cure notice for well over half of last
    year because of their poor cost accounting.
        The bottom line is, to answer several of the issues that
    you've raised, is that we are not going to produce as much of
    infrastructure as we wanted at the beginning because of the
    security issue. We've moved $5.8 billion out of bricks and
    mortar into security. The reasons for that have been borne out
    in experience.
        However, in the next 3 months, we're going to see two
    electrical generation facilities come online. The Al Fatah
    project is almost done. In April, the Erbil water treatment
    facility will come online. It will provide potable water to a
    million Kurds in Erbil, the largest city in the north. So, over
    the next 6 months, as long as we can suppress the insurgency
    and keep them from knocking out what we're providing, we're
    going to see those numbers come back up to numbers that we saw
    last summer.
        Senator Reed. That's a very valuable explanation, and I
    appreciate it very much. But a lot of the presumptions about
    the progress that Iraq would make was based upon a notion of it
    going above prewar levels, oil production particularly, et
    cetera. The question I have is, given this insurgency, and
    you're absolutely right, they're extremely bright, and they've
    figured out a way to impede our efforts in Iraq by attacking
    its infrastructure. There are currently discussions though,
    that we're going to essentially stop our reconstruction efforts
    at the $18 billion mark, that we're essentially going to say
    okay, we've put in $18 billion, it hasn't been spent entirely
    because they had to protect security, infrastructure projects
    have been delayed.
        Are you comfortable with essentially stopping and leaving
    with maybe prewar levels, maybe a little better in a situation
    in which this is so critical to the protection of our troops
    and the advancement of our mission?
        Mr. Bowen. Senator Reed, you're right. Reconstruction can't
    stop. The World Bank said it's going to cost $56 billion to
    bring it up to operational levels, and that assumed our
    investment, the $20 billion, would all be spent on
    infrastructure. We now know that that number has to be moved up
    a little bit before we're going to get there.
        The Iraqi economy is going to have to get on track with oil
    production to generate revenue to fund the continued recovery.
    This is a long-term relief and reconstruction program that they
    will manage, right--we have a new government now that will be
    around for 4 years. We've had three governments in 18 months.
    It's extremely difficult to have coordinated reconstruction and
    recovery in that environment. The stability--the political
    stability--we hope is beginning to take place. The security
    situation needs a lot of attention on the ground there, and
    it's getting it.
        As we see the security situation and the political
    government situation stabilize, I think we'll see a more rapid
    progress on the infrastructure front, but is $18 billion enough
    to get the job done? No, but it's a start.
        Senator Reed. Thank you very much, Mr. Bowen. Thank you,
    Mr. Chairman.
        Senator Ensign. Senator Levin.
        Senator Levin. Thank you, Mr. Chairman. The total
    shortfalls in terms of reconstruction of various component
    parts of the economy are: electricity generation--10 percent
    below prewar levels; oil production--20 percent below prewar
    levels; and potable water--30 percent below prewar levels. Now,
    the factor that you just referred to, I believe, Mr. Bowen, I
    think it was you, or it may have been Secretary Bolton, has to
    do with the difficulty of security.
        Mr. Bowen. That's right.
        Senator Levin. But there are other factors that have gone
    into this besides the insurgency. You, Mr. Bowen, have called
    the gap here a reconstruction gap, and you've pointed out
    corruption, fraud, mismanagement, and waste that have plagued
    the reconstruction efforts. So, the security problem is
    obviously a massive problem, and that is hopefully being
    addressed in a number of ways. But what this subcommittee is
    looking into is the question of waste, mismanagement, fraud,
    and corruption. I assume that is the focus in any event, and it
    is a pretty chaotic picture that you painted for us in your
    reports. What I'd like to do is take one project and talk about
    it, and that project is called the Al Fatah project which is a
    river crossing for a pipeline and where your report goes into
    some detail about a $75 million task order for that river
    crossing for a pipeline.
        Here's what your report tells us: First, the project failed
    because subsurface geologic conditions made it impossible to
    carry out the project design. These conditions were identified
    by a consultant before the work commenced, but neither the Army
    Corps of Engineers nor KBR acted on the consultant's
    recommendation to perform additional research and surveys that
    would have prevented the failure. Now, that's just one flaw,
    number one. Why was that not done?
        Mr. Bowen. I don't have an answer as to why that wasn't
    resolved.
        Senator Levin. Okay, do any of the other witnesses here
    know why that survey was not done that was identified by the
    consultant as being necessary?
        General Johnson. Sir, I'm not familiar with the specifics
    of that surveyor, but I can tell you that a survey was done.
        Senator Levin. All right. Secretary Bolton.
        Mr. Bolton. Nothing to add.
        Senator Levin. Okay, now a subject matter expert for the
    CPA recognized that KBR had limited experience. This is in your
    report, now. I am just quoting from your report. KBR had
    limited experience in this type of project and advised that the
    project would probably fail because design restrictions
    provided no flexibility to accommodate site conditions, but KBR
    refused to conduct design reviews requested by the subject
    matter expert. Do you know why they refused? Why were they
    allowed to refuse? Were they permitted to refuse under the
    contract? What can you tell us about that?
        Mr. Bowen. This was under the RIO contract early on, I
    don't know why KBR was allowed to continue, but eventually,
    they were discontinued, and the project was given to Parsons
    International Joint Venture (PIJV).
        Senator Levin. But why were they, at that time, allowed to
    proceed when they did not do what the expert called in said
    that they needed to do, which was to accommodate the site
    conditions? Who is responsible? Who is accountable?
        Mr. Bowen. The Corps of Engineers was the project manager.
        Senator Levin. Okay, now let me ask the Corps, do you know
    why it was that they were allowed to proceed without doing the
    design changes to allow for the site condition to be taken into
    account?
        General Johnson. Senator Levin, you ask me a difficult
    question because I don't know that there were site conditions
    that required them to not proceed.
        Senator Levin. All right.
        General Johnson. I can tell you why KBR was doing the work,
    and if you recall the time line, KBR was there doing task force
    RIO missions, primarily earlier, to put out the fires that we
    saw in Operations Desert Shield/Desert Storm, and they did
    that. The design-build construction contractors were not in
    theater at the time we started Al Fatah.
        Senator Levin. All right, but the question here is that why
    was there not enough flexibility to accommodate the site
    conditions as found? Do you know why?
        General Johnson. Sir, I don't.
        Senator Levin. But did you respond to the IG's report on
    this? Did you disagree? Did you file a disagreement with that
    report on that point?
        General Johnson. Sir, I don't know that we did. I don't
    know that we recognized that as an issue for the Gulf Region
    Division and because it was prior to the standup of the Gulf
    Region Division, but I think Southwest Division and the U.S.
    Army Corps Headquarters probably responded to that comment.
        Senator Levin. Did they respond to the comment? What was
    their comment, Mr. Bowen?
        Mr. Bowen. They didn't respond specifically to that issue.
        Senator Levin. Okay. According to this report of yours, the
    Gulf Region Division responded concurring with the report
    without----
        Mr. Bowen. They concurred with the overall report.
        Senator Levin. All right.
        Mr. Bowen. They didn't respond to that specific issue, but
    I've had follow-up discussions with General McCoy out there,
    and he wants to discuss it in more detail when I arrive.
        Senator Levin. Shall I finish this now? My time is up.
        Senator Ensign. Go ahead.
        Senator Levin. It's one subject. The Corps of Engineers
    awarded KBR a firm fixed-price contract with no performance
    requirements on this one. There are no performance requirements
    on this task order, is that correct?
        Mr. Bowen. This was, again, a RIO contract, a task order
    under the prewar overall RIO program.
        Senator Levin. How could there be no performance
    requirements? That's your report.
        Mr. Bowen. Yes, well----
        Senator Levin. How do you issue a task, or what is it, just
    dig holes? Then it says you don't have to--according to your
    report, I'm just quoting your report here.
        Mr. Bowen. Yes.
        Senator Levin. I'm just trying to figure it out here. The
    only performance requirement in the subcontract was to attempt
    to drill holes on a daily basis. There was no requirement that
    the subcontractor complete any holes.
        Mr. Bowen. I think that was presumed in the contract.
    That--what happened at Al Fatah--actually, there was a fairly
    famous video during the war of the destruction of the bridge.
    It was a pipe, a transfer pipe. It's the primary transfer pipe
    in the north to the Baiji refinery of crude, and it actually
    went underneath the bridge. It was not a subsurface pipe, and
    it was taken out during the war. It was decided shortly
    thereafter to try--rather than put it--rebuild it under the
    bridge, to drill underneath the river crossing right there.
    What it turned out was that the consistency of this soil, the
    substrata there, proved impossible to successfully drill the
    horizontal project.
        Senator Levin. With no flexibility to do something
    different as we discovered that?
        Mr. Bowen. Eventually they did. It's now been that the----
        Senator Levin. Not eventually, at the time, we were
    drilling holes which were not accomplishing their purposes.
        Mr. Bowen. Right, yes, they were drilling into sand, and it
    wasn't working. That's correct.
        Senator Levin. We were paying them to do that?
        Mr. Bowen. We were paying that, and that gets back to a
    larger issue that I identified earlier, answering the
    chairman's question, and that is when you pursue a
    reconstruction program based on cost-plus Indefinite Delivery,
    Indefinite Quantity (IDIQ) contracts, you've agreed to bear the
    cost of getting the job done, almost whatever that would be.
        We've had issues in Iraq where subcontractors simply failed
    at some level in the course of carrying out a project and that
    we've had to pay for it and it ultimately pushes the cost of
    the overall contract up.
        Senator Levin. That's not getting the job done. We're
    paying their----
        Mr. Bowen. I'm just helping explain why there have been
    some cost overruns in certain instances, and this is an example
    of one.
        Senator Levin. Cost overruns I understand, but I don't
    understand paying someone when you're not accomplishing a job.
    To me, that's the Corps here, and then I'll--my time's way
    overdue. How do we enter into that kind of a contract where
    you're paying somebody where there's no requirement that you
    even complete the holes which are being dug, no flexibility to
    change the design, paying for something which is not
    accomplishing a purpose? How does the Corps justify that?
        General Johnson. Sir, you're absolutely right. We didn't do
    that. Here's the way I understand Al Fatah, and I wish I had
    the numbers and I was prepared to discuss the details of the
    project. But I remember this project because every project has
    a cost, a scope, and a course of schedule. The scope was to
    repair the pipe so it would be secure because through this pipe
    flowed, literally, thousands or millions of liters of crude,
    and it was like it would cost a dollar, I got the numbers
    wrong, but it would cost you a dollar to repair the pipe, but
    in less than 6 months, you were going to generate enough
    revenue from the flow of this crude so the benefit cost ratio
    was tremendous.
        Now, when you're executing this, of course, you're trying
    to do what the scope of the project set out to do. The
    flexibility would have been in discovering, at some time, and
    it's really--we do the quality assurance. We're concerned about
    connecting the pipe, and if you're drilling and the drill's not
    making the holes that we expect it to make, that's kind of
    engineering. I thought KBR knew what they were doing. They
    didn't have the success we wanted them to have, but I'm telling
    you, we did--we were not paying them to just drill holes, we
    were paying them to repair that pipe so we could get crude
    flowing through it so that we could generate the revenues we
    were expecting from crude to help people in Iraq.
        Senator Levin. That was the purpose? They didn't
    successfully carry out that mission, but we paid them anyway.
        General Johnson. Sir, we didn't have a choice. It was the
    nature of the contract. We've learned from that.
        Senator Levin. Thank you, Mr. Chairman.
        Mr. Bowen. KBR failed and lost the project.
        Senator Ensign. Let me try to put this in a little bit of
    bigger context because the purpose, Senator Levin brought up
    the purpose for this hearing. Yes, it is some of the things
    that he talked about, but it's also--it's a bigger purpose, and
    that is to learn from what was done wrong, to try to help use
    the dollars that we have, not only in our current situation,
    but in future situations, to do it better, and that's why I
    asked the fundamental question at the beginning.
        When we have these, we had a situation set up where KBR was
    there because of previous contracts that were bid, but they
    would be on the ground. Now, they come in, and it's a no-bid
    sole-source type of a situation. It gets to the point we know
    that there are going to be problems in that, in that situation.
    They're inevitable. I don't know that there's any way to not
    have those. Maybe there is. Maybe we need to figure out
    something, but those were the rules of the game going into
    this.
        A question that needs to be answered is how long. In other
    words, with a project like this of an emergency nature so much
    that it should not have been bid out. How much faster should
    have all these projects been bid out?
        The IG's office said that 80 percent of these things are
    now no longer being sole-sourced. Should it be 100 percent, or
    is 80 percent good? That's part of the purpose of these
    hearings that we're trying to get at. Some of the things that
    I've heard, and I've just sat back just listening to some of
    the things about oil contract, the oil, amount of oil produced
    and potable water and power in the country. The fact is that it
    is correct. Some of these contracts were done, done well, got
    power running, got oil up, but we do have this small thing
    called the insurgency going on, and that has hurt our efforts.
    That's the reality. It's a war zone, and we have to reflect. We
    have to adjust in what it's doing in that war zone. So, I don't
    think that an issue needs to be made of, this particular,
    millions of barrels of oil a day is not what it was prewar when
    in fact, we had it higher than prewar levels at one point. If
    it wasn't for the insurgency, it'd be even higher than that
    today and the same thing with power generation and on and on.
        The point of this hearing, because that just gets into
    politics, should be is, how can we do it better? How can we
    help the military, and how can the IG help the military? How
    can we hold accountable those who did things wrong? I think we
    need to figure out if contractors did something wrong, and
    especially if they did something wrong knowingly, instead of
    just waste, they actually got into the fraud-type of aspects,
    how do we prevent them from contracting into the future? At
    what level of abuse do we set? Then I think Congress has to
    look at that.
        That's really the purpose of this hearing is to look at the
    bigger picture for how we improve so we are using those
    dollars, that $18 billion and on and on, how we are using those
    in a better way, being better stewards of the taxpayers'
    dollars.
        So, with that, I just have a couple other questions along
    those lines. What additional mechanisms and authorities are
    needed to oversee contracting in major contingencies like Iraq
    or in the future?
        Mr. Bolton. If I can respond to that, when I was given the
    task of setting up the PMO and the PCO, I went to the Army
    historian, and I asked her to take a look at what we had done
    in Japan post-World War II with MacArthur, and Europe, the
    Marshall Plan, and Korea and even back to the Spanish-American
    War, how did we go about doing this, and what we had done over
    the last almost 2 years now is to grow into that scenario. The
    special IG, when they first visited me, really sparked my
    interest. I've been an IG, so I think I understand some of
    their role. But what really sparked my interest was, to your
    point, Mr. Chairman, the fact that we're actually going to do
    some lessons learned. We're going to pull that information out.
    We're going to put it into a body of work, and we're going to
    learn from this. I've read the first draft, and I think it's
    moving in the right direction.
        I think Senator Akaka also spoke to this. When we look at
    what we're doing here, and all the questions that have been
    asked are absolutely spot-on right questions, the people who
    were involved in the early days, whether it was the Office of
    Reconstruction and Humanitarian Assistance (ORHA) or the CPA,
    the PMO and now the PCO and Iraq Reconstruction Management
    Office (IRMO) and all the other good, dedicated Americans,
    trying to do the very best, looking at a situation and trying
    to figure out what should we do. We are looking with the
    benefit of 20/20 hindsight here.
        But as surely as we're sitting here, there will be another
    group of folks somewhere else in the world faced with the same
    challenge. Now, how do we make it better? First of all, I think
    it's not just DOD nor DOS. We have learned as we've gone on
    here that this is an interagency-type of operation. It involves
    those agencies and Congress to figure out how do we make this
    better for the folks who are going to be sitting there, a lot
    of them volunteers, trying to execute this mission.
        I believe if I take Stuart's report on lessons learned and
    I look at it, it's a good first start, and we're going to offer
    some comments to him. I think what we need to do is take the
    questions that you've all asked this afternoon and sit down and
    really do a red team. Let's suppose that we're facing another
    insurgency. Let's suppose that we're going into a country
    that's not had an infrastructure that amounts to a hoot for 30
    years where the people haven't been trained how to maintain
    this for 30 years, that doesn't have a banking system, that's
    filled with corruption. How are we going to function in that
    country and figure out what tools, what legislations have to be
    changed, what rules and regulations in the department, but most
    importantly, how our people are trained and experienced to work
    in that environment.
        That's what we're pushing on our side and to the point,
    starting about 2 years ago, we took our contingency
    contractors, and we put them into military formations. We call
    them modularity in the Army. They're in the various brigades
    there, and their job is to train to be ready to go into the
    theater and perform their function. That's a first step. We
    have a lot more to do in terms of program managers and other
    folks go along with this and then to benefit from all the
    things that we're talking about today.
        Senator Ensign. Any other comments?
        General Johnson. Sir, I would just add this is sort of like
    a relay race and when you're in a relay race, I can talk about
    that. I've actually done that. One of the key things is when do
    you let go of the baton? For the guy that's grabbing it, when
    do you grab it? I say this is like a relay race because not
    only were we learning how to evolve and transform into this
    within the DOD, but we were trying to do it across departments
    as we transitioned from DOD to DOS. There's some things that we
    know now that we did not know before.
        For example, we did not know that it would be important,
    for when the DOS took over, to be able to hold back some of the
    commitment of these funds so that as you elected the new Iraqi
    Government there would be some incentive there to inspire that
    new Iraqi Government to come along with what it was and we were
    proposing for them to do. We did not know that. We kind of
    thought this wheel would just keep moving in spite of the fact
    that I was the guy on the ground when DOD was in charge with
    PMO and when the DOS was on the ground with PCO.
        I think as you see the development of the doctrine of
    counterinsurgency warfare, as you see the national security
    directive where the DOS takes a lead for reconstruction and all
    things reconstruction, as you see us discuss about planning for
    phase zero, and phase four at the same time, I think you see
    we're beginning to at least talk about what we've learned. Then
    the next test, as the secretary said, will be the next time we
    do this, how will we execute it. I think we're learning, and
    we'll continue to learn.
        Mr. Bowen. The President signed in December NSPD-44 which
    lays out a new framework for executing relief, reconstruction,
    and stabilization operations and places the locus of
    decisionmaking for that within the DOS's new office to manage
    that.
        Secretary Rumsfeld signed a parallel complimentary
    directive in November. So, planning for contingency operations
    is moving to a new level and specifically contracting,
    developing appropriate contracting changes that will enable
    successful operations in the future are underway. Now, it's
    important to think about reconstruction and stabilization. It
    seems to me that we pursued reconstruction before stabilization
    was present. The World Bank has done several studies that show
    that investing in reconstruction before a nation, a society, is
    reasonably stable doesn't provide a good return on that
    invested dollar.
        I think our invested dollar now is returning better than it
    did 2 years ago. Even though we still have a fair way to go
    before we can call Iraq stabilized, even reasonably so. But you
    were asking for a concrete suggestion as well, and when I met
    with General Casey regarding contracting and talked about the
    problems that we've faced through the variety of contracting
    entities over there, and that is one problem, there have been
    so many, U.S. Agency for International Development (USAID),
    DOS, Joint Contracting Office Iraq (JCCI), there hasn't been a
    consolidation of it. So that's one, try to remember to
    consolidate contracting in a contingency operation so you don't
    stovepipe it and lose track of who's building what where.
        But two, and more importantly, how to make it happen
    better. All of them operate under the Federal Acquisition
    Regulations (FAR). That is an effective check on potential
    improper practices in a peacetime environment.
        But in a wartime environment, perhaps there needs to be a
    streamlined FAR. General Casey said that it would help him
    immensely if there could be a contingency operation FAR
    developed that would help contracting officers get the job
    done, still comply with safeguards, required safeguards, but
    not have to be burdened when you're outside Fallujah trying to
    build a school and under fire, you shouldn't have to post on
    Federal Business Operations for 30 days, I mean that sort of
    thing.
        The truth is, I think that makes sense. I think the FAR has
    within it the tools that can make that happen, but they're
    cumbersome to pull out, to create a supplement that identifies
    how to get the job done in a contingency operation. That would
    be a great way for Congress to help contracting officers in
    contingency operations.
        Senator Ensign. Excellent answers, thank you.
        Senator Akaka.
        Senator Akaka. As I noted in my opening statement, the
    SIGIR reported that one of the reasons for contracting problems
    was our failure to adequately staff and equip our acquisition
    organizations.
        In addition to the audit reports that I quoted in my
    opening statement, Mr. Bowen provided us with a draft lessons-
    learned document which makes many of the same points about
    chronic understaffing and frequent turnover in the acquisition
    office. That report indicates that these problems were
    identified more than 2 years ago by a DOD contracting
    assessment team. The DOD assessment team found that the
    contracting function was grossly understaffed even before
    Congress appropriated $18 billion for Iraqi reconstruction and
    was completely inadequate to handle the added load.
        Mr. Bowen, if this problem was identified way back in 2003,
    why was it never adequately addressed, and why have we
    continued to provide inadequate staffing and resources to our
    acquisition organizations in Iraq?
        Mr. Bowen. I think that our Human Capital Management report
    points out that CPA was understaffed and particularly in
    contracting. Colonel Tony Bell showed up on the ground in the
    summer of 2003, and there were three people in his office for a
    while. That eventually grew to 40 by 9 months later and is now
    at around 160 in Joint Contracting Command Iraq (JCCI). So,
    understaffing at the beginning was a severe impediment to
    effectively ensuring that safeguards were continually met.
    Understaffing is not as big an issue today as turnover. Part of
    our contracting lessons-learned seminar included not just a
    visit with the government side, but we also had a day-long
    seminar with contractors who are operating in Iraq to try to
    get feedback about how their interactions with the contracting
    were, and their biggest concern was the turnover in contracting
    officers and the lack of institutional knowledge being
    maintained. Each Service has a different length of stay
    assignment in Iraq. Some are 2 months, the Air Force has 2 or 3
    months, the Army a year, Marines 6 months. As a result, you had
    this constant flow-through of contracting officers.
        A lesson-learned from that is to try and identify a core-
    contracting contingent that will go and stay and execute until
    the job's done. As a result, we have this continuing experience
    of steep learning curves among contracting officers and I think
    it's better now than it's been since the start, but it was a
    rough start.
        General Johnson. If I could add to that----
        Senator Akaka. Secretary Bolton and General Johnson, at our
    previous hearing on Iraq contracting in May 2004, your
    counterparts, that's Assistant Secretary Tina Ballard and
    General Carl Strock, assured us that acquisition personnel
    would be moved into the theater as needed and would be
    sufficient to provide oversight of all DOD contracting
    activities. My question is, why wasn't this done? Mr. Bolton?
        Mr. Bolton. Two comments, that was early 2004, we just
    stood up the PMO, for which I was responsible, later the PCO,
    and the comments that the IG has just commented on, we started
    to take a look at that. Tony Bell worked for me, Colonel Bell.
    When I sent him over there responding to a request from CPI, I
    asked him please tell me what you need, and we'll go out to
    find that. We then, through my deputy, Ms. Ballard, went out to
    start looking for volunteers to start building this office, and
    it grew from what Tony had to what eventually General Seay had.
    The PCO has been 25 people plus some administrative help from
    seven contractors and one military type, and they essentially
    have done most of the contracting activity.
        Every time I talk to them, which is on a weekly basis, and
    I look at the figures too, we run about 80 to 85 percent, if
    we're lucky, in terms of percent filled, what do you need from
    us, and whatever that is, we try to provide it.
        Second part, we are asking to put people in there who are
    coming from a group of people who are already short across the
    entire Federal Government, not just DOD. In a Federal Times
    article about 3 or 4 months ago, we're short in the Federal
    Government by 1,500-2,000 contracting officers. The folks I
    have, they're great people, but in a couple years, about half
    of them are gone because they're retiring, and so, we're out
    trying to recruit. The simple factor here is that there aren't
    a whole lot of folks that you can draw from to do this
    particular function. They're just short. I'm fortunate to have
    the civilians which we rotate every 6 months. That helps with
    the learning curve because they were there a few months ago,
    they understand, they've been talking to the folks on a weekly
    basis because we put them in the home office back here in
    Washington. That helps with the learning curve, and they're up
    on the issues. They're all volunteers, and they love doing
    this, going back and back.
        My concern is down the road, where do I get all of these
    people? So, the lesson to learn here is to try to figure out
    how you put this all into formation to begin with, which I
    alluded to earlier. We, on the Army side, are doing, by putting
    them into the modular forces. Two, the bigger issue is how do
    you attract, recruit, train, and retain this type of expertise
    when you're short across the entire Federal Government.
        Senator Akaka. General Johnson?
        General Johnson. Sir, I think the secretary said it best.
    We did respond. I stood up the division in January 2004. At the
    time, we're providing people to--trying to stand up our
    division headquarters. We're all over the country of Iraq,
    we're not just in one location. We had one district in Basra,
    one in Baghdad, and one north up in Mosul. We were providing
    some contracting volunteers to PMO. We can do better.
        Additionally, and as I stated before, while our number one
    priority is for the global war on terror, the same U.S. Army
    Corps division of people are drawn to 90 other countries around
    the world. We were doing this before the global war on terror.
    Today, we have a priority of effort down in the New Orleans
    area. We have about 2,700 people deployed down there. The same
    kind of people we need to do contracting officer
    responsibilities and engineering responsibilities in Iraq are
    the same type of people that we need down in New Orleans and
    the Gulf Coast area. So, we have to keep at this each and every
    day, and you've been very helpful as Congress.
        One of the big challenges I had when I first got there was
    a civilian could work a 12-hour day, and for me, that's a half-
    day schedule. Still, after about 3 months, they would be over
    their pay cap because we were working extremely long days. We
    were in a combat zone. We were trying to get things going. You
    raised that pay cap to allow us to get more people to come
    overseas and be willing to make the sacrifice and be paid. I
    think there may be a time where we'll have to look at this, and
    there may have to be some special incentives for folks that
    have contracting officer capabilities.
        Senator Akaka. Thank you, Mr. Chairman.
        Senator Ensign. Senator Dayton.
        Senator Dayton. Mr. Chairman, I have to express my strong
    objection to your characterization in your recent remarks of
    these lines of questioning as flowing toward politics. I'm
    deeply offended by that. I was State Auditor in Minnesota, and
    every time I raised something, I was accused of politics. I
    don't want to be an apologist for an administration. I don't
    want to be an unfair critic. I want the facts to speak for
    themselves. When I see the lack of even interest in your
    raising these questions and pursuing them, anytime anybody
    wants to have a colloquy in the Senate floor about the
    influence of politics into questioning the prosecution of this
    war and those who have ignored the problems or apologized for
    them to the detriment of our own Armed Forces because as I've
    said before, and I'll tell you, my motivation isn't politics.
    My motivation is as a citizen this morning.
        I was at Camp Shelby in Mississippi 10 days ago, there were
    2,600 Minnesotans that are being trained to go over to Iraq. I
    looked at those faces, and I thought some of them are probably
    not going to come back. Some of them will probably die over
    there. Some of them will come back without limbs. Those will be
    Republicans, Democrats, Independents, it doesn't matter who
    they are, they're Americans. When things aren't done properly
    over there, sure there's an insurgency, sure there are things
    blown up. But when the electricity ticks up in July of last
    year, according to the reports I have, for the first time since
    prewar, and residents of Baghdad only have 8 hours of day and
    night of electricity under that generation, they're really
    unhappy about that.
        I was in Iraq with the ranking member, the chairman, and
    others on this committee in July 2003. It was 115 degrees every
    day. With no electricity, that means no air conditioning, no
    refrigeration and no running water and sanitation in some
    places. Does that fuel the insurgency? Does that mean, as I've
    read the Washington Post today, that when some group of
    Americans goes out on a convoy 200 yards away from their base
    camp and get blown up and die that these things don't matter?
    They do.
        So, when I hear nothing but apologies for this stuff and
    glossing over, and then I'm accused of playing politics as I
    raise the questions, I find it deeply deeply offensive.
        I would ask you, Mr. Secretary, going back to my line of
    questioning before, and I hope this hearing record will be kept
    open for a week because I have a lot of questions that I can't
    have time to ask here. But let me just ask you this, you said
    you got a contrary report from some audit source in your
    department regarding this RIO 2 contract and following up on
    your questions raised with the DCAA. What is the relationship
    of DCAA to your office, to DOD? Is that a credible auditing
    entity?
        Mr. Bolton. I use them all the time, just as I use the
    other auditing folks.
        Senator Dayton. So, if they--and we're talking now here not
    about the operational side of these contracts, but the
    financial accounting, if they come up with a finding that over
    10 percent of the contract costs were, whether it's Halliburton
    or anybody else, I don't care but 10 percent of them are, what
    are they called, questioned or unsupported, is that within the
    normal tolerance of deviation in terms of defense contracting?
        Mr. Bolton. I think it doesn't matter to me what the
    deviations are. What matters to me is that they raise the
    concern. In that particular case--and the only thing I really
    approved was the option. The contract was set before I came
    aboard. I was asked to take a look at the option. I asked my
    staff, both legal and professional, should we exercise this
    given all the concerns that were there, and the answer was yes.
    I said fine.
        Now, if we don't exercise this, and since you need this and
    it bears upon as you've just said, Senator Dayton, whether or
    not we're going to get our troops out of there in a timely
    fashion, if we complete this right now, how long will it take,
    and what will happen? The answer was one I didn't like. Taking
    all into account, is it legal? Have we done the right things?
    By the way, we have a special group now to go take a look at
    that particular contractor and the issues that you just raised
    on where is the documentation and so forth. They worked through
    all of that, but after I'd signed the piece of paper. I thought
    it was the wise thing to do at the time.
        Now, can I be second-guessed on it? Absolutely. Can I be
    taken to task with it? Absolutely. You should, but I think we
    made the right decision at the time.
        Senator Dayton. Sir, going back again, the DCAA on December
    31, 2004, issues a flash report, I assume, as a function of
    these questioned and unsupported costs in the previous
    Halliburton contracts and then repeats that again just 2 weeks
    later, and then 3 days after that second one is issued, the
    Army Corps of Engineers awards Halliburton a new $1.2 billion
    contract to restore and operate the oil and infrastructure in
    the southern half of Iraq, January 16, 2004. We talk about
    lessons-learned. I don't see many lessons being learned in that
    process, and what I said earlier in my previous round of
    questioning and quoted here why the Corps disregarded the
    auditor warnings and that there's an Army spokesman not
    identified saying we have our own internal audit process, we
    hadn't turned up any serious wrongdoing or major problems, then
    that's quite a variance from what DCAA is planning of over 10
    percent of variance. How do you reconcile those?
        Mr. Bolton. The way I reconcile is to break it up. In the
    first part, I did take that seriously. That's why we set up a
    team to look at all the task orders that were open and to close
    those and find out where we had documentation to pay and where
    we didn't have documentation to pay. As a result, Halliburton,
    or actually KBR, was not paid for portions that we could not
    justify.
        With regard to the second, I think we're referring to the
    next option on the RIO contract, which the Army Corps of
    Engineers took a look at and said it's appropriate to do this.
    To me, those are two separate things, granted on the same
    contract, but actions were taken.
        Senator Dayton. My time is up, but I'll follow up with, if
    I may, some written questions and ask for responses for the
    hearing record. I'm also told that on August 16, 2004, the Army
    declined to withhold 15 percent of Halliburton's payments
    because of these unsupported costs. Again, in February 2005,
    DOD approved a final waiver of the 15-percent withholding
    provision for Halliburton. I'm also told that there was a
    purging or retraction or redaction of all DCAA's audits when
    the RIO contract was submitted to the International Advisory
    and Monitoring Board. I'm not sure whether, and maybe these are
    incorrect, but that's the information that I've been given
    here, and I guess I'll ask for a formal response to those.
        Mr. Bolton. Yes, sir, please.
        The last one I'm not familiar with, Senator Dayton. The one
    on the 15--but we do have a FAR proviso that if we have not
    definitized, that wouldn't hold up to 15 percent. I did ask for
    a waiver. I can't grant that waiver. That's done at the Office
    of the Secretary of Defense, one of his Under Secretaries, sir.
        Here's the problem that was presented to me. We can stop
    that 15 percent. Given the cash flow problem with that
    particular company, that burden would fall upon the subs. We're
    talking about subs who are providing food and water to the
    soldiers who are in action. The subs couldn't bear that
    responsibility. They financially couldn't do it, so they were
    going to stop. You can only imagine what the headlines would
    read if I withheld that money from that prime contractor, and
    the subs could not provide water, food, and sanitation for our
    fighting troops over there. So, I asked for a waiver from the
    Office of the Secretary of Defense and then promised him that I
    would definitize that within a certain amount of time, which I
    did.
        Senator Dayton. My time has expired. Thank you. Thank you,
    Mr. Chairman.
        Senator Ensign. Thank you.
        Senator Levin.
        Senator Levin. Mr. Secretary, on that issue when you say
    you definitize it, does that mean that some part of the
    questioned amounts were recovered?
        Mr. Bolton. Yes, sir, what that means when we definitize on
    most of these, not most, but some of these contracts where we
    have task orders, we do a competitive. We select a contractor,
    and we tell him we're not sure what environment you're going to
    work, but when you get there, we'll have a pretty good idea,
    and then we'll ask for your rough estimate. Then as you do the
    work, we will go ahead and definitize what did you really do,
    what do we really want, and how much should it really cost us
    and so forth. So, that's what we did. We took that task order,
    the big one----
        Senator Levin. Gotcha.
        Mr. Bolton. --that does all the dining halls and----
        Senator Levin. Gotcha.
        Mr. Bolton. --water and so forth.
        Senator Levin. My question is somewhat different. I am not
    talking then about the definitized function, I am talking about
    where the DCAA questioned the claim of the contractor, KBR.
    Apparently, about $1 billion out of the $10 billion, roughly,
    was questioned by the DCAA. Of that $1 billion, how much of
    that was recovered by the Army?
        Mr. Bolton. I don't have exact figures. I'll take that for
    the record. My recollection is that we were able to definitize
    most of it, so we're talking a few hundred million dollars, we
    could not verify, and therefore, we didn't pay them.
        Senator Levin. So that perhaps it would be a couple hundred
    million dollars of the billion that was questioned by the DCAA,
    which ultimately, we refused to pay to the contractor.
        Mr. Bolton. Yes, sir. I'll get you the exact numbers
        [The information referred to follows:]

        There were questioned costs on all task orders issued under the
    Restore Iraqi Oil (RIO) contract. This is normal for a cost
    reimbursement contract. However, the Defense Contract Audit Agency
    (DCAA) questioned whether Kellogg Brown and Root (KBR) had always used
    the best business approach in executing the mission; not whether it had
    provided the Services or paid the claimed costs to its subcontractors.
    United States Army Corps of Engineers is not aware of any allegations
    that goods or services which were purchased for the Iraqis under the
    RIO contract with KBR were not provided or delivered. In fact, in an
    audit of the RIO contract, the Special Inspector General for Iraq
    Reconstruction stated that the goods and services delivered and billed
    for by KBR where those required under the contract.
        In order to reach a bottom-line government negotiating position,
    the contracting officer examined the specific questioned and
    unsupported costs to determine how they would be handled in the
    negotiations with KBR. This analysis was performed in close
    consultation with DCAA, which provided financial advice to the
    contracting officer on possible government negotiating positions and
    supported the contracting officer during the negotiations. For the task
    orders where audits had identified significant issues, DCAA advisors
    assisted the contracting officer during the negotiations with KBR.
    Neither the DCAA audits nor the DCAA financial advice to the
    contracting officer during negotiations with KBR included any
    recommendations not to reimburse KBR for the questioned costs, other
    than $3.8 million, which was not reimbursed.

        Senator Levin. Okay, now another issue on this pipeline
    going across this river, the IG's report indicates that KBR
    refused to provide information to the government that could
    have enabled the Army Corps to identify and correct the
    technical problems with the project. Now, here's what your
    report says: ``KBR restricted subcontractor communications by
    requiring all communications to be addressed to them. No one
    from the subcontractor's team was permitted by KBR to talk to
    representatives from the Corps of Engineers. An Army Corps
    engineer stationed in Kirkuk noted that getting information
    from KBR on anything was a major struggle. When asked for cost
    reports, KBR's representative told him that detailed cost
    reports were not required by the contract.'' Is that
    acceptable?
        General Johnson. Sir, I don't know the details of that
    specific incident.
        Senator Levin. This is in the IG's report. Is that an
    acceptable action by a contractor--to deny information and to
    the Corps?
        General Johnson. It's not normal. It is not normal.
        Senator Levin. Do we know what action has been taken
    against KBR for this? I want to learn from lessons. I want to
    get some lessons learned, too. I am all in favor of learning
    lessons, believe me, but you also have to hold people
    accountable.
        General Johnson. Yes.
        Senator Levin. If you are really going to change behavior,
    if you gloss over behavior which is unacceptable, you are less
    likely to change future behavior, which I agree is a very
    significant goal. So, has KBR been held to any account for
    refusing to provide information to the Army?
        Mr. Bowen. Yes, they have. They were put under a cure
    notice in December 2004.
        Senator Levin. For exactly this issue?
        Mr. Bowen. Inadequate cost reporting. This had to do with
    the contract that Senator Dayton was referring to, the southern
    oil contract.
        Senator Levin. Is this inadequate or refusing to provide
    information?
        Mr. Bowen. They're being ordered to provide it and not
    providing it after repeated requests in the fall of 2004 and
    the failure to provide that----
        Senator Levin. Mr. Bowen, could you just tell us what a
    cure order is?
        Mr. Bowen. Cure notice.
        Senator Levin. Cure notice.
        Mr. Bowen. Yes, it's a suspension of payments and really a
    threat of termination of contract. If you don't provide better
    data about your costs, then you will lose the contract.
        Indeed, although KBR did eventually resolve that cure
    notice, it took them over 8 months to resolve it. It was
    finally lifted in the midsummer of last year. They lost
    virtually all their work in the southern region. All of it was
    switched over to the Parsons International Joint Venture. So,
    although they had a billion dollar contract for that southern
    region, they ultimately only did about just over $200 million
    in work.
        Senator Dayton. This is RIO 2?
        Mr. Bowen. They had the capacity. There was a capacity to
    do $1.2 billion, I think you referred to, under that contract.
        Senator Dayton. Is this RIO 2 or just Halliburton?
        Mr. Bowen. They call it RIO 2. It was the southern region.
    They divided Iraq up into northern and southern regions in the
    January 2004 award, and Parsons International Joint Venture got
    the northern region, and KBR got the southern region. KBR, I've
    been concerned about their performance, and as I've noted in a
    number of my audit reports. This I noted when I met several
    times with the oil sector and PCO. I sent a letter to General
    Urias recommending termination for cause. It was ultimately
    terminated for convenience based on advice of counsel, but I
    was not happy with what I saw as their insistent failure to
    meet the standards that the oil sector government lead was
    repeatedly demanding.
        Senator Levin. I commend you on your work, by the way. I
    was quoting from your work because I think it's very pointed,
    and I don't think there's adequate answers that we've been
    given by anybody to the points that you've made in terms of the
    response that has not been forthcoming from a contractor in
    terms of how much money's not been recovered from the
    contractor. The stakes here were real high in addition to money
    being paid out that shouldn't have been paid out. The stakes
    here have to do with whether or not a pipeline is going to be
    built across that river which is going to help Iraq get back on
    its feet. Because that subcontractor was not allowed to talk to
    the Army and that according to your report----
        Mr. Bowen. Right, and that started with a hotline report to
    my office. That was the first report I got of it in the late
    spring of 2004.
        Senator Levin. As a result of that, the subcontractor
    representative said that after encountering cobble, which I
    guess is gravel of some kind, bad subsurface.
        Mr. Bowen. That's right.
        Senator Levin. That they suggested alternative drilling
    sites which were turned down by KBR. So, no one from the
    subcontractor's team, according to your report, is allowed to
    tell the Corps of Engineers that that problem occurred. All
    we've done is said we're going to discontinue the contract for
    the convenience of the government instead of holding them
    accountable in some significant way. The stakes here were huge.
    The outcome here was probably impacted. The way it sounds to me
    in your report, by that information being denied to the Corps
    of Engineers, that that subcontractor found a subsurface, it
    could not hold that pipeline.
        These are immense stakes for a country which is in the
    middle of an insurgency. The insurgency is tough enough as we
    all know, but for this kind of a contractor, I think,
    misbehavior in denying information to go forward to the Corps
    of Engineers has to have consequences for that contractor
    besides having a contract denied for the convenience of the
    government. The lack of pipeline capacity resulted in the loss
    of more than a billion and a half dollars in potential oil
    revenues to the Iraqi Government.
        So, I guess for the record, I will have to ask you this
    since my time is up. There have been some whistleblowers who
    have complained also about KBR. A former KBR employee named
    Rory Mayberry has identified problems in the food service
    contract. He alleges that he was told by KBR managers not to
    speak to the auditors. Another former KBR employee, Ben Carter,
    identified problems with the contamination of water that was
    being supplied to our troops in Iraq, said keep his mouth shut,
    don't talk to the military about what you're alleging. I guess
    the question here is are these whistleblower complaints
    familiar to any of you gentlemen?
        General Johnson. Sir, I'm familiar with the one concerning
    the water quality.
        Senator Levin. Would you, for the record, answer those?
        General Johnson. Water quality in the base camps, yes, sir.
        [The information referred to follows:]

        This issue has been researched extensively and information
    confirmed with the Defense Contract Management Agency (DCMA), the
    agency responsible for oversight.
        While Kellogg Brown and Root (KBR) is tasked with operating water
    purification units for both potable and nonpotable water, they do not
    operate all of the systems in theater. During the period in question
    (January-May 2005), KBR was not operating the Reverse Osmosis Water
    Purification Unit in Ar Ramadi. During that timeframe, purification and
    testing was being accomplished by the 704th Quartermaster Battalion.
    KBR's involvement was limited to drawing and delivering/distributing
    water until May 2005. KBR took over the water purification operation at
    this site on May 21, 2005. According to DCMA, water quality tests
    conducted during this time period revealed no deficiencies.
        Notwithstanding the above, this matter in its entirety has been
    referred to the appropriate investigative agencies.

        Senator Levin. Would you do that for the record, if you
    would, because I'm over my time limit. Then also for the
    record, the allegations of Bunnatine Greenhouse, these are
    against the Corps itself, and would you, for the record, I
    think you're familiar with those allegations. Would you address
    those allegations for the record?
        General Johnson. Absolutely.
        [The information referred to follows:]

        The Acting Chief Counsel did not advise Ms. Greenhouse that her
    appearance before the Democratic Policy Committee would not be in her
    best interest. In an e-mail sent June 23, 2005, the acting Chief
    Counsel advised Ms. Greenhouse to ``make clear in your testimony that
    you are not appearing in those proceedings as a representative of the
    Department of the Army or the Corps of Engineers and you are not
    testifying on behalf of the Army or the Corps.'' The Acting Chief
    Counsel further stated ``I also respectfully request that you be
    careful in your testimony and these proceedings to protect
    appropriately, proprietary information that you may have on any of the
    matters under discussion.'' The Acting Chief Counsel also met with Ms.
    Greenhouse on June 24, 2005, and reiterated these points.

        Senator Ensign. I think that there are going to be
    several--I know I have several questions that we'll want,
    simply because of the lack of time today, to have addressed for
    the record.
        Just in conclusion, first of all, I want to thank all of
    you for your testimony today and response to the questions and
    thank the senators who attended as well for their questioning.
    Very important issues that we're dealing with here, that we're
    talking about credibility of our military, credibility of our
    contracting process. I agree with Senator Levin, and I tried to
    make that clear, that I absolutely agree that people need to be
    held accountable, but I also wanted to make sure that the
    hearing's purpose was to learn from mistakes that were made in
    the system, built into the system, and how we can design a
    better system to make sure in the future that we minimize these
    opportunities for abuse and also opportunities just for
    outright mistakes that were made.
        So, I want to thank all of you for your testimony, and this
    hearing is adjourned.
        [Questions for the record with answers supplied follow:]
                   Questions Submitted by Senator John Ensign
                            restoration of iraqi oil
        1. Senator Ensign. Mr. Bowen, in your response to questions during
    the recent Readiness and Management Support Subcommittee hearing on
    Iraqi contracting, you noted that Kellogg Brown and Root (KBR) had
    ``lost virtually all of their work in the southern region'' of Iraq
    under the Restore Iraqi Oil (RIO) II contract. According to your
    statement, although KBR had a ``$1 billion contract for that southern
    region, they ultimately only did about just over $200 million in
    work.'' The work was ``switched over to the Parsons International Joint
    Venture.'' Please clarify the circumstances and time frame involved in
    the action you described above.
        Mr. Bowen. The U.S. Army Corps of Engineers (USACE) reports that
    the award of fully and openly competed contracts to replace the
    original sole-source award was part of its pre-war acquisition plan for
    the oil mission.\1\ On July 10, 2003, the Request for Proposals for two
    new contracts, one for work in the north and one for work in the south,
    was released with a deadline for submission of August 15, 2003. On
    October 29, 2003, USACE announced that it would modify the solicitation
    of the two contracts to increase their capacity but not change the
    scope of work. USACE states the reason for the increase as: continued
    sabotage, continued assessments plus the need to provide additional
    security under the contracts.\2\ The Indefinite Delivery Indefinite
    Quantity (IDIQ) cost-plus-award fee contracts were awarded January 16,
    2004, to Parsons Iraq JV for work in the north and KBR for work in the
    south. The contract ceiling for the ``northern'' contract was $800
    million, for the ``southern'' contract it was $1.2 billion.\3\
    ---------------------------------------------------------------------------
        \1\ USACE Press Release PA-03-30. ``Corps to Amend Solicitation for
    Contracts for Repair of Iraq's Oil Infrastructure.'' October 29, 2003.
        \2\ Ibid.
        \3\ Ibid.
    ---------------------------------------------------------------------------
        In its April 2005, 2207 Report to Congress, the State Department
    reported that:

              ``Due to failure to adequately control and report costs, KBR,
            the southern Design Build (DB) contractor was issued a Cure
            Notice on January 29, 2005. This has resulted in the
            replacement of some key personnel and a proposal from KBR to
            remedy the issues. Their response was considered insufficient
            and KBR was required to take further actions. When KBR's
            revised response is received, it will be reviewed and decisions
            on appropriate actions will be made.'' \4\
    ---------------------------------------------------------------------------
        \4\ State Department. 2207 Report. April 05, 2005. p. 55.

        The Report goes on to list as an ``accomplishment'' since the
    ---------------------------------------------------------------------------
    previous report:

              ``Change of contract executing strategy due to poor
            performance of KBR.'' PCO has begun working with Parsons (PIJV)
            in the south to execute some of the remaining work.'' \5\ The
            Report does not provide further details of the ``poor
            performance'' of KBR.
    ---------------------------------------------------------------------------
        \5\ Ibid. p. 56.

        In its July 2005, 2207 Report to Congress, the State Department
    ---------------------------------------------------------------------------
    reports:

              ``KBR has made numerous improvements to the Monthly Cost
            Report, thereby satisfactorily addressing most of the issues
            PCO raised in the Cure Notice it issued to KBR in January. KBR
            is continuing efforts to close the remaining gaps. PCO awarded
            six southern task orders for former KBR projects to the
            northern DB contractor, Parsons Iraq Joint Venture (PIJV). PIJV
            has mobilized resources to the south and the facilities
            assessments, to define the scope of work, have been completed.
            Project Scope and Status Report (PSSR) packages will be
            complete on all projects by mid-July.'' \6\
    ---------------------------------------------------------------------------
        \6\ State Department. 2207 Report. July 07, 2005. p. 57.

        Nine Terminations for Convenience were issued regarding the KBR
    Southern Oil Sector Contract (also known as RIO II)--Contract Number
    W9126G-04-D-0001. A list of these task orders and a short reason why
    the task order was terminated for convenience follows. No task orders
    were terminated for default. All of these task orders were awarded with
    ---------------------------------------------------------------------------
    Iraq Relief and Reconstruction Fund (IRRF) monies.

             Task Order 0001 - Transition Planning and Fuel Import
            and Delivery Mission: KBR rescinds their cost proposal and
            requests a cancellation of the Task Order.
             Task Order 0002 - Initial Mobilization: All remaining
            support requirements are moved to Task Orders 14-17.
             Task Order 0005 - Life Support to Southern Camp: All
            remaining support requirements are moved to Task Orders 14-17.
             Task Order 0009 - Daura Centralized Power: KBR cannot
            justify high costs and cost reporting system discrepancies.
             Task Order 0018 - Al Faw Peninsula Piping Assessment
            and Repair: KBR cannot provide supporting documentation for
            final costs and other cost issues.
             Task Order 0019 - Pipeline Oil Spill Clean-up: KBR
            cannot provide supporting documentation for final costs and
            other cost issues.
             Task Order 0024 - Pipeline Communications: Lack of
            agreement with KBR on high cost issues.
             Task Order 0025 - Refurbish Loading Arms: Lack of
            agreement with KBR on high cost issues.
             Task Order 0027 - Well-Workovers: Failure to obtain
            indemnification agreement from Iraqi Ministry of Oil. (For
            additional information see next question.)

        Task Order 27 under the KBR southern oil sector contract number
    W9126G-04-D-0001 (also known as RIO II) was terminated for convenience
    on July 5, 2005. Task Order 27 involved well-workovers for which KBR
    requested indemnification from the U.S. Government prior to commencing
    work. After being unable to reach an agreement with KBR on the
    indemnification issue and failure of the Iraqi Government to also
    provide indemnification, the Task Order was terminated. It should be
    noted that the termination applied only to Task Order 27 and not to the
    entire contract, and neither the contract nor any other task orders
    have been terminated for default.
        The work contemplated under Task Order 27 was then awarded to
    Parsons International Joint Venture (PJIV) under their northern oil
    sector contract number W9126G-04-D-0002 as Task Order 22. A proposal
    from PIN that details project scope, to include an execution strategy,
    schedule, assumptions and cost estimate, is currently undergoing a
    Defense Contract Audit Agency (DCAA) audit. Commencement of the work
    under this task order is also awaiting a signed four-party
    indemnification between the Iraqi Ministry of Oil; the Southern Oil
    Company; PIN; and Weatherford, PIJV's subcontractor.
        KBR Task Order 27 was definitized at $36,981,995 on March, 11,
    2005. The cost of PIJV Task Order 22 has not been negotiated nor
    definitized. PIJV's proposal dated January 11, 2006, estimated the work
    at approximately $80,458,353.
        The switch of contractors from KBR to PIJV was also due to the fact
    that KBR sought indemnifications and the U.S. Government did not
    support the request. Special Inspector General for Iraq Reconstruction
    (SIGIR) has now learned that there is a new request from the current
    contractor for indemnifications which we expect the Iraqis to provide.
    The KBR cost is mainly related to overhead, developing of a man camp,
    and equipment.
        Mr. Bolton. (Mr. Bolton is answering per agreement with the Office
    of the SIGIR.)
        Under the KBR southern oil sector contract number W9126G-04-D-0001,
    30 task orders have been issued with an estimated total value of
    $665,678,579. Under this contract, task order 27 involved well work-
    overs for which KBR requested indemnification from the U.S. Government
    prior to commencing work. After being unable to reach an agreement with
    KBR on the indemnification issue and the failure of the Iraqi
    Government to also provide indemnification, the task order was
    terminated for convenience. The work contemplated under this task order
    was then transferred to Parsons International Joint Venture (PITV) as
    Task Order 22 under their northern oil sector contract number W9126G-
    04-D0002. PIJV commencement of work under this task order is awaiting
    DCAA approval of PIJV's proposed project scope and receipt of
    indemnification from the Iraqi Government.

        2. Senator Ensign. Mr. Bowen, when, and under what circumstances,
    was the KBR contract under RIO II switched to Parsons?
        Mr. Bowen. The KBR contract was not switched to Parsons
    International Joint Venture (PIJV), however oil sector representatives
    say that they limited the task orders awarded to KBR under its contract
    and increased the task orders awarded to PIN under its contract. (see
    list of Task Orders in response to Question 1).
        Task Order 27 under the KBR southern oil sector contract number
    W9126G-04-D-0001 (also known as RIO II) was terminated for convenience
    on July 5, 2005. Task Order 27 involved well-workovers for which KBR
    requested indemnification from the U.S. Government prior to commencing
    work. After being unable to reach an agreement with KBR on the
    indemnification issue the task order was terminated. Neither the
    contract nor any other task orders have been terminated for default.
        The work under Task Order 27 was then awarded to PJIV under their
    northern oil sector contract number W9126G-04-D-0002 as Task Order 22.
    A proposal from PIJV is currently undergoing a DCAA audit. Commencement
    of the work under this task order is also awaiting a signed four-party
    indemnification between the Iraqi Ministry of Oil, the Southern Oil
    Company, PIN, and subcontractor Weatherford.
        KBR Task Order 27 was definitized at $36,981,995 on March 11, 2005.
    The cost of PIJV Task Order 22 has not been negotiated nor definitized.
    PIJV's proposal dated January 11, 2006, estimated the work at
    approximately $80,458,353.
        Mr. Bolton. (Mr. Bolton is answering per agreement with the Office
    of the SIGIR.)
        Under the KBR southern oil sector contract number W9126G-04-D-000l,
    30 task orders have been issued with an estimated total value of
    $665,678,579. Under this contract, Task Order 27, involved well work-
    overs for which KBR requested indemnification from the U.S. Government
    prior to commencing work. After being unable to reach an agreement with
    KBR on the indemnification issue and the failure of the Iraqi
    Government to also provide indemnification, the task order was
    terminated for convenience. The work contemplated under this task order
    was then transferred to Parsons International Joint Venture (PIJV) as
    Task Order 22 under their northern oil sector contract number W9126G-
    04-D0002. PIJV commencement of work under this task order is awaiting
    DCAA approval of PIJV's proposed project scope and receipt of
    indemnification from the Iraqi Government.

        3. Senator Ensign. Mr. Bowen, what is the status of the RIO I
    contract?
        Mr. Bowen. The Army Corps of Engineers should be contacted for the
    latest status on the RIO I contract (Contract Number DACA63-03-D-005).
    However, SIGIR can provide the following background information.
        On March 8, 2003, the Army Corps of Engineers awarded a sole-source
    contract to KBR for services related to the implementation of plans to
    extinguish oil well fires and to assess the damage to oil facilities
    during Operation Iraqi Freedom. The justification used for this
    noncompetitive award was Federal Acquisition Regulations (FAR) 6.302-1,
    which provides for sole-source procurements when ``only one responsible
    source and no other supplies or services will satisfy agency
    requirements.''
        SIGIR performed a limited scope attestation engagement in September
    2005 on the RIO I KBR contract and concluded that the use of the
    noncompetitive contract was appropriately justified and that the goods
    and services delivered and billed for were those required under the
    contract. However, that audit addressed only the KBR RIO contract
    number DACA-63-03-D-0005. SIGIR addressed only the portions of the
    contract that used DFI funds (Task Orders 5 through 10). SIGIR did
    address Task Order 6 in so far as it related to the agreed upon
    procedures in the limited scope attestation engagement. That is, SIGIR
    concluded that documentation existed justifying the sole-source award
    of Task Order 6.
        On July 17, 2004, Task Order 6, which was awarded with Development
    Fund for Iraq (DFI) monies through RIO I to KBR for the Al Fatah Bridge
    pipeline project, was terminated for convenience due to an exhaustion
    of funds. This work was subsequently awarded to PIJV under their
    Northern Oil Sector Contract (also known as RIO I) (Contract Number
    W9126G-04-D-0002) for a cost of $29.7 million in IRRF monies.
        Mr. Bolton. (Mr. Bolton is answering per agreement with the Office
    of the SIGIR.)
        All contractor work is complete. Actual contractor costs, base and
    award fees, and indirect costs for all but Task Orders 1-4 have been
    negotiated and paid. Indirect costs for Task Orders 1-4 will be
    finalized upon completion of DCAA audits.

        4. Senator Ensign. Mr. Bowen, what is KBR's current role in that
    project?
        Mr. Bowen. The U.S. Army Corps on Engineers would be able to
    provide accurate information on the current status. However the
    justification for the original contract stated that the requirement was
    restricted to a sole-source due to the necessity that a contract be
    immediately available upon direction to implement the Contingency
    Support Plan (CSP), in case armed conflict with Iraq occurred before a
    competition could be conducted. The execution of the CSP would see to
    the repair and continuity of operations of the Iraqi oil
    infrastructure. USACE emphasized that complete familiarity with the CSP
    and access to proprietary essential elements was necessary to maintain
    and implement the CSP. In addition, because the CSP was and remains
    classified, any other contractor would require substantial time to
    assure appropriate facilities and personnel clearances to enable their
    review of the CSP. On the other hand, KBR already had a cadre of
    individuals cleared for the plans classified aspects. As such, KBR, the
    developers of the CSP under a previously competitively awarded
    contract, became the only contractor to satisfy the requirement for the
    immediate execution of the CSP. As required by U.S.C., title 41,
    section 253, the Assistant Secretary of the Army (Acquisition,
    Logistics, and Technology) approved the award of the sole-source
    contract on February 28, 2003.
        The Justification and Approval document for contract DACA63-03-D-
    0005 contained a signed statement from the contracting officer that the
    contract was a cost-plus-award fee, IDIQ contract and that cost would
    be continuously monitored to ensure that they were fair and reasonable
    and properly allocated. According to the Administrative Contracting
    Officer (ACO), fair and reasonable cost determinations would be made
    upon definitization of each task order.
        Ten task orders were issued under IDIQ contract DACA63-03-D-0005.
    Initially, the task orders were funded with U.S. Army Operations and
    Maintenance funds. However, beginning September 2003, the Program
    Review Board (PRB) voted to fund some of the task orders with DFI
    funds. Task Orders 0001 through 0004 and part of Task Order 0005 were
    funded using U.S. Army Operations and Maintenance funds. Task Order
    0005 was also funded with Iraqi seized and vested funds, as well as DFI
    funds. Task Orders 0006 through 0010 were funded with DFI funds. From
    September 2003 to March 2004 the PRB voted to provide, on a
    reimbursable basis, nearly $1.4 billion of DFI funds for the
    procurement and distribution of fuel products and Iraqi oil
    infrastructure restoration.
        The statements of work for Task Orders 0005, and 0007 through 0010,
    provide support for Iraq oil restoration and for fuel distribution.
    Specifically, the effort required under these task orders was to repair
    fuel products distribution systems, procure, import, and distribute
    refined products (liquid products) and gas products (mixtures of
    propane and butanes referred to as LPG) in order to meet the domestic
    demand for fuels for commercial and private use within Iraq. In
    addition, the contractor was to monitor fuel demand and availability as
    necessary to prevent localized or large-scale fuel shortfalls.
        The statement of work for Task Order 0006 provides for restoration
    of essential oil infrastructure. Specifically, the effort required was
    intended to support actions necessary to: restore the pipeline crossing
    the Tigris River; install 50 kilometers of pipeline from Kirkuk to the
    Tigris River; and install emergency back-up generation capability at
    various locations.
        Mr. Bolton. (Mr. Bolton is answering per agreement with the Office
    of the SIGIR.)
        KBR currently has no role in the well work-over project that was
    transferred to PITV as Task Order 22 under their northern oil sector
    contract number W9126G-04-0002.
                                     ______

                   Questions Submitted by Senator Carl Levin
                                      kbr
        5. Senator Levin. Secretary Bolton and General Johnson, Marie
    deYoung, a former Army captain who worked for KBR in Kuwait, told the
    Senate Democratic Policy Committee (DPC) on September 10, 2004 that KBR
    paid $1.1 million a month for fuel trucks obtained through a company
    called La Nouvelle, when it could have obtained the same trucks
    directly from the vendor (without the middleman) for $200,000 a month.
    Ms. deYoung also told the DPC that KBR received two equally acceptable
    bids to build an ice factory--and chose the company that bid $3.4
    million instead of the company that bid $450,000. Have you looked into
    these allegations? If so, what is the Army's response?
        Mr. Bolton and General Johnson. The situation concerning fuel
    trucks that Ms. deYoung describes was, in fact, discovered during a
    routine records check and reported by KBR, and has been investigated by
    the Army Criminal Investigation Command.
        In February 2003, a KBR employee (Mr. Mazon) was given the job of
    soliciting bids from potential subcontractors to supply fuel tanker
    trucks at a U.S. military airport in Kuwait for a 6-month period (March
    through August 2003.) Mr. Mazon received at least two bids--one from an
    unnamed company for approximately $1.9 million and another from a
    company called La Nouvelle for nearly $1.7 million.
        In March 2005, Mr. Mazon was indicted by an Illinois grand jury for
    fraudulently inflating both bids before the contract was awarded, more
    than tripling them to $6.2 million for the unnamed company and $5.5
    million for La Nouvelle. La Nouvelle then won the contract on the basis
    that it had submitted the lower bid. The indictment also accused Mr.
    Mazon of receiving a $1 million payment from La Nouvelle executed as a
    false promissor note to make the payment appear to be a loan.
        On March 16, 2005, Mr. Mazon was arrested in Georgia and charged
    with four counts of major fraud and six counts of wire fraud. He waived
    his right to appear before an Atlanta court the next day and was sent
    to Rock Island, Illinois, (where the United States Army Field Support
    Command is based) to be tried in Federal court. A pretrial conference
    is set for September 2006. The trial is to take place in October 2006.
        KBR voluntarily withheld billing until they completed an internal
    review. DCAA also reviewed all LaNouvelle related billings.
        The allegations concerning selection of a subcontractor for the ice
    plants are under review. We have requested additional information and
    an update will be provided when the information becomes available.

        6. Senator Levin. Secretary Bolton and General Johnson, have these
    allegations been referred to the Department of Defense (DOD) Inspector
    General (IG) or the IG of the Army for investigation? If so, what is
    the status of that investigation?
        Mr. Bolton and General Johnson. The situation concerning the fuel
    trucks has been investigated by the Army Criminal Investigation
    Command. The allegations concerning selection of a subcontractor for
    the ice plants are under review. We have requested additional
    information from the agencies providing oversight for this contract and
    an update will be provided when the information becomes available. We
    will also ensure that the appropriate investigative agency be notified
    regarding these allegations.

        7. Senator Levin. Secretary Bolton and General Johnson, Rory
    Mayberry, a former KBR employee who served as food production manager
    for a military dining hall at Camp Anaconda, Iraq, told the DPC on June
    13, 2005, that KBR charged the government for meals that were never
    served to our troops and to third-country nationals; paid inflated
    prices for food; served food items that were outdated, expired, or
    spoiled; served food at KBR events that was intended for the troops;
    and failed to comply with military sanitation rules. Have you looked
    into these allegations? If so, what is the Army's response?
        Mr. Bolton and General Johnson. These matters have been referred to
    the appropriate investigative agencies. The Army Materiel Command has
    consulted with the Defense Contract Management Agency (DCMA) Iraq and
    they have been unable to substantiate the allegations raised in Mr.
    Mayberry's testimony.
        AMC was unable to substantiate allegations that KBR served food
    items that were outdated, expired, or spoiled. DCMA Quality Assurance
    Representatives (QARs) and Army Medical Department personnel perform
    audits to ensure that the food served is not outdated, expired, or
    spoiled. While acknowledging that an occasional problem may be found
    during inspections, no indication of systemic, criminal, or negligent
    behavior has been noted.
        AMC was unable to substantiate allegations that KBR paid inflated
    prices for food. In fact, during the majority of the timeframe that Mr.
    Mayberry was working for KBR (January-April 2004), the Government was
    delivering food items. Since then, food items have been ``government
    furnished'' to KBR by the Defense Logistics Agency through its
    contractor, PWC Logistics.
        We were unable to substantiate allegations that KBR failed to
    comply with military sanitation rules. DCMA QARs perform frequent
    audits in the dining facilities to ensure that KBR follows military
    sanitation rules. In addition, at many sites, the Army provides food
    service specialists who also oversee the food preparation and
    sanitation conditions to ensure it meets military standards.
        Concerning the allegations that KBR served food at KBR events that
    was intended for troops, the source for food for KBR employees is the
    same as the source of food for the troops. In most locations, KBR
    employees eat at the same Dining Facility (DFACs) as the troops;
    however at some large installations, they have their own DFAC located
    near the KBR camps.
        Lastly, Mr. Mayberry states that KBR charged the government for
    meals that weren't served. This matter has been extensively analyzed
    and the proper adjustments have been made. The Army reached agreement
    with KBR on March 28, 2005, for DFAC cost issues that have been in
    contention for some time. The settlement--a $55 million decrement to
    KBR's actual costs implemented the government position that DFAC
    payments should be based on the actual services provided to patrons,
    while accounting for conditions that existed early in contingency
    operations. The agreement covers 14 Logistics Civil Augmentation
    Program (LOGCAP) Task Orders providing DFAC services during
    approximately the first 6-9 months of Operation Enduring Freedom/
    Operation Iraqi Freedom.

        8. Senator Levin. Secretary Bolton and General Johnson, have these
    allegations been referred to the DOD IG or the IG of the Army for
    investigation? If so, what is the status of that investigation?
        Mr. Bolton and General Johnson. These matters have been referred to
    the appropriate investigative agencies. In addition, considerable time
    and effort has been taken to ensure food service operations in theater
    are in full compliance with established guidelines. Inspections and
    other oversight operations continue to monitor quality control. The
    Multi National Force-Iraq (MNFI) has initiated a multi-discipline food
    service top-to-bottom review to specifically address issues such as
    food expiration dates. The LOGCAP Contracting Directorate within the
    Army Field Support Command (AFSC) has also recently undergone an
    initial restructuring designed to place additional management elements
    in theater to closely monitor contract management and execution.

        9. Senator Levin. Secretary Bolton and General Johnson, Mr.
    Mayberry also told the DPC that KBR threatened retaliation against
    employees who sought to discuss these problems with government
    officials. According to Mr. Mayberry:

              ``Government auditors would have caught and fixed many of the
            problems. But KBR managers told us not to speak with auditors.
            The managers themselves would leave the base or hide from the
            auditors when they were on base and not answer radios when we
            called for them. We were told to follow instructions or get off
            the base. . . The employees that talked to the auditors were
            moved to other bases that were under fire more than Anaconda. .
            . I personally was sent to Fallujah for 3 weeks. The manager
            told me I was being sent away until the auditors were gone
            because I had opened my mouth to the auditors. . . I was put in
            danger because the KBR managers didn't want me to talk with
            U.S. Government auditors.''

        Have you looked into these allegations? If so, what is the Army's
    response?
        Mr. Bolton and General Johnson. We will ensure that the statements
    above are referred to the appropriate agencies.

        10. Senator Levin. Secretary Bolton and General Johnson, have these
    allegations been referred to the DOD IG or the IG of the Army for
    investigation? If so, what is the status of that investigation?
        Mr. Bolton and General Johnson. No, the allegations have not been
    referred. However, we will ensure that the matter is referred to the
    appropriate investigative agencies.

        11. Senator Levin. Secretary Bolton and General Johnson, Ben
    Carter, a former KBR employee who served as acting foreman for KBR's
    water purification unit at Ar Ramadi in Iraq, told the DPC on January
    23, 2006 that KBR failed to chlorinate drinking water that it provided
    to U.S. troops at that base. Mr. Carter also told the DPC about an
    internal KBR report which, he said, detailed similar problems at other
    bases in Iraq. In addition, Mr. Carter told the DPC that he should
    ``keep my mouth shut'' and not tell the military about the problem.
    Have you looked into these allegations? If so, what is the Army's
    response?
        Mr. Bolton and General Johnson. This issue has been researched
    extensively and information confirmed with the DCMA, the agency
    responsible for oversight.
        While KBR is tasked with operating water purification units for
    both potable and nonpotable water, they do not operate all of the
    systems in theater. During the period in question (January-May 2005),
    KBR was not operating the Reverse Osmosis Water Purification Unit in Ar
    Ramadi. During that timeframe, purification and testing was being
    accomplished by the 704th Quartermaster Battalion. KBR's involvement
    was limited to drawing and delivering/distributing water until May
    2005. KBR took over the water purification operation at this site on
    May 21, 2005. According to DCMA, water quality tests conducted during
    this time period revealed no deficiencies.
        Notwithstanding the above, this matter in its entirety has been
    referred to the appropriate investigative agencies.

        12. Senator Levin. Secretary Bolton and General Johnson, have these
    allegations been referred to the DOD IG or the IG of the Army for
    investigation? If so, what is the status of that investigation?
        Mr. Bolton and General Johnson. This matter in its entirety has
    been referred to the appropriate investigative agencies.

        13. Senator Levin. Secretary Bolton and General Johnson, has either
    the Army or the IG obtained a copy of the internal KBR report
    referenced in Mr. Carter's statement?
        Mr. Bolton and General Johnson. This matter in its entirety has
    been referred to the Department of Justice.

        14. Senator Levin. Secretary Bolton and General Johnson, on March
    8, 2003, the Army Corps of Engineers awarded a sole-source contract to
    KBR for the reconstruction of Iraqi oil fields. The Army Corps of
    Engineers has indicated that this was intended as a temporary
    ``bridge'' contract, to be in place only until the Corps could conduct
    a competition for a follow-on contract. Yet, the contract was for a
    period of 2 years, with three 1-year options and a total dollar value
    of up to $7 billion. The sole-source justification documents were
    signed by you, Secretary Bolton, and by the commanding officer of the
    Army Corps of Engineers. Bunnatine Greenhouse--who was then the senior
    civilian at the Army Corps of Engineers responsible for contracting--
    also signed the justification documents, but with the following
    notation:

              ``I caution that extending this sole-source effort beyond a
            1-year period could convey an invalid perception that there is
            not strong intent [to conduct a follow-on] competition.''

        Do you agree or disagree with Ms. Greenhouse's concern that
    awarding a contract for a period of up to 5 years, with a value of up
    to $7 billion, would create the wide-spread impression that the Army
    Corps lacked a strong interest in awarding a competitive contract?
        Mr. Bolton and General Johnson. Disagree. At the time the sole-
    source contract was awarded, it was not clear if the Iraqi oil fields
    would be as extensively sabotaged as the Kuwaiti oil fields had been
    during the First Gulf War. It was also not clear that the Iraqi
    Ministry of Oil could be quickly reconstituted and make any substantial
    contribution. The $7 billion amount was a medium estimate of the damage
    which might be expected. Since no work of any kind can be accomplished
    without a contract in place, it made sense at the time to have this
    much capacity and include options to maintain maximum flexibility. In
    addition, the government contracting process can be quite complex, with
    the possibility of protests, stays of the procurement action, and
    litigation at many different points. Failure to include sufficient
    capacity to deal with unknown events or options to continue work in the
    sole-source contract would have been too risky. Including this capacity
    did not obligate the government to use it.
        The USACE also did not lack strong interest in awarding a
    competitive follow-on contract. In fact, the first draft of the
    acquisition strategy was completed by the USACE, Southwestern Division
    (SWD) before formal responsibility for executing the RIO mission was
    assigned to USACE February 13, 2003, and before the justification and
    approval documentation supporting the award of the sole-source contract
    to KBR was approved on February 28, 2003. Both the acquisition strategy
    and the supporting source selection plan had to be approved by the Army
    and several drafts were required to resolve all issues raised by
    various reviewers on the Army Staff. The final version was not approved
    until May 19, 2003, and the supporting acquisition strategy was not
    approved until June 11, 2003. Even then, some legal questions
    concerning the amount of foreign competition allowed had not yet been
    resolved. The follow-on contracts were awarded on January 16, 2004,
    which was less than a year after formal mission assignment to USACE.
    Had there been protests or litigation, the award could have been
    delayed for a considerable time past that.

        15. Senator Levin. Secretary Bolton and General Johnson, why did
    the Army believe it was necessary to have a contract with a period of
    up to 5 years, if it were planning to award a follow-on competitive
    contract as soon as possible?
        Mr. Bolton and General Johnson. At the time the sole-source
    contract was awarded, it was not clear if the Iraqi oil fields would be
    as extensively sabotaged as the Kuwaiti oil fields had been during the
    First Gulf War. It was also not clear that the Iraqi Ministry of Oil
    could be quickly reconstituted and make any substantial contribution.
    Since no work of any kind can be accomplished without a contract in
    place, it made sense at the time to include options to maintain maximum
    flexibility. In addition, the government contracting process can be
    quite complex, with the possibility of protests, stays of the
    procurement action, and litigation at many different points. Failure to
    include sufficient capacity to deal with unknown events or options to
    continue work in the sole-source contract would have been too risky.

        16. Senator Levin. Secretary Bolton and General Johnson, is this
    contract still active? If so, why?
        Mr. Bolton and General Johnson. All aspects of the contract are
    complete, with the exception of the determination of the indirect rates
    for Task Orders 1-4. Upon completion of an audit of KBR 2004 actual
    costs, the 2004 indirect rates will be determined allowing for final
    payment and contract closeout. No additional work was assigned to KBR
    under the sole-source contract after the competitive contracts had been
    awarded and the contractors were mobilized.

        17. Senator Levin. Secretary Bolton and General Johnson, did the
    Army subsequently direct Ms. Greenhouse not to place any more notations
    on contract documents? If so, why?
        Mr. Bolton and General Johnson. On several occasions beginning in
    September 2003, Ms. Greenhouse was told by her immediate supervisor,
    Major General Robert H. Griffin, not to make handwritten notations on
    official documents, but instead to document her comments in a separate
    memorandum. There was no link between Major General Griffin's
    instructions to Ms. Greenhouse and the justification and approval for
    the sole-source RIO contract with KBR, as Major General Griffin had no
    involvement with the processing of that then-classified document. Major
    General Griffin told Ms. Greenhouse that making handwritten notations
    was unprofessional, often created confusion and ambiguity in the
    document, leading the reader or reviewer to guess the status of the
    document and the additional actions that were being required by Ms.
    Greenhouse to complete the staff process, and did not represent a
    coordinated response. When Ms. Greenhouse insisted that making
    handwritten notations on contracting documents was a routine matter,
    the issue was discussed with the Deputy Assistant Secretary of the Army
    for Policy and Procurement, who agreed with Major General Griffin's
    assessment.

        18. Senator Levin. Secretary Bolton and General Johnson, on June
    27, 2005, Ms. Greenhouse testified before the DPC about the problems
    that she saw with the KBR contract. Ms. Greenhouse testified that the
    acting General Counsel of the Army Corps of Engineers had told her, 3
    days earlier, that ``my voluntary appearance would not be in my best
    interest.'' Three weeks later, the Secretary of the Army authorized Ms.
    Greenhouse's removal from her contracting position and from her
    position in the Senior Executive Service. Would it be appropriate for
    the acting General Counsel of the Army Corps of Engineers to advise an
    employee that testifying before the DPC ``would not be in her best
    interest?''
        Mr. Bolton and General Johnson. The Acting Chief Counsel did not
    advise Ms. Greenhouse that her appearance before the DPC would not be
    in her best interest. In an e-mail sent June 23, 2005, the acting Chief
    Counsel advised Ms. Greenhouse to ``make clear in your testimony that
    you are not appearing in those proceedings as a representative of the
    Department of the Army or the Corps of Engineers and you are not
    testifying on behalf of the Army or the Corps.'' The Acting Chief
    Counsel further stated ``I also respectfully request that you be
    careful in your testimony and these proceedings to protect
    appropriately, proprietary information that you may have on any of the
    matters under discussion.'' The Acting Chief Counsel also met with Ms.
    Greenhouse on June 24, 2005, and reiterated these points.

        19. Senator Levin. Secretary Bolton and General Johnson, do you
    know whether the acting General Counsel met with Ms. Greenhouse on June
    24, 2005, and tried to discourage her from testifying? If you do not
    know, will you find out and inform the committee?
        Mr. Bolton and General Johnson. The Acting Chief Counsel met with
    Ms. Greenhouse on June 24, 2005; however, he did not try to discourage
    Ms. Greenhouse from testifying before the DPC. The Acting Chief Counsel
    merely advised Ms. Greenhouse that she should inform the DPC members
    that she was appearing in her personal capacity, not as a
    representative of the Army or the Corps of Engineers, and that she
    should be careful in her testimony not to disclose any procurement-
    sensitive information.

        20. Senator Levin. Secretary Bolton and General Johnson, Ms.
    Greenhouse testified before the DPC again on September 16, 2005, after
    the personnel actions had been taken against her. At that time, Ms.
    Greenhouse testified that she had been in the process of completing a
    Defense Base Act (DBA) insurance program at the time of her removal.
    She stated:

              ``This program, which I created and brought into existence,
            will save taxpayers hundreds of millions of dollars in
            unreasonable pass-through insurance costs . . . during the past
            year, I single-handedly wrote the draft and final DBA insurance
            solicitations, responded to all questions from industry,
            conducted an industry forum with more than 50 insurance brokers
            in attendance, and engineered the procurement process to its
            final stages.''

        Is Ms. Greenhouse's statement accurate?
        Mr. Bolton and General Johnson. Ms. Greenhouse was the Program
    Manager and a key advocate for the DBA pilot program. The pilot program
    was tasked to the USACE by the Office of the Under Secretary of Defense
    for Acquisition, Technology, and Logistics. The pilot program is
    modeled on the DBA contract already in place at the Department of State
    (DOS). The USACE Humphreys Engineer Center Support Activity (HECSA)
    Contracting Office was the office within USACE that was tasked with
    soliciting and awarding the actual contract.
        Ms. Greenhouse played a lead role in conducting an industry forum
    on the pilot program. She provided industry with information about the
    pilot program and responded to industry questions. She also prepared
    draft answers to questions raised by industry that were reviewed by
    HECSA contracting professionals and legal staff. In addition, Ms.
    Greenhouse provided the HECSA Contracting Office with a draft statement
    of work and draft evaluation criteria for the contract action which
    were also reviewed and revised by the HECSA contracting and legal
    staff. However, the draft solicitation consisted of the solicitation
    developed and utilized by the DOS in awarding their DBA contract with
    the HECSA Contracting Office modifying the DOS solicitation as required
    to support the pilot program. Ms. Greenhouse reviewed and commented on
    these revisions. The contracting action itself, however, was handled by
    the professionals at HECSA who issued the solicitation, developed the
    source-selection plan, and awarded the contract. While Ms. Greenhouse's
    efforts certainly contributed to the successful award of the pilot
    contract, the HECSA staff, which continues to administer the DBA
    contract today, played a significant role in this mission.

        21. Senator Levin. Secretary Bolton and General Johnson, did Ms.
    Greenhouse in fact play a leading role in the creation and negotiation
    of the DBA insurance pilot program at the Army Corps of Engineers?
        Mr. Bolton and General Johnson. Ms. Greenhouse was the program
    manager and key advocate for DBA pilot program. The pilot program was
    tasked to the USACE by the Office of the Under Secretary of Defense for
    Acquisition, Technology, and Logistics. The pilot program is modeled on
    the DBA contract already in place at the DOS. The USACE HECSA
    Contracting Office was the office within USACE that was tasked with
    soliciting and awarding the actual contract.
        Ms. Greenhouse played a lead role in conducting an industry forum
    on the pilot program. She provided industry with information about the
    pilot program and responded to industry questions. She also prepared
    draft answers to questions raised by industry that were reviewed by
    HECSA contracting professionals and legal staff. In addition, Ms.
    Greenhouse provided the HECSA Contracting Office with a draft statement
    of work and draft evaluation criteria for the contract action which
    were also reviewed and revised by the HECSA contracting and legal
    staff. However, the draft solicitation consisted of the solicitation
    developed and utilized by the DOS in awarding their DBA contract with
    the HECSA Contracting Office modifying the DOS solicitation as required
    to support the pilot program. Ms. Greenhouse reviewed and commented on
    these revisions. The contracting action itself, however, was handled by
    the professionals at HECSA who issued the solicitation, developed the
    source-selection plan, and awarded the contract. While Ms. Greenhouse's
    efforts certainly contributed to the successful award of the pilot
    contract, the HECSA staff, which continues to administer the DBA
    contract today, played a significant role in this mission.
                                     ______

                 Questions Submitted by Senator Daniel K. Akaka
                              iraq reconstruction
        22. Senator Akaka. Mr. Bowen, we have been working on Iraqi
    reconstruction for roughly 3 years now. Yet, in that short period of
    time, we appear to have assigned responsibility for that effort to at
    least a dozen different defense agencies and components. For example,
    in 2003, acquisition functions for Iraqi reconstruction were performed
    by the Office of Reconstruction and Humanitarian Assistance, the Task
    Force Restoration of Iraqi Oil, the Army Corps of Engineers-Commander
    Southwestern Division, the Defense Contracting Command-Washington, the
    CPA Project Management Office, the Office of the Under Secretary of
    Defense for Acquisition, Technology, and Logistics, and the Tank and
    Automotive Command. In 2004, acquisition functions were performed by
    the Army Corps of Engineers-Gulf Regional Division, the Air Force
    Center for Environmental Excellence, the Project Contracting Office,
    the Iraq Reconstruction Management Office, and the Joint Contracting
    Command-Iraq. This list doesn't even include the many non-defense
    agencies and components that have participated in the effort. In your
    view, what impact have these constant changes in our acquisition
    structures for Iraq reconstruction had on our ability to conduct the
    mission?
        Mr. Bowen. SIGIR audits and quarterly reports have commented on the
    negative results of the lack of coordination and control of the various
    organizations. It is challenging to maintain effective or efficient
    continuity of operations as roles and responsibilities change between
    offices and personnel.
        In addition, SIGIR's audit on Challenges Faced in Carrying Out Iraq
    Relief and Reconstruction, SIGIR 05-029, identifies some of the impact.
    We also just announced a review on identifying the roles and
    responsibilities of those responsible for IRRF. Further, SIGIR's
    Lessons Learned Initiative will review many of the issues brought about
    by the changing roles and authorities in the reconstruction effort in
    Iraq. The recently released Lessons Learned Report on Human Capital
    Management (previously provided to the committee) touches on this
    issue.

        23. Senator Akaka. Secretary Bolton, we have been working on Iraqi
    reconstruction for roughly 3 years now. Yet, in that short period of
    time, we appear to have assigned responsibility for that effort to at
    least a dozen different defense agencies and components. For example,
    in 2003, acquisition functions for Iraqi reconstruction were performed
    by the Office of Reconstruction and Humanitarian Assistance, the Task
    Force Restoration of Iraqi Oil, the Army Corps of Engineers-Commander
    Southwestern Division, the Defense Contracting Command-Washington, the
    CPA Project Management Office, the Office of the Under Secretary of
    Defense for Acquisition, Technology, and Logistics, and the Tank and
    Automotive Command. In 2004, acquisition functions were performed by
    the Army Corps of Engineers-Gulf Regional Division, the Air Force
    Center for Environmental Excellence, the Project Contracting Office,
    the Iraq Reconstruction Management Office, and the Joint Contracting
    Command-Iraq. This list doesn't even include the many non-defense
    agencies and components that have participated in the effort. Do you
    know which of the dozen defense organizations that I just named came
    under your authority and which did not?
        Mr. Bolton. Of the organizations listed, the following fall under
    my authority as the Army Acquisition Executive: the Joint Contracting
    Command--Iraq/Afghanistan, the USACE, the Defense Contracting Command--
    Washington, the Project and Contracting Office, and the Tank Automotive
    and Armament Command.

        24. Senator Akaka. Secretary Bolton, would you agree that we would
    have been much better off with a single, coherent organization to
    manage the acquisition process?
        Mr. Bolton. Yes. The size, extent, and complexity of the
    contracting support effort we are experiencing in our stabilization and
    reconstruction operations in Iraq are unprecedented. We have been
    learning valuable lessons for improving our current contracting and
    acquisition support structure, as well as how to better plan for
    similar operations in the future. One of these valuable lessons is the
    necessity to design our Service and Other Government Agency contracting
    organizations and operations to facilitate rapid conditions-based
    integration during stabilization and reconstruction operations. This
    will more readily enable a transition from the service-based
    contracting organizations that are necessary during early stages of
    combat operations to a single, joint contracting organization with the
    transition to stabilization and reconstruction operations, as we did
    when the combatant command established the Joint Contracting Command--
    Iraq/Afghanistan.
                                     ______

                   Questions Submitted by Senator Mark Dayton
                              bunnatine greenhouse
        25. Senator Dayton. Secretary Bolton and General Johnson, after you
    received the March 2, 2004, letter from Ms. Greenhouse, did you
    authorize Ms. Greenhouse's removal as the USACE Principal Assistant
    Responsible for Contracting (PARC)?
        Mr. Bolton and and General Johnson. Ms. Greenhouse was removed from
    her position in the Senior Executive Service as the PARC at the USACE
    effective August 27, 2005, and placed in a GS-15 position. Her removal
    was required by title 5, Code of Federal Regulations, section 359.501,
    because she had received two final performance ratings of less than
    fully successful during a 3-year period. The two performance ratings
    were for the rating periods ending September 30, 2002, and December 31,
    2003. As required by Army regulations, both of these ratings were
    reviewed by me and by the Assistant Secretary for Manpower and Reserve
    Affairs.
        Ms. Greenhouse was initially notified that she would be removed
    from her position effective November 3, 2004. However, Acting Secretary
    of the Army Brownlee suspended the removal action after receiving a
    letter from Ms. Greenhouse's attorney containing allegations of
    contracting irregularities in the USACE and contending that she was
    facing removal because of her attempts to ensure that fair and open
    competition exists in government contracting. On July 14, 2005, the
    Secretary of the Army decided, after review, to allow the removal
    action to proceed based on his conclusion that the removal action was
    based on Ms. Greenhouse's performance and not because of any
    allegations of contracting irregularities she may have made.

        26. Senator Dayton. Secretary Bolton and General Johnson, what
    action did you take to review Ms. Greenhouse's concerns before you
    authorized her removal?
        Mr. Bolton and General Johnson. Ms. Greenhouse's removal was based
    on two final performance ratings of less than satisfactory during a 3-
    year period. In each case, the USACE Commanding General was her senior
    rater and responsible for assigning the final performance rating. Prior
    to assigning the final performance rating, the Commanding General
    reviewed the entire record including the initial rating proposed by Ms.
    Greenhouse's immediate supervisor, Ms. Greenhouse's response to that
    initial rating, the recommendations of the Senior Executive Service
    Performance Review Board, and all supporting documentation. In
    addition, prior to requesting that the Secretary of the Army allow the
    removal action to proceed (after it had been suspended based on a
    letter from Ms. Greenhouse's attorney containing allegations of
    contracting irregularities in the USACE and contending that she was
    facing removal because of her attempts to ensure that fair and open
    competition exists in government contracting), the USACE Commanding
    General again reviewed the matter.

        27. Senator Dayton. Secretary Bolton and General Johnson, the
    contract awarded to KBR/Halliburton to be the premier logistics support
    provider for the U.S. Army in the Balkans was originally set to expire
    in 5 years. When the 5 years expired, did you approve the extension of
    that contract for 2 additional years past the expiration date?
        Mr. Bolton and General Johnson. In February 1999, after full and
    open competition, KBR received the Balkans Support Contract (BSC) with
    the final option period ending in May 2004. The BSC will be replaced by
    a more complex and geographically broader contract known as the U.S.
    Army Europe Support Contract (USC). However, evaluation of proposals
    for the replacement contract has required more time than anticipated
    and thereby delayed award of the contract. As a result, in order to
    ensure uninterrupted availability of critical services to our troops,
    the BSC was extended from May 2004 to November 2004 under the
    contract's Option to Extend Services clause. This standard clause
    provides the government the right to require the contractor to continue
    to provide services for a period of up to 6 months and does not
    constitute a sole-source award.
        Due to additional time required to evaluate proposals for the USC,
    the BSC was again extended from November 2004 to April 2005 under the
    authority of 10 U.S.C. Sec. 2304(c)(1) and Federal Acquisition
    Regulation 6.302-1. The decision to extend the BSC was based on a
    determination that KBR was the only contractor capable of providing
    these vital services without interruption and in a timely manner during
    this time period. For similar reasons, the BSC was extended again for a
    1-year period, from May 1, 2005, through April 30, 2006, with 6-month
    and 3-month option periods. The length of the base and options periods
    provided for unanticipated delays in the USC acquisition process. These
    extensions were in accordance with all applicable acquisition laws and
    regulations.

        28. Senator Dayton. Secretary Bolton and General Johnson, for what
    reasons did you ignore Ms. Greenhouse's objection that the contract
    should only be extended for an additional 6 months or 1 year, so the
    Army could complete a competitive bidding process?
        Mr. Bolton and General Johnson. Ms. Greenhouse did not object to
    the proposed extension period of the BSC. In a memorandum to the Deputy
    Assistant Secretary of the Army for Procurement and Policy dated
    February 18, 2005, Ms. Greenhouse stated that she approved the request,
    but recommended that the second option period be eliminated. Given the
    magnitude and complexity of the USC that was to replace the BSC and the
    potential for unanticipated delays in awarding the USC, a 1-year
    extension of the BSC with two option periods was warranted. The
    flexibility provided by the extension and options ensured that support
    to the warfighter was not compromised. In fact, changes in requirements
    on the part of U.S. Army Europe, as well as a protest filed in
    connection with this acquisition in July 2005, have further delayed
    contract award.

                              kbr water treatment
        29. Senator Dayton. Secretary Bolton, did KBR perform all required
    water quality tests on nonpotable water provided to our troops at Camp
    Ar Ramadi and other military facilities throughout Iraq?
        Mr. Bolton. Records indicate that KBR performed all water quality
    tests in accordance with its contractual obligations. Furthermore,
    water quality tests conducted by oversight agencies, including the DCMA
    and military medical authorities, have not detected any contaminated
    water. According to medical authorities there have been no reported
    cases of illness caused by water-borne pathogens.

        30. Senator Dayton. Secretary Bolton, has KBR properly treated
    nonpotable water provided to our troops at Camp Ar Ramadi and other
    military facilities throughout Iraq?
        Mr. Bolton. From all information that has been gathered through the
    DCMA and medical personnel, all nonpotable water provided to the troops
    has been properly treated in accordance with the terms of the contract
    and water quality standards for the theater. All water tested was found
    to be chlorinated in accordance with established guidelines.

        31. Senator Dayton. Secretary Bolton, has any contaminated
    nonpotable water been provided to our troops at Camp Ar Ramadi or any
    other military facility in Iraq at any time since the effective date of
    the water supply contract with KBR?
        Mr. Bolton. At present, the Army is unaware of any instances where
    improperly treated water has been provided to personnel in theater, and
    there is no evidence that water-borne pathogens have caused health
    problems for deployed personnel.

        32. Senator Dayton. Secretary Bolton, did KBR inform U.S. military
    commanders about contamination of nonpotable water provided to our
    troops at Camp Ar Ramadi or any other military facility in Iraq?
        Mr. Bolton. The only report received from KBR was in late March
    2005 and was related to nonchlorination of nonpotable water. No reports
    have been received indicating KBR notified U.S. military commanders
    about possible contamination of nonpotable water anywhere in theater.

        33. Senator Dayton. Secretary Bolton, did KBR or U.S. military
    commanders take any steps to inform our troops that they had been
    exposed to unsafe nonpotable water at Camp Ar Ramadi or any other
    military facility in Iraq?
        Mr. Bolton. No steps were taken to inform the troops because no
    reports of contamination were provided to the AFSC. If reports are
    received indicating that personnel have been exposed to contaminated
    water, or might be at risk from a contaminated water supply, immediate
    action (including informing all at-risk personnel) will be initiated to
    mitigate the impact on the health and readiness of our forces. The Army
    has provided for several layers of oversight to enhance capability to
    detect problems with water purity, including daily inspections by the
    contractor, and additional checks by medical authority and the DCMA.

        34. Senator Dayton. Secretary Bolton, have you requested a copy of
    Mr. William Granger's 21-page report which confirmed the existence of
    the water contamination problem, and found that the lack of testing and
    improper water treatment existed at military facilities throughout
    Iraq?
        Mr. Bolton. A copy of the referenced 21-page report was requested
    and received on February 28, 2006, and has been provided to the DCMA
    for review. We will provide a copy of the report to the appropriate
    investigative agency. In addition, KBR notified the AFSC that they also
    provided the report to the U.S. Senate Permanent Subcommittee on
    Investigations on February 27, 2006.

                            reimbursing halliburton
        35. Senator Dayton. General Johnson, what was the basis for the
    Army Corps of Engineers' decision to pay Halliburton $130 million in
    cost reimbursements, profits, and bonuses for costs that the DCAA had
    identified as ``questioned'' and ``unsupported?''
        General Johnson. There were questioned costs on all task orders
    issued under the RIO contract. This is normal for a cost reimbursement
    contract. However, the DCAA questioned whether KBR had always used the
    best business approach in executing the mission; not whether it had
    provided the services or paid the claimed costs to its subcontractors.
    USACE is not aware of any allegations that goods or services which were
    purchased for the Iraqis under the RIO contract with KBR were not
    provided or delivered. In fact, in an audit of the RIO contract, the
    SIGIR stated that the goods and services delivered and billed for by
    KBR where those required under the contract.
        In order to reach a bottom-line government negotiating position,
    the contracting officer examined the specific questioned and
    unsupported costs to determine how they would be handled in the
    negotiations with KBR. This analysis was performed in close
    consultation with DCAA, which provided financial advice to the
    contracting officer on possible government negotiating positions and
    supported the contracting officer during the negotiations. For the task
    orders where audits had identified significant issues, DCAA advisors
    assisted the contracting officer during the negotiations with KBR.
    Neither the DCAA audits nor the DCAA financial advice to the
    contracting officer during negotiations with KBR included any
    recommendations not to reimburse KBR for the questioned costs, other
    than $3.8 million, which was not reimbursed.

        36. Senator Dayton. General Johnson, additionally, for what reason
    did the Army Corps of Engineers pay Halliburton a 3.4-percent bonus on
    these challenged costs?
        General Johnson. The USACE caefully evaluated the costs challenged
    by the DCAA and established its position on them after receiving
    additional financial advice from DCAA. Negotiations with KBR were also
    conducted with assistance from DCAA. As a result, USACE excluded just
    over half of the questioned costs from the amount used to calculate
    both the base and the award fees. KBR was paid no fees on these
    amounts.

                          iraq reconstruction process
        37. Senator Dayton. Mr. Bowen, what additional resources do you
    consider necessary for the SIGIR office to comprehensively and
    accurately oversee the inspection of the Iraqi reconstruction process?
        Mr. Bowen. Currently, SIGIR is authorized to provide oversight for
    the IRRF until 80 percent of the IRRF has been expended. SIGIR
    currently has 114 full-time government employees, 55 of whom are
    assigned to Baghdad--which is proportionally adequate to cover the
    scope of the $18.4 billion program. In addition. SIGIR performs joint
    audits with the DOS IG with whom we have an excellent working
    relationship. DOS IG initially budgeted $3 million to provide coverage
    for both Iraq and Afghanistan, and SIGIR feels that this funding is
    important in ensuring that DOS IG has the resources to fully support
    joint audit efforts which include reviews of DOS INL and U.S. Anti-
    Corruption Efforts in Iraq. SIGIR maintains the most significant
    oversight presence in-country of any U.S. Government agency. In our
    fiscal year 2007 budget request to Office of Management and Budget
    (OMB), SIGIR requested $30 million to fully fund our mission. OMB has
    recommended $24 million in its official transmission of the
    supplemental telling SIGIR that under their estimations of our current
    formula, that SIGIR will only be operational for 9 months of fiscal
    year 2007. However, based on current projections of the IRRF
    expenditures (which put our legislative termination date further into
    fiscal year 2007), and on the strong support of Secretary Rice and
    Ambassador Khalilzad for our continued presence in-country while
    significant amounts of U.S. taxpayer dollars are being invested in
    Iraq, SIGIR remains committed to providing our unique capabilities to
    this important mission for the entire 12 months of fiscal year 2007--
    and would consider full funding at $30 million to be essential to
    accomplishing our mission.

        38. Senator Dayton. Mr. Bowen, overall, how significant of a role
    has KBR/Halliburton's fraud, waste, and abuse, including its
    unsupported costs, overcharges, and incomplete work, had on the current
    status of U.S. reconstruction efforts in Iraq?
        Mr. Bowen. KBR has been awarded contracts for a significant portion
    of the reconstruction effort as well as for support of the military
    mission in Iraq, which, due to the scope of the contracts, plays a
    significant role in the progress of reconstruction.
        SIGIR has a number of efforts underway to identify and address
    fraud, waste, abuse, unsupported costs, overcharges, and incomplete
    work by KBR as well as other contractors in Iraq.
                                     ______

             Questions Submitted by Senator Hillary Rodham Clinton
                                      kbr
        39. Senator Clinton. Secretary Bolton, according to press reports,
    Contracting Officer Gordon A. Sumner and Lieutenant General Robert B.
    Flowers signed a waiver that released Halliburton's subsidiary KBR from
    its obligation to provide cost and pricing data to the DCAA, which was
    investigating KBR's contract with the firm ``Altanmia'' to purchase
    fuel at $2.65/gallon, when Iraq's State Oil Marketing Organization was
    paying an average of $0.97/gallon for fuel from the same Middle Eastern
    countries. How was it in the interest of the Army Corps of Engineers to
    issue this waiver?
        Mr. Bolton and General Johnson. The question appears to compare the
    cost of purchasing a gallon of fuel to the cost of purchasing a gallon
    of fuel and transporting it to Iraq. The only source of fuel in Kuwait
    is the Kuwait Petroleum Company (KPC) and the distance involved, and
    the availability of trucks and convoy escorts dictated that most of the
    fuels imported into the south of Iraq come from Kuwait. Unlike the
    Iraqi's State Oil Marketing Organization which could negotiate with KPC
    on a government-to-government relationship, KPC insisted on dealing
    with KBR through an intermediary.
        On May 4-5, 2003, at the urgent direction of USACE, KBR sought and
    obtained price competition for providing fuel to Iraq. The lowest
    responsive responsible bidder was Altanmia and USACE requested that KPC
    approve Altanmia as KBR's subcontractor for what was believed at the
    time to be a short-term mission to deliver imported fuel immediately.
    The requested approval was granted by KPC and the subcontract awarded.
    Further competition in the following several days produced the same
    result, so KBR continued to use Altanmia and the Corps did not request
    KPC to approve additional subcontractors at that time. Because the
    subcontract was competitively awarded there also was no need for the
    submission of certified cost and pricing data, and no waiver has been
    requested or granted for this general timeframe.
        In October 2003, another potential subcontractor, the Kuwait
    Establishment Company (KEC), responded to a solicitation issued by KBR
    with a proposal to provide fuel at a price lower than that being
    charged by Altanmia. In a letter dated November 1, 2003, USACE
    requested the approval for KEC to perform the fuel mission. However, in
    spite of additional inquires, KPC did not approve the use of any
    subcontractor other than Altanmia. Since USACE was unsuccessful in
    getting a new subcontractor approved, the nature of the subcontract
    with Altanmia changed from a competitive subcontract to a sole-source
    contract.
        Given the sole-source nature of continued fuel purchases, certified
    cost and pricing data would normally be required. KBR had that same
    understanding of the situation and on December 14, 2003, sent a letter
    advising USACE that they had not been successful in obtaining certified
    cost and pricing data from Altanmia, and requesting guidance on how to
    proceed. Because KBR had been unsuccessful in obtaining certified cost
    and pricing data and there was no apparent way to compel Altanmia to
    provide this information, the only options available to USACE at that
    time were to approve a waiver of the requirement for certified cost and
    pricing data as provided for within the Federal Acquisition Regulations
    or stop deliveries of fuel from Kuwait.
        While cost is always an important consideration, in this case it
    was less important than continuing the critical deliveries of fuel
    given the unstable security situation in Iraq. Fuel supplies in Iraq at
    that time were perilously low, particularly in Baghdad. The daily fuel
    inventory for December 16, 2003, shows there were less than 2 day's
    supply of benzene, diesel, kerosene, and LPG on hand in the south of
    Iraq, and particularly in Baghdad, the destination for imports coming
    from Kuwait. In addition, the military commanders regarded the
    continued delivery of fuel as a significant domestic security and
    stability issue inside Iraq.
        The fuel mission at that point involved approximately 1,043 trucks
    from Kuwait which were under lease to Altanmia. Finding a comparable
    number of trucks in Kuwait would have been somewhat of a challenge for
    another contractor and an interruption of deliveries of even a few days
    would have resulted in significant civil unrest. Further, imports from
    sources other than Kuwait would not have been able to supply the
    required quantities to points in the south of Iraq even if the military
    had been able to provide escorts for the much longer convoys required.
    In addition, the need for multiple fuel sources was demonstrated by a
    labor strike of truckers transporting fuel from Turkey to Kuwait in
    early Decembeer 2003.
        In short, there were no options available to USACE other than to
    approve continued imports using Altanmia, the only subcontractor that
    had been approved by KPC and in a position to meet the delivery
    requirements, and to approve a waiver of certified price and cost data.

        40. Senator Clinton. Secretary Bolton, who first ordered the
    initiation of the waiver process?
        Mr. Bolton. The waiver process was initiated by the USACE.

        41. Senator Clinton. Secretary Bolton, what role, if any, did the
    Office of the Secretary of Defense play in the waiver process?
        Mr. Bolton. I am not aware of any role played by the Office of the
    Secretary of Defense.

        42. Senator Clinton. Secretary Bolton, Bunnatine Greenhouse, then
    the PARC, claims that the DOD purposely began and completed the waiver
    process on a day that she was out of the office. Please explain the
    timing of the waiver, and why such an important waiver was not held for
    the PARC's return.
        General Johnson. (Major General Johnson is answering on behalf of
    the Army.) Ms. Greenhouse was on sick leave and holiday from December
    15 to December 29, 2003. In a letter dated December 14, 2003, KBR
    stated that they had been unable to obtain certified cost and pricing
    data from its subcontractor. The requirement for certified cost and
    pricing data was brought on by the failure of the KPC to approve the
    use of a new subcontractor who had submitted a lower bid. That action
    made it clear that USACE was no longer dealing with a competitive
    situation, but with a sole-source situation for which certified cost
    and pricing data normally would be required. Since Altanmia had refused
    to provide this data, the only way to continue critical imports and be
    consistent with the requirements of the FAR was to obtain a prospective
    waiver of the requirement. The USACE, SWD office, therefore, gathered
    the available information and prepared the request for waiver and
    transmitted electronically to Corps headquarters on December 19, 2003,
    and it was approved the same day. Because of Ms. Greenhouse's extended
    absence during this period, there would have been a stoppage of urgent
    and critical fuel deliveries to the south of Iraq had the waiver been
    held until her return to the office. At the time, supplies of fuel on
    hand generally were sufficient to cover 2 days or less of consumption.

        43. Senator Clinton. Secretary Bolton, was the waiver in question
    drafted in the Army Corps of Engineers Dallas office, signed by Mr.
    Sumner, and then flown to Lieutenant General Robert B. Flowers in
    Washington, DC, within 24 hours? If so, why?
        Mr. Bolton. No, the waiver was not flown to Washington, DC. The
    waiver was drafted by the SWD office of the USACE and transmitted
    electronically to USACE headquarters. The reason it was transmitted
    electronically was the urgent mission requirement for continued import
    in the south of Iraq to meet requirements established by Central
    Command (CENTCOM) and the CPA. Transmitting documents electronically to
    meet an urgent suspense is a common practice.

        44. Senator Clinton. Secretary Bolton, are waivers normally flown
    to Washington, DC, within 24 hours of origin?
        Mr. Bolton. The waiver was drafted by the SWD office of the USACE
    and transmitted electronically to USACE headquarters. The reason it was
    transmitted electronically was the urgent mission requirement for
    continued imports in the south of Iraq to meet requirements established
    by CENTCOM and the CPA. Transmitting documents electronically to meet
    an urgent suspense is a common practice.

        45. Senator Clinton. Secretary Bolton, how many waivers of an
    obligation to provide cost and pricing data to the DOD, or to related
    inspectors, have been granted since the beginning of Operation Iraqi
    Freedom?
        Mr. Bolton. Under the reconstruction mission of Operation Iraqi
    Freedom, I am aware of one waiver of an obligation to provide certified
    cost and pricing data that was gathered by the Head Contracting
    Authority of the Joint Contracting Command Iraq/Afghanistan for the
    execution of an option year on a reconstruction program management
    contract.

        [Whereupon, at 4:25 p.m., the subcommittee adjourned.]

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                      2007

                                  ----------

                            THURSDAY, MARCH 2, 2006

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

    MILITARY INSTALLATIONS, MILITARY CONSTRUCTION, ENVIRONMENTAL PROGRAMS,
                    AND BASE REALIGNMENT AND CLOSURE PROGAMS

        The subcommittee met, pursuant to notice, at 2:02 p.m. in
    room SR-222, Russell Senate Office Building, Senator John
    Ensign (chairman of the subcommittee) presiding.
        Committee members present: Senators Ensign, Inhofe,
    Sessions, Thune, Akaka, and Bill Nelson.
        Majority staff members present: Gregory T. Kiley,
    professional staff member; Derek J. Maurer, professional staff
    member; David M. Morriss, counsel; and Lucian L. Niemeyer,
    professional staff member.
        Minority staff members present: Peter K. Levine, minority
    counsel; and Michael J. McCord, professional staff member.
        Staff assistants present: Benjamin L. Rubin and Jill L.
    Simodejka.
        Committee members' assistants present: Arch Galloway II,
    assistant to Senator Sessions; D'Arcy Grisier, assistant to
    Senator Ensign; Alexis Bayer, assistant to Senator Ensign;
    Stuart C. Mallory, assistant to Senator Thune; Darcie Tokioka,
    assistant to Senator Akaka; and William K. Sutey, assistant to
    Senator Bill Nelson.

           OPENING STATEMENT OF SENATOR JOHN ENSIGN, CHAIRMAN

        Senator Ensign. My memo says ``Good morning,'' but good
    afternoon. The Readiness and Management Support Subcommittee
    meets this afternoon to receive testimony on installations and
    environmental programs in the fiscal year 2007 President's
    budget request. We have also asked our witnesses to be prepared
    to address the implementation of the decisions of the 2005 Base
    Realignment and Closure (BRAC) process.
        Along with Senator Akaka, we welcome our witnesses: Philip
    Grone, Deputy Under Secretary of Defense for Installations and
    the Environment; the Honorable Keith Eastin, Assistant
    Secretary of the Army for Installations and the Environment;
    the Honorable B.J. Penn, Assistant Secretary of the Navy for
    Installations and the Environment; and the Honorable William
    Anderson, Assistant Secretary of the Air Force for
    Installations, Environment, and Logistics.
        The fiscal year 2007 budget request for military
    construction (MILCON) and family housing programs represents a
    truly staggering testimony to the wide range of substantial
    changes and transformation underway within the Department of
    Defense (DOD). Totaling over $16 billion, DOD has proposed up
    to $6 billion for the first major construction required by
    decisions for the 2005 BRAC round.
        At the same time, the Army has embarked on significant
    investment plans for new construction and infrastructure to
    support the return to the United States from overseas locations
    of over 100,000 military personnel and their families. In
    addition, both the Army and Marine Corps have requested over $2
    billion of new construction this year to provide the facilities
    necessary for a fundamental reorganization of fighting units
    within each Service.
        Of the Air Force's request of $1 billion for MILCON, over
    report 60 percent is dedicated to transformation and new
    mission projects, doubling last year's request for new mission
    MILCON.
        Our witnesses are to be commended for the wide array of
    facility initiatives. They are working every day to improve our
    military, while at the same time, supporting combatant forces
    in the global war on terror. While it is clear what the
    Department wants to spend in fiscal year 2007, we also
    recognize that for many of the construction programs supporting
    change and transformation this budget request represents just a
    first installment of long-term investment plans. In order to be
    sure that taxpayer dollars are being invested in smart ways
    that will yield substantial dividends for our military, we must
    know the total plan and all expected costs to complete that
    plan.
        Also, I am concerned that the MILCON priorities established
    by the Services for new missions and transformation will result
    in deferring repair and modernization of existing facilities.
        I look forward to hearing from our witnesses today on the
    impact of the fiscal year 2007 program, where we are headed in
    these construction programs, and how we plan to sustain
    investment in our existing facilities.
        This subcommittee also remains dedicated to improving the
    efficient and effective management of the resources we have
    already provided to the DOD. We continue to support their
    efforts to leverage the interests and contributions of others
    to upgrade our infrastructure, provide excellent housing for
    military personnel and their families, and satisfy other
    critical mission requirements.
        I am also convinced that the DOD can improve efficiencies
    in contracting by using technology to improve review
    transparency and innovation in construction contract management
    processes. I look forward to discussing this concept with our
    witnesses today.
        While DOD remains focused on implementing the
    recommendations for the 2005 round of BRAC and undertaking
    significant movement of personnel related to transformation,
    the DOD and this subcommittee must also ensure that our forces
    continue to maintain ready for combat and difficult noncombat
    missions through rigorous and realistic training. The DOD has
    shown it is committed to both effective combat training and its
    responsibility to be a good steward of the environment. I
    invite each of the witnesses to discuss the challenges they
    face in complying with environmental laws and regulations and
    the impact of encroachment on their ability to carry out
    realistic combat training.
        Congress has recently provided clarification and added
    flexibility to some environmental laws. I invite the witnesses
    to discuss their views of the impact of these changes, whether
    they have been helpful, and any concerns they may have.
    Witnesses should discuss any new problems or changes in the law
    they believe Congress should consider.
        Senator Akaka, I turn the floor over to you now for any
    opening comments that you have.
        [The prepared statement of Senator Ensign follows:]

                   Prepared Statement by Senator John Ensign

        The fiscal year 2007 budget request for military construction
    (MILCON) and family housing programs represents a truly staggering
    testimony to the wide range of substantial changes and transformation
    underway within the Department of Defense (DOD). Totaling over $16
    billion, the DOD has proposed up to $6 billion for the first major
    construction required by the decisions of the 2005 Base Closure and
    Realignment (BRAC) round. At the same time, the Army has embarked on
    significant investment plans for new construction and infrastructure to
    support the return to the U.S. from overseas locations of over 100,000
    military personnel and their families. In addition, both the Army and
    the Marine Corps have requested over $2 billion of new construction to
    provide the facilities necessary for a fundamental reorganization of
    fighting units within each Service. Of the Air Force's request of $1
    billion for MILCON, over 60 percent is dedicated to transformation and
    new mission projects, doubling last year's request for new mission
    MILCON. Our witnesses are to be commended for the wide array of
    facility initiatives they are working every day to improve our
    military, while at the same time supporting combatant forces in the
    global war on terror.
        While it is clear what the DOD wants to spend in fiscal year 2007,
    we also recognize that, for many of the construction programs
    supporting change and transformation, this budget request represents
    just a first installment of long-term investment plans. In order to be
    sure that taxpayer dollars are being invested in smart ways that will
    yield substantial dividends for our military, we must know the total
    plan and all expected costs to complete the plan. Also, I am concerned
    that the MILCON priorities established by the Services for new missions
    and transformation will result in deferring repair and modernization of
    existing facilities. I look forward to hearing from our witnesses today
    on the impact of the fiscal year 2007 program, where we are headed with
    these construction programs, and how we plan to sustain investment in
    our existing facilities.
        This subcommittee also remains dedicated to improving the efficient
    and effective management of the resources we have already provided to
    the DOD. We continue to support their efforts to leverage the interests
    and contributions of others to upgrade our infrastructure, provide
    excellent housing for military personnel and their families, and
    satisfy other critical mission requirements. I am also convinced that
    the DOD can improve efficiencies in contracting by using technology to
    improve the review, transparency, and innovation in construction
    contract management processes. I look forward to discussing this
    concept with our witnesses. While the DOD remains focused on
    implementing the 2005 BRAC recommendations, and undertaking the
    significant movement of personnel related to transformation, we must
    also ensure that our forces continue to maintain ready for combat and
    difficult non-combat missions through rigorous and realistic training.
    The DOD has shown that it is committed to both effective combat
    training and its responsibility to be a good steward of the
    environment.
        I invite each of the witnesses to discuss the challenges they face
    in complying with environmental laws and regulations and the impact of
    encroachment on their ability to carry out realistic combat training.
    Congress has recently provided clarification and added flexibility to
    some environmental laws. I invite the witnesses to discuss their views
    of the impact of these changes, whether they have been helpful, and any
    concerns they may have. Witnesses should discuss any new problems or
    changes in the law they believe Congress should consider.

                  STATEMENT OF SENATOR DANIEL K. AKAKA

        Senator Akaka. Thank you very much, Mr. Chairman. I enjoy
    working with you and look forward to these hearings. I join you
    in welcoming our witnesses, Mr. Grone and Secretary Penn. I
    want to welcome you back. To Secretary Eastin and Secretary
    Anderson, I welcome you to your first appearance before our
    subcommittee.
        Mr. Eastin. Thank you, sir.
        Senator Akaka. We are here today to discuss the DOD's
    MILCON, family housing, and environmental programs, as well as
    the implementation of the 2005 BRAC round. As we meet today,
    our forces are very busy and the Services will soon begin
    implementing the 2005 BRAC round while conducting operations in
    Iraq and Afghanistan, on top of all the normal work of the DOD.
        The Army, which is bearing the brunt of our current
    operations, also has the most challenging task in installations
    as well. In addition to implementing the 2005 BRAC round, the
    Army has to plan for the relocation of tens of thousands of
    forces from overseas, while also converting the structure of
    your brigades to the new modular format and creating new combat
    brigades.
        Secretary Eastin, this will require sustained effort and
    leadership from you and the entire civilian and military
    leadership of the Army. This subcommittee stands ready to do
    our part to make this work.
        The Army is not the only Service with major changes in the
    works. The Marine Corps will be moving thousands of personnel
    from Okinawa to Guam over the next several years. As with the
    Army's plan to return forces from overseas, this proposal
    raises a host of issues, including our ability to execute war
    plans, regional security and stability, airlift and sealift
    requirements, burdensharing, and of course the cost and
    schedule of construction needed to accommodate such moves. As
    with the Army's proposed moves, I believe it is important to do
    this right.
        DOD and Congress have made a big investigation in the
    quality of life of our personnel over the past decades. These
    moves should continue in that tradition. We will be examining
    these proposals as details become available. We do not want our
    military families to have to move thousands of miles only to
    find themselves living and working in trailers at a new base
    where the local schools have no room for their children. I know
    that is not what the DOD wants either. So I hope we will be
    able to work together to get this done right.
        There are other changes being considered that we expect to
    be discussing with you in the coming months. Of great interest
    is the Department's plan for my State, as stated in the
    Quadrennial Defense Review (QDR), to increase the Navy's
    presence in the Pacific. According to the QDR, the Navy will--
    and I am quoting--``adjust its force posture to provide at
    least six operationally available sustainable carriers and 60
    percent of its submarines in the Pacific.''
        Neither the 2005 BRAC round nor the 2007 budget request
    makes any specific proposal on forward basing of an additional
    carrier in the Pacific. I believe that basing an aircraft
    carrier in Hawaii co-located with our nuclear-capable shipyard
    is in the strategic interest of our Nation. Furthermore, the
    proposed increases in Air Force, Marine Corps, and Navy
    submarine force structure on Guam are going to severely tax
    their ability to support such a substantial increase in force
    structure. I believe basing a carrier in Hawaii will prove to
    be the best option from an economic and quality of life
    standpoint, in addition to its strategic benefits.
        I hope that Secretary Penn will be able to enlighten us as
    to when the Navy plans to move forward on implementing the
    QDR's decisions.
        Finally, we are aware that the detailed material to explain
    the $5.6 billion request for 2007 to implement the BRAC round
    and relocate forces from overseas is still being developed. We
    understand that this detailed justification material should be
    ready by the end of this month. This committee and indeed
    Congress has a tradition of not intervening in the BRAC
    disposal and reuse process by accelerating construction or
    cleanup efforts at one particular base over another. At the
    same time, this committee cannot in good conscience approve the
    use of such a substantial sum of money for which no details or
    plan have been provided. So it is essential that this material
    be delivered in time for our committee to review it prior to
    our markup.
        Thank you, Mr. Chairman, and I look forward to hearing from
    our witnesses.
        [The prepared statement of Senator Akaka follows:]

                 Prepared Statement by Senator Daniel K. Akaka

        Thank you, Mr. Chairman. I join you in welcoming our witnesses. Mr.
    Grone and Secretary Penn, it is good to have you back with us this
    year. Secretary Eastin and Secretary Anderson, I welcome you to your
    first appearance before our subcommittee.
        We are here today to discuss DOD's military construction, family
    housing, and environmental programs, as well as the implementation of
    the 2005 base realignment and closure (BRAC) round.
        As we meet today, our forces are very busy, and the Services will
    soon begin implementing the 2005 base closure round while conducting
    operations in Iraq and Afghanistan, on top of all the normal work of
    the Department of Defense (DOD).
        The Army, which is bearing the brunt of our current operations,
    also has the most challenging task in the installations world. In
    addition to implementing the 2005 BRAC round, the Army has to plan for
    the relocation of tens of thousands of forces from overseas, while also
    converting the structure of your brigades to the new ``modular'' format
    and creating new combat brigades. Secretary Eastin, this will require
    sustained effort and leadership from you and the entire civilian and
    military leadership of the Army. This subcommittee stands ready to do
    our part to make this work.
        The Army is not the only Service with major changes in the works.
    The Marine Corps will be moving thousands of personnel from Okinawa to
    Guam over the next several years. As with the Army's plan to return
    forces from overseas, this proposal raises a host of issues, including
    our ability to execute war plans, regional security and stability,
    airlift and sealift requirements, burdensharing, and of course, the
    cost and schedule of construction needed to accommodate such moves.
        As with the Army's proposed moves, I believe it is important to do
    this right. DOD and Congress have made a big investment in the quality
    of life of our personnel over the past decade. These moves should
    continue in that tradition. We will be examining these proposals as
    details become available. We do not want our military families to have
    to move thousands of miles only to find themselves living or working in
    trailers at a new base where the local schools have no room for their
    children. I know that is not what the DOD wants either, so I hope we
    will be able to work together to get this right.
        There are other changes being considered that we expect to be
    discussing with you in the coming months. Of great interest to my State
    is the DOD's plan, as stated in the Quadrennial Defense Review (QDR),
    to increase the Navy's presence in the Pacific. According to the QDR,
    the Navy will ``adjust its force posture to provide at least six
    operationally available and sustainable carriers and 60 percent of its
    submarines in the Pacific.''
        Neither the 2005 BRAC round or the 2007 budget request makes any
    specific proposal on forward basing of an additional carrier in the
    Pacific. I believe that basing an aircraft carrier in Hawaii, co-
    located with our nuclear capable shipyard, is in the strategic interest
    of our Nation. Furthermore, the proposed increases in Air Force, Marine
    Corps, and Navy submarine force structure on Guam are going to severely
    tax their ability to support such a substantial increase in force
    structure. I believe basing a carrier in Hawaii will prove to be the
    best option from an economic and quality of life standpoint, in
    addition to its strategic benefits. I hope that Secretary Penn will be
    able to enlighten us as to when the Navy plans to move forward on
    implementing the QDR's decisions.
        Finally, we are aware that the detailed material to explain the
    $5.6 billion requested for 2007 to implement the BRAC round and
    relocate forces from overseas is still being developed. We understand
    that this detailed justification material should be ready by the end of
    this month. This committee, and indeed Congress, has a tradition of not
    intervening in the BRAC disposal and reuse process by accelerating
    construction or cleanup efforts at one particular base over another.
        At the same time, this committee cannot in good conscience approve
    the use of such a substantial sum of money for which no details or plan
    have been provided, so it is essential that this material be delivered
    in time for our committee to review it prior to our markup.
        Thank you, Mr. Chairman. I look forward to hearing from our
    witnesses.

        Senator Ensign. Thank you.
        Any other statements by members will be made part of the
    record. But because we have a vote, we need to get started by
    the witnesses, if that is okay. We will start with Mr. Grone.

     STATEMENT OF HON. PHILIP W. GRONE, DEPUTY UNDER SECRETARY OF
                 DEFENSE, INSTALLATIONS AND ENVIRONMENT

        Mr. Grone. Chairman Ensign, Senator Akaka, and
    distinguished members of the Subcommittee on Readiness and
    Management Support: I am pleased to appear before you today to
    discuss the budget request for the DOD for fiscal year 2007,
    particularly for those programs that support the management of
    installation assets.
        The President's budget request continues the DOD's efforts
    to reposition, to reshape, and to sustain the Nation's military
    infrastructure. As this subcommittee is aware, the real
    property and asset management responsibilities of DOD are
    extensive. The DOD currently manages nearly 507,000 buildings
    and structures, with a plant replacement value of over $650
    billion, and more than 46,000 square miles of real estate.
        The President's management agenda and Executive Order 13326
    have placed considerable emphasis on the stewardship and
    management of those assets. The budget request supports a
    number of key elements of the DOD's comprehensive asset
    management strategy. The budget request supports a
    recapitalization rate of 72 years, nearly achieving the goal of
    a 67-year recapitalization cycle for the DOD's real property
    assets. In 2001 that rate stood at 192 years.
        The request provides 90 percent of the need to sustain our
    military facilities. If enacted, this budget will fulfill our
    commitment to eliminate inadequate military family housing in
    the United States and we remain on track to achieve the
    elimination of such units overseas by fiscal year 2009.
    Military housing privatization remains central to our strategy
    and in the end state we expect 89 percent of the DOD's family
    housing inventory to be privatized.
        Through program efforts such as the Readiness and
    Environmental Protection Initiative and our outreach to the
    States, local communities, private and nonprofit land trusts,
    and the environmental community, DOD's efforts to preserve and
    enhance military test and training ranges are achieving
    results.
        DOD continues its aggressive approach to energy
    conservation and the purchase and development of renewable
    sources of energy. Similarly, the DOD is aggressively
    implementing environmental management systems at our
    installations.
        The DOD's business practices and real property inventory
    controls are being fundamentally transformed through the
    business management modernization program.
        Each of the foregoing are important initiatives that
    improve the management of defense installations. Beyond
    improved management and from a strategic perspective, the
    implementation of the 2005 BRAC round, as well as the DOD's
    global defense posture review, serve as a foundation for
    significant transformation of the Armed Forces.
        As this subcommittee knows, the DOD developed over 220 BRAC
    recommendations for consideration by the independent BRAC
    Commission, with emphasis on those actions that would support
    mission transformation across the total force, enhanced
    efficiency in the business and support operations of the DOD,
    improve jointness and interoperability, and the conversion of
    unneeded assets to warfighting requirements.
        The DOD will carry out 25 major base closures, 24 major
    realignments, and 765 other actions. The scope of
    implementation in terms of the actions to be undertaken and the
    number of installations affected is nearly twice those
    undertaken in all prior rounds of BRAC combined. In addition,
    40 percent of the recommendations affect more than one
    component, placing a premium on coordination and joint
    approaches.
        Through BRAC, the DOD will also facilitate the return of
    forces stationed abroad to new stationing in the United States.
    Our efforts in BRAC and the broader global defense posture
    initiative are linked, and nowhere is that more true than for
    the Army, which will have fully one-third of the Army in motion
    due to repositioning through BRAC, global defense posture
    realignment, and the Army modular force initiative.
        After BRAC implementation is complete, we expect
    approximately $4 billion in annual recurring savings to accrue
    from the effort and another $1 billion from the BRAC-related
    global defense posture moves. Through BRAC and all of our
    global defense posture efforts, we will shed assets amounting
    to approximately $45 billion in plant replacement value.
        The investment required in fiscal year 2007 for BRAC is
    significant. When combined with the funds provided by Congress
    for this fiscal year, this investment will permit us to
    complete planning and to initiate construction activities to
    ensure facilities are ready in a timely manner for the
    extraordinary transformation of military infrastructure in
    which we are now engaged and for which we have a legal
    obligation to complete by September 2011.
        Mr. Chairman, DOD is working hard to reposition, to
    reshape, and to sustain our installations for the future. We
    appreciate your previous support for our efforts and look
    forward to continuing to work with this subcommittee to
    conclude these initiatives successfully.
        [The prepared statement of Mr. Grone follows:]

                   Prepared Statement by Hon. Philip W. Grone

        Chairman Ensign, Mr. Akaka, and distinguished members of the
    subcommittee, I appreciate the opportunity to appear before you today
    to address the President's budget request for fiscal year 2007 and the
    management approach the Department of Defense (DOD) has undertaken to
    reposition, to reshape, and to sustain the Nation's military
    installation assets.
        In 2001, the Department issued its first ever Defense Facilities
    Strategic Plan. Three years later, in September 2004, a comprehensive,
    capabilities-based, and performance-oriented Defense Installations
    Strategic Plan was in place. The 2004 plan addressed recommendations
    made by the Government Accountability Office (GAO) and was approved by
    the Office of Management and Budget (OMB) as being consistent with the
    guiding principles of the Federal Real Property Council in meeting the
    objectives of the President's Management Agenda. An update in 2005
    reflected ongoing efforts, recent progress, and the changes resulting
    from decisions that produced the fiscal year 2006 President's budget.
    The next full issue of the plan will be published in the fall of 2006.
    This new plan will more fully integrate environmental management
    systems, safety, and occupational health into a comprehensive approach
    to asset management.
        For the past several years, DOD has been vigorous in its pro-active
    efforts in managing the Department's facilities and infrastructure.
    DOD's infrastructure investment strategy rigorously utilizes key
    metrics to provide the quality facilities that directly support mission
    and readiness. To that end, DOD developed advanced business processes
    that align more closely to warfighter mission area requirements. The
    rigor provided by these practices in planning, managing, and
    maintaining DOD installations improves overall efficiency while
    improving investment decisionmaking.
        The President's budget request for fiscal year 2007 will permit the
    Department to continue its efforts to manage installation assets
    comprehensively and efficiently. Along with continued improvement in
    business practices and a focus on environmental sustainability, the
    Department is improving the quality of military installations.
    Global Defense Posture Realignment
        While the Department addresses better business practices, it is
    also working to realign infrastructure to effectively address military
    transformation and 21st century security challenges. The Defense
    posture of the past 50 years reflected the Cold War strategy, with U.S.
    forces forward deployed primarily to fight near where they were based.
    Today's challenges require a more agile, faster, and leaner force that
    can project power into areas further from where they are based. This
    agility requires not only a shift in military forces, capabilities and
    equipment, but also a new strategy for U.S. global defense posture.
        In September 2004, the Department completed a 2-year comprehensive
    review of its global posture strategy. This review led to the most
    thorough restructuring of U.S. military forces overseas since the major
    elements of the U.S. Cold War posture were set in 1953. The new posture
    will enable the Department to respond more quickly to worldwide
    commitments and make better use of its capabilities.
        The Department has already begun the process of realigning or
    closing a number of large permanent bases in favor of small and more
    scalable installations better suited for rapid deployments. In July
    2005, the return of 11 Army bases in Germany was announced as part of
    the 1st Infantry Division headquarters' redeployment plan, scheduled to
    occur in the summer of this year. The United States signed an agreement
    with the Government of Romania in December 2005 that will allow access
    for U.S. forces to Romanian training facilities. The United States and
    Japan issued the Security Consultative Committee document titled,
    ``U.S.-Japan Alliance: Transformation and Realignment for the Future,''
    on October 29, 2005, outlining several initiatives, including posture
    realignments that will adapt the Alliance to today's regional and
    global security environment. In Korea, we are working closely with our
    partner to implement the 2004 Amended Land Partnership Plan and the
    Yongsan Relocation Plan. These efforts are reshaping U.S presence on
    the peninsula significantly in recognition of the Republic of Korea's
    (ROK) increasing lead in the conventional defense of the ROK and the
    evolving role of U.S. forces.
        The Global Defense Posture realignment identified an overall plan
    for returning overseas forces back to military installations in the
    U.S. This plan was integrated into the Base Realignment and Closure
    (BRAC) process regarding relocations from overseas to domestic bases
    during the prescribed BRAC time period. All Services factored
    requirements of returning forces into their domestic infrastructure
    requirements and this resulted in recommendations to accommodate forces
    at U.S. installations. Some overseas changes have already been
    implemented in accordance with ongoing Service transformation efforts
    and within the framework of negotiations with host nations. In many
    cases, the changes involve units that are inactivating or transforming
    with no significant BRAC impact. As we begin implementing the BRAC
    recommendations there are overseas changes still being developed or
    being phased to be implemented after the BRAC implementation period.
    DOD will continue to consult with Members of Congress on its plan and
    will seek your support as we implement these far-reaching and enduring
    changes to strengthen America's global defense posture.
                       base realignment and closure 2005
        The Department has effectively accounted for the domestic
    implications of the global posture review--with forces and personnel
    either returning to or moving forward from U.S. territory--within the
    BRAC decisionmaking process. Even though global posture changes will be
    executed over several years and will continue to be adjusted as
    strategic circumstances change, the Department will incorporate
    projected overseas posture changes into the BRAC implementation
    process.
        The 2005 BRAC process was designed to rationalize the Department's
    base infrastructure within the United States in support of the
    Department's long-term strategic capabilities. The Department's BRAC
    process addressed five key goals:

             Transforming the current and future force and its
            support systems to meet new threats,
             Eliminating excess physical capacity,
             Rationalizing the base infrastructure with defense
            strategy,
             Maximizing both warfighting capability and efficiency;
            and
             Examining opportunities for joint activities.

        The Secretary of Defense transmitted his recommended closures and
    realignments to the 2005 Defense Base Closure and Realignment
    Commission and to Congress on May 13, 2005, and published them in the
    Federal Register on May 16, 2005, pursuant to Public Law 101-510, as
    amended. The recommendations strengthen national security by reshaping
    the domestic installations at which U.S. military forces perform their
    assigned missions and aligns the Department's base structure with the
    force structure that is expected to be needed over the next 20 years,
    an unprecedented long view. Additionally, the recommendations
    accommodate the Department's global reposturing of its forces;
    facilitate the ongoing transformation of U.S. forces to meet the
    challenges and opportunities of the 21st century; and restructure
    important support functions to capitalize on advances in technology and
    business practices.
        The BRAC Commission reviewed the 222 recommendations submitted by
    the Secretary and accepted, without change, about 65 percent. The
    Commission's resulting recommendations will affect over 800 locations
    through 25 major closures, 24 major realignments, and 765 lesser
    actions. On November 9, 2005, the Department became legally obligated
    to close and realign all installations so recommended in the
    Commission's report to the President because the President accepted
    those recommendations and the congressional review period lapsed
    without enacting a resolution of disapproval. Although these
    recommendations are estimated to save the Department tens of billions
    of dollars over 20 years and significant amounts annually after
    implementation, the investment needed to support the transformation of
    domestic military infrastructure in support of the Total Force is
    substantial--estimated, based on our COBRA-based assessment of the
    Commission's actions, at $22.8 billion.
                              brac implementation
        The large number of transformational recommendations, particularly
    recommendations to establish joint operations, present significant
    implementation challenges. To meet these challenges, the Department
    initiated a process to develop Business Plans that lay out the
    requisite actions, timing of those actions, and associated costs and
    savings associated with implementing each recommendation. The Business
    Plans will serve as the high level foundation for the complex program
    management necessary to ensure BRAC 2005 recommendations are
    implemented efficiently and effectively.
        The Department recently delivered its report describing the
    specific programs, projects, and activities for the $1.46 billion
    appropriated in fiscal year 2006 to begin implementing the BRAC
    recommendations. This initial spending plan will begin the planning and
    design and environmental studies that serve as the foundation for
    constructing and renovating facilities to accommodate missions at
    receiving sites. For fiscal year 2007, the Department is requesting
    $5.62 billion for BRAC 2005 implementation and $191.22 million for
    previous rounds.
        The Department recognizes it has an obligation to assist
    communities affected by BRAC 2005; communities that have an honored
    heritage of support to the Armed Forces. The Defense Economic
    Adjustment Program will continue to assist communities to plan for the
    civilian redevelopment of available real and personal property; and
    implement local adjustment actions to assist impacted workers,
    businesses, and other affected community interests. The Department
    actively partners with affected communities as we both seek
    opportunities for quick civilian reuse of former military
    installations. For communities engaged with installations that will
    receive new missions, the Department also recognizes the importance of
    ensuring communities have the capacity to support the Defense mission
    with adequate planning, housing, education, infrastructure, and
    community services, and the Department is working with these
    communities to enhance their ability to support DOD installations and
    our men and women in uniform. To facilitate these actions, resources
    from 22 Federal agencies have been drawn together through the
    coordination of the Economic Adjustment Committee (EAC). For these
    purposes, the budget request contains $60 million for the Department's
    Office of Economic Adjustment to enable affected communities to plan
    and carry out adjustment strategies, engage the private sector in
    ventures to plan and undertake economic and base redevelopment, and
    partner with the military departments as they implement BRAC actions.
    An important undertaking for the upcoming year is the OSD/Military/
    Community conference in May that will serve as a conduit for
    information exchange regarding BRAC implementation.
                            managing infrastructure
        Managing DOD real property assets is an integral part of
    comprehensive asset management. The Department currently manages nearly
    507,000 buildings and structures with a plant replacement value of over
    $650 billion, and more than 46,000 square miles of real estate.
        The quality of infrastructure directly affects training and
    readiness. To that end, the Department is incorporating installations
    more fully into the Defense Readiness Reporting System. This will allow
    us to measure the capability of defense installations and facilities
    and other elements of our infrastructure to provide appropriate support
    to forces in the conduct of their wartime missions. To better manage
    infrastructure investments, the Department developed models and metrics
    to predict funding needs: Sustainment and Recapitalization.
        Facilities sustainment provides funds for maintenance and major
    repairs or replacement of facility components that are expected to
    occur periodically throughout the life cycle of facilities. Sustainment
    prevents deterioration, maintains safety, and preserves performance
    over the life of a facility. To forecast funding requirements, DOD
    developed the Facilities Sustainment Model using standard benchmarks
    for sustainment unit costs by facility type (such as cost per square
    foot of barracks) drawn from the private and public sectors. This model
    has been used to develop the Service budgets since fiscal year 2002 and
    for several Defense agencies since fiscal year 2004. On January 24,
    2006, DOD joined 16 other Federal agencies in signing a Memorandum of
    Understanding (MOU) for Federal Leadership in High Performance and
    Sustainable Buildings. The MOU indicates a commitment to incorporate
    sustainable design principles through a comprehensive approach to
    infrastructure management.
        Full funding of facilities sustainment has been and continues to be
    the foundation of long-term facilities strategy and goal. In fiscal
    year 2006, the Department-wide sustainment funding rate is 92 percent.
    In balancing risk across the Department's program, the fiscal year 2007
    budget request reflects a slight decrease in the department-wide
    sustainment funding rate to 90 percent. Our long-term goal remains a
    department-wide sustainment funding rate of 100 percent to optimize our
    investment in facilities.
        Recapitalization, which includes restoration and modernization,
    provides resources for improving facilities, and is the second element
    of our facilities strategy. Recapitalization is funded primarily with
    either operations and maintenance or military construction
    appropriations. Restoration includes repair and replacement work to
    restore facilities damaged by inadequate sustainment, excessive age,
    natural disaster, fire, accident, or other causes. Modernization
    includes alteration of facilities solely to implement new or higher
    standards, to accommodate new functions, or to replace building
    components that typically last more than 50 years.
        Similar private sector industries replace their facilities every 50
    years, on average. The current DOD goal is 67 years, based upon an
    assessment of the Department's inventory in the late 1990s. In fiscal
    year 2001, the Department's recapitalization rate was 192 years. This
    budget request supports a recapitalization rate of 72 years, and
    includes investments associated with BRAC and Global Defense Posture
    realignment. The Defense Department remains committed to achieving a
    rate of investment in facilities recapitalization that will improve,
    modernize, and restore its facilities consistent with expected future
    service lives. Currently, DOD is in the process of developing and
    fielding a new recapitalization model for assessing the replacement
    cycle that will improve upon the existing recapitalization metric
    through the inclusion of depreciation schedules and other benchmark
    improvements.

                    SUSTAINMENT AND RECAPITALIZATION REQUEST
                   [President's budget in millions of dollars]
    ------------------------------------------------------------------------
                                                Fiscal Year     Fiscal Year
                                               2006 Request    2007 Request
    ------------------------------------------------------------------------
    Sustainment (O&M-like) 1................           6,529           6,267
    Restoration and Modernization (O&M-like)           1,008             984
     1......................................
    Restoration and Modernization (MilCon)..           3,474           6,093
                                             -------------------------------
      TOTAL SRM.............................          11,011          13,344
    ------------------------------------------------------------------------
    1 Includes O&M as well as related military personnel, host nation, and
      working capital funds.

        In 1998, the Department undertook a 6-year program to eliminate 80
    million square feet of obsolete and excess facilities. Six years later,
    DOD concluded that effort by exceeding its target--removing a total of
    86 million square feet. In a continuation of that effort, the
    Department completed a survey of disposal requirements in December
    2004. Based on that survey, the military services and selected Defense
    agencies have established new targets to rid the Department of an
    additional 50 million square feet of unneeded facilities by 2013. These
    demolition targets are not included as part of BRAC disposal.
        The Department has established a common definition for Facilities
    Operation, formerly referred to as ``Real Property Services.'' The
    budget request includes $6.06 billion for this program, to address
    utilities, leases, custodial services, ground maintenance, and other
    related functions. A prototype model for Facilities Operation will be
    fielded in the coming year.
                             installations support
        The Defense Installations Strategic Plan articulates the need to
    define common standards and performance metrics for managing
    installation support. Our objective is to introduce capabilities-based
    programming and budgeting within a framework for the Common Delivery of
    Installations Support framework which will link installation support
    capabilities to warfighter requirements. To that end, we are developing
    common definitions for Facilities Operation.
        The Common Delivery of Installations Support will form the basis
    for implementing guidance for 12 Joint Base sites identified in BRAC
    2005. Guidance for implementing Joint Basing is being developed in
    coordination with the military components and using input from
    installation level leadership.
        During the past year, DOD made significant progress toward
    developing Common Output Level Standards for all other functions of
    Installations Support to include Environment, Family Housing Operations
    and Services, which were formerly knows as Base Operations Support.
    This effort is yielding common definitions and tiered performance
    output levels. These metrics are currently being further refined and a
    costing model initiative will soon be underway.
        The Military Construction appropriation is a significant source of
    facilities investment funding. The Fiscal Year 2007 Defense Military
    Construction and Family Housing appropriation request totals $16.7
    billion. This budget request will enable the Department to rapidly
    respond to warfighter requirements, enhance mission readiness, and
    provide for our people. This is done, in part, by restoring and
    modernizing enduring facilities, acquiring new facilities where needed,
    and eliminating those that are excess or obsolete.

         COMPARISON OF MILITARY CONSTRUCTION AND FAMILY HOUSING REQUESTS
          [President's budget in millions of dollars--budget authority]
    ------------------------------------------------------------------------
                                                Fiscal Year
                                                   2006         Fiscal Year
                                               Appropriation   2007 Request
    ------------------------------------------------------------------------
    Military Construction...................           6,161           6,385
    NATO Security Investment Program........             177             221
    Base Realignment and Closure IV.........             255             191
    Base Realignment and Closure 2005.......           1,504           5,626
    Family Housing Construction/Improvements           1,811           2,092
    Family Housing Operations & Maintenance.           2,206           1,990
    Chemical Demilitarization...............                             131
    Family Housing Improvement Fund.........               3               3
    Energy Conservation Investment Program..              50              60
                                             -------------------------------
      TOTAL.................................          12,167          16,698
    ------------------------------------------------------------------------

                             housing revitalization
        At the outset of this administration, the President and Secretary
    Rumsfeld identified elimination of inadequate family housing and
    revitalizing housing, largely through privatization, as a central
    priority for the Department. An aggressive target of 2007 was
    established to meet that goal. The administration has relied on three
    pillars to improve housing thereby, enhancing the quality of life for
    our servicemembers: (1) Provide the basic allowance for housing (BAH)
    at zero-out-of-pocket expense for the average servicemember living in
    private sector housing (achieved in 2005, now maintaining); (2)
    Privatization of family housing, where feasible; and, (3) Military
    Construction funding for all other domestic and all overseas locations.
    Sustaining the quality of life for our military families is vital to
    recruitment, retention, readiness, and morale.
        Through the expanded use of the privatization authorities granted
    under the Fiscal Year 1996 Military Housing Privatization Initiative,
    the Department has achieved the elimination of inadequate housing at
    U.S. based installations where those authorities apply. The fiscal year
    2007 budget funds elimination of all inadequate domestic family housing
    by 2007, and eliminates remaining inadequate houses overseas by 2009.
        The Department relies on a ``community first'' (private sector)
    policy to provide quality housing to its members and their families.
    Only when the private market demonstrates that it cannot supply
    sufficient levels of quality, affordable housing does the Department
    provide housing to our military families; first through the use of
    privatization, and where that is not feasible through government-owned
    and leased housing. For example, in the absence of privatization
    authorities overseas, we address our housing needs there through
    military construction and leasing.
        To ensure the Department is making the best investment decisions
    when determining the appropriate level of housing, the government
    provides a single and consistent methodology for calculating its
    housing requirement. This methodology was introduced in January 2003
    and is being utilized extensively by the Services. Currently, 75
    percent of military families living in the continental United States,
    Alaska, and Hawaii receive Basic Allowance for Housing (BAH) (with 60
    percent living in the local community, and 15 percent in privatized
    housing). An additional 22 percent of our military families are
    provided government-owned housing and 3 percent live in leased housing.
        The Department has skillfully used privatization to more quickly
    eliminate inadequate housing and to provide additional housing where
    shortfalls existed. As of January 2006, the Department has awarded 56
    privatization projects. This includes over 118,000 military family
    housing units, which is a 30-percent increase since January 2005. DOD
    policy requires that privatization yield at least three times the
    amount of housing as traditional military construction for the same
    amount of appropriated dollars. The 56 awarded projects have permitted
    the Department, in partnership with the private sector, to provide
    housing for about $1 billion in military construction investment. The
    same level of construction activity would otherwise have required over
    $14 billion if the traditional military construction approach was
    utilized. This reflects an average ratio of over 14 to 1, well
    exceeding program expectations.
        Additionally, the private sector's cumulative contribution to the
    56 awarded deals totals over 90 percent of the $15 Billion in total
    project costs. Prudent business practice requires the private sector to
    be committed to each project with a significant financial investment in
    the project's ultimate success. The Services have funded the remaining
    $1 billion in development costs primarily through equity investment or
    government direct loans. (The Total Project Funding graph (Enclosure 1)
    depicts the cumulative total contribution of the private sector and
    government.)

        The Department's privatization plans in the fiscal year 2007 budget
    will ultimately result in the privatization of 87 percent of its
    domestic family housing inventory, or roughly 186,000 units privatized
    by the end of fiscal year 2007. By the end of fiscal year 2006, we will
    have privatized 153,000 housing units. The overall goal is to privatize
    89 percent of the domestic housing inventory or about 195,000 housing
    units by the end of fiscal year 2010.
        For fiscal year 2007, the Department requests $4.081 billion in new
    budget authority for family housing construction and operations and
    maintenance:

             1.94 billion to construct 3,073 new/replacement units
            and improve 3,330 existing units.
             1.99 billion to operate and maintain approximately
            95,052 government-owned family housing units, and lease another
            25,935 units worldwide.

        Funding to support the privatization of family housing is
    programmed and budgeted in the family housing construction
    appropriations and is transferred to the DOD Family Housing Improvement
    Fund (FHIF) when the privatization projects are executed. The fiscal
    year 2007 construction account requests a total of $154 million in
    funding for privatization. This amount, anticipated to be transferred
    to the FHIF during fiscal year 2007 along with $261 million in
    previously appropriated construction funds. This $415 million will be
    used to finance the privatization of approximately 32,377 units.
                              competitive sourcing
        The Department of Defense continues to strongly support the
    President's Management Agenda Initiative for Competitive Sourcing.
    Introducing private sector competition into commercial functions
    performed by the Department improves business efficiency and reduces
    cost to the taxpayer. Public/private competitions using the procedures
    of OMB Circular A-76 have demonstrated substantial savings whether the
    in-house or private sector wins the competition. During the fiscal
    years 2000 through 2005, the Department completed 848 such competitions
    encompassing about 87,018 positions. These competitions will have
    resulted in over $10 billion in savings (cost avoidance) over the life
    of the resulting performance periods, normally about 5 years. The
    Department currently has an additional 2,800 positions undergoing
    competition and expects to increase competitions in fiscal year 2006.
        These new competitions use the procedures of the revised OMB
    Circular A-76, which evaluates public and private proposals
    concurrently using the Federal Acquisition Regulations. As the
    Department's designated Competitive Sourcing Official (CSO), my office
    is working to improve the competition process. For example,
    competitions that used to take up to 48 months to complete should now
    be completed in as little as 12 months. Such improvements will reduce
    stress on our workforce and will make savings available earlier to
    reinvest in priorities for our war fighters.
                 utilities privatization and energy management
        The Department seeks to reduce its energy consumption and
    associated costs, while improving utility system reliability and
    safety. To that end, DOD developed a comprehensive energy strategy and
    issued updated policy guidance incorporating the new provisions and
    goals of the Energy Policy Act of 2005. This strategy will continue to
    optimize utility management by conserving energy and water usage,
    improve energy flexibility by taking advantage of restructured energy
    commodity markets when opportunities present themselves, and modernize
    our infrastructure by privatizing deteriorated and outdated utilities
    infrastructure where economically feasible.
        DOD, as the largest single energy consumer in the Nation, consumed
    over $2.97 billion of facility energy in fiscal year 2005. Conserving
    energy and investing in energy reduction measures makes good business
    sense and frees up resources for higher DOD priorities, such as
    readiness and modernization. Our program includes investments in cost-
    effective renewable energy sources or energy efficient construction
    designs, and aggregating bargaining power among regions and the
    Services to achieve more effective buying power.
        The Department's efforts to conserve energy are paying off. In
    fiscal year 2005, military installations reduced consumption by 3.3
    percent despite a 6-percent increase in the cost of energy commodities
    from fiscal year 2004. With a 28.3-percent reduction in standard
    building energy consumption in fiscal year 2005 from a 1985 baseline,
    the Department fell just short of the 2005 and 2010 facility energy
    reduction goals stipulated by E.O. 13123 (see Energy Progress Chart,
    Enclosure 2). This is mostly attributable to the lapse of Energy
    Savings Performance Contract (ESPC) authority in fiscal year 2004.
    Energy conservation projects accomplished through ESPC contracts
    typically account for more than half of all facility energy savings.
    However, with ESPC authority reauthorized in the fiscal year 2005
    National Defense Authorization Act and extended for an additional 10
    years in the Energy Policy Act of 2005, DOD has launched an aggressive
    awareness campaign and is well on its way to meeting the new goals
    established in the Energy Policy Act of 2005. DOD reduced energy
    consumption in energy intensive and industrial facilities by 21.6
    percent from the 1990 baseline, exceeding the 20-percent goal of E.O.
    13123 (See Energy Progress Chart, Enclosure 3).

        DOD has significantly increased its focus on purchasing renewable
    energy and developing resources on military installations. The
    Department has increased the use of Energy Conservation Investment
    Program (ECIP) funds for renewable energy projects from $5 million and
    $11 million in fiscal year 2003 and fiscal year 2004, respectively, to
    $13 million in fiscal year 2005, $17 million in fiscal year 2006, and
    $17 million in fiscal year 2007. The fiscal year 2007 program for ECIP
    also contains $2.6 million in hydrogen fuel cell projects. The
    Department easily exceeded the E.O. 13123 renewable energy goal of 2.5
    percent in fiscal year 2005. The Department's total renewable energy
    purchases and generation accounted for 8.3 percent of all electricity
    use. Also, while E.O. 13123 did not articulate a specific water
    reduction goal, the Department has saved an impressive 28.3 percent
    since the fiscal year 2000 baseline year.
        To improve utility systems, the Department has reaffirmed its
    preference to modernize military utility systems through privatization.
    The DOD Utilities Privatization Program has made solid progress over
    the past 2 years. The Services have greatly simplified and standardized
    the solicitation process for obtaining industry proposals. Of 2,601
    utility systems serving the DOD, the Department has privatized 512
    systems. When taken together with the 736 systems that were already
    owned by other entities, that reflects a significant portion of systems
    serving the Department that benefit from private sector ownership. Over
    475 additional systems are currently under evaluation as each Service
    and the Defense Logistic Agency continue aggressive efforts to reach
    privatization decisions on all systems.
                            environmental management
        The Defense Department continues to lead in every aspect of
    environmental management. The Department is proud of and committed to
    its environmental program in support of the global basing mission.
    Developing natural infrastructure capacity tools and models for
    installation planning and sustainment is a priority.
    Environmental Management Systems
        DOD is implementing environmental management systems (EMS) as
    required by Executive Order 13148 at all appropriate facilities, except
    for six installations affected by hurricane Katrina. This
    transformation embeds environmental management as a systematic process,
    fully integrated with mission planning and sustainment and is essential
    for continued successful operations at home and abroad. Implementing
    EMS will help preserve range and operational capabilities by creating a
    long-term, comprehensive program to sustain capability while
    maintaining healthy ecosystems.

                  ENVIRONMENTAL PROGRAM--SUMMARY OF REQUEST \1\
          [President's budget in millions of dollars--budget authority]
    ------------------------------------------------------------------------
                                                Fiscal Year     Fiscal Year
                                               2006 Request    2007 Request
    ------------------------------------------------------------------------
    Environmental Restoration...............           1,370           1,403
    BRAC Environmental \2\..................             449             475
    Compliance..............................           1,561           1,527
    Pollution Prevention....................             143             128
    Conservation............................             205             191
    Technology..............................             206             200
    International \3\.......................               3               3
                                             -------------------------------
      TOTAL.................................           3,934          3,924
    ------------------------------------------------------------------------
    \1\ Includes operations and maintenance, procurement, RDT&E, and
      military construction funding.
    \2\ Funding levels reflect total requirement
    \3\ International is included in Pollution Prevention and Compliance.

        For fiscal year 2007, DOD's budget request includes $3.924 billion
    for environmental programs. This includes $1.403 billion for cleanup,
    $0.475 billion for BRAC environmental, $1.527 billion for compliance;
    about $0.1 billion for pollution prevention, and about $ 0.2 billion
    each for conservation and environmental technology.
    Managing Cleanup
        The Department is committed to cleaning up property that, as the
    result of past military activities, is contaminated with hazardous
    substances, pollutants, or military munitions. DOD has achieved
    ``remedy in place'' or ``restoration complete'' status at 78 percent
    (16,591 out of 21,192) of its contamination sites on active
    installations. As of the end of fiscal year 2005, 83 percent (4,287 out
    of the 5,183) of the contamination sites at BRAC locations closed or
    realigned by the first four rounds of BRAC have a cleanup remedy
    constructed and in place and operating successfully, or have had all
    necessary cleanup actions completed in accordance with Comprehensive
    Environmental Response, Compensation, and Liability Act (CERCLA)
    standards. Hazardous waste cleanup at Formerly Used Defense Sites
    (FUDS) has achieved ``remedy in place'' or ``restoration complete''
    status at 49 percent (2,263 out of the 4,668) of known sites.
    Leading Compliance through Pollution Prevention
        The Department continues its commitment to going beyond compliance
    in executing its environmental initiatives. Using compliance as the
    baseline the Department has instituted processes that effectively and
    efficiently execute compliance using pollution prevention (P2)
    strategies and focusing on sustaining the warfighter mission. The
    Department issued DOD Directive 4715.1E on Environment, Safety, and
    Occupational Health (ESOH) Management, delineating policies and
    responsibilities that enable the Department to invest in initiatives
    that support mission accomplishment, enhance readiness, reduce future
    funding needs, prevent pollution, prevent illness and injury, and
    ensure cost-effective compliance.
        One example is the Department's risk management approach to
    integrating ESOH considerations into systems acquisitions. DOD
    successfully integrated MIL-STD 882D (Standard Practice for System
    Safety) into the acquisition process to ensure that Program Managers
    identify know their ESOH risks and take the measures necessary to
    manage or mitigate those risks early in the design process, reducing
    environmental burdens and mission impacts throughout the life-cycle of
    the system.
        Another example is the DOD Green Procurement Program. The DOD Green
    Procurement Program was established to ensure DOD compliance with
    federally mandated green procurement programs, yet DOD enlarged its
    program to consider such factors as energy use, conservation of
    resources, price, performance, and safety to support both DOD's mission
    and protection of the environment. DOD demonstrated its commitment to
    going beyond mere compliance by signing the Federal Agency Memorandum
    of Understanding on electronic stewardship; actively participating in
    the Federal Electronics Challenge; and participating in the Green
    Suppliers Network to incorporate process, energy, and material
    efficiencies into the supply chain--all of which can lead to
    substantial environmental benefits and reductions in costs.
    Range Sustainment
        The sustainability of military installations, particularly testing
    and training ranges, is critically important to readiness. The often
    accelerating pace of development in the vicinity of our installations
    and ranges poses ongoing challenges and leads to secondary effects
    including loss of habitat for endangered species; more noise complaints
    from new neighbors; diminished usable airspace due to new structures or
    increased civil aviation; and a compromised ability to test and train
    with the frequency resources needed in time of war.
        Exacerbating the encroachment challenge, the demands of the
    military mission are not static in nature and a number of factors are
    changing the way the Department will need to test and train in the
    future. Upcoming mission adjustments and relocations associated with
    the recent BRAC decisions and the return of large numbers of troops and
    their families to bases in the U.S. as a part of global rebasing will
    require expanded training opportunities and place a growing demand on
    receiving installations. The integration of training opportunities
    necessary to satisfy joint mission requirements, combined with the
    increasing testing and training battlespace needs of new weapons
    systems and evolving tactics associated with force transformation,
    point to a military need for more, rather than less range space. The
    confluence of these competing trends makes it clear that encroachment
    remains a powerful challenge to military readiness, and requires a
    comprehensive and continuing response.
        Sustainable Ranges Initiative: The White House Conference on
    Cooperative Conservation, held last summer in St. Louis, Missouri,
    brought together land managers and conservation advocates from Federal
    agencies, States, academia, and industry to look for a new path towards
    collaborative conservation of the Nation's natural resources.
        Consistent with its desire to balance its duty to conduct life-
    saving military training with its stewardship responsibilities, the
    Department has been very active in its efforts to mitigate encroachment
    effects and to ensure the long-term sustainability of both its military
    test and training missions and the natural resources entrusted to DOD's
    care. In 2006, DOD's range sustainment initiative will focus on
    addressing emerging encroachment issues and taking advantage of
    opportunities to extend our outreach and partnering gains. At the same
    time, DOD will build on past efforts to institutionalize capabilities,
    tools, and processes that will support range sustainment goals well
    into the future.

             Conservation Partnering and Buffer Program Expansion.
            Congressional support for DOD's Readiness and Environmental
            Protection Initiative has enabled DOD to establish an effective
            and growing program to partner with conservation entities to
            protect key lands in the vicinity of military ranges that offer
            the dual promise of preserving natural resource values and
            allowing more flexible use of DOD lands inside the fence line.
            In 2005, the first year of this funded program, DOD used the
            $11.5 million appropriated by Congress to execute a number of
            landmark conservation buffer projects near Army and Marine
            Corps ranges and installations. Buffering successes at Fort
            Carson, CO; Marine Corps Base Camp Lejeune, NC; and the Navy's
            La Posta Mountain Warfare Training Facility, CA, are notable
            2005 program accomplishments. Congress has allocated $37
            million to expand the Conservation partnering program in fiscal
            year 2006. Projects are still being finalized, but will include
            a significantly greater number of projects supporting Army,
            Marine, and Navy buffering priorities across the U.S.
             Regional Partnering Initiatives. In 2005, the
            Department participated in a pilot partnership effort called
            the Southeast Regional Partnership for Planning and
            Sustainability. Teaming Service flag officers with leaders from
            the State governments of Florida, Georgia, South Carolina, and
            North Carolina, this effort has demonstrated potential as a
            vehicle for effective communication and joint action to
            identify issues and implement solutions of mutual benefit to
            the partners. This pilot offers promise not only in the
            Southeast, but as a model for regional action elsewhere.
             Range Assessments. Military use of munitions on its
            ranges is an elemental aspect of effective testing and
            training. However, to ensure that the effects of our ongoing
            and legacy use of munitions do not harm public health or the
            environment, DOD is actively assessing all its ranges to ensure
            there is no off-range migration of munitions' constituents into
            surrounding lands or waters.
    Warfighter Support through Safety and Health
        The Nation's leading businesses see the prevention of injuries and
    illnesses as a core business value that reduces human, social,
    financial, and productivity costs and improves the bottom line. DOD
    also has a bottom line: operational readiness.
        The Department's efforts to integrate safety and health into every
    aspect of the mission, gives commanders the flexibility they need to
    make informed risk decisions--decisions that enable them to eliminate,
    modify, or accept risks based on the situation they are encountering.
    In March 2005 DOD published policy requiring safety and occupational
    health management systems at all management levels. This industry
    proven approach horizontally integrates safety across all of our
    business areas. The Department is accelerating this initiative by
    partnering with the Defense Safety Oversight Council (DSOC) to
    establish a Center of Excellence to help installations achieve OSHA
    Voluntary Protection Program (VPP) recognition. DOD has also issued
    policy to include Military Flight Operations Quality Assurance. This
    process, gives pilots the ability to ``review the game tape'' of
    virtually every mission they fly and identify potentially dangerous
    tendencies that can be corrected before they become habits.
        The Department is also transforming explosives safety. The
    Department of Defense Explosives Safety Board (DDESB) continually
    assesses and improves explosives safety throughout the ammunition and
    explosives life cycle, proactively seeking early awareness and
    consideration of explosive safety in operational and contingency
    planning activities. This year DOD updated its policy to assist
    commanders in making informed risk decisions involving explosives while
    ensuring maximum operational capabilities and the protection of
    personnel, property, and the environment from the damaging effects of
    explosives.
                      integrating the business enterprise
        As our Nation's security challenges become more complex, our
    military must become an increasingly agile joint force that is dominant
    across the full spectrum of operations. The highly flexible, yet
    precise, Armed Forces of the 21st century require an equally flexible
    and responsive business and financial support infrastructure that can
    adapt to rapidly changing conditions in both peace and war.
        Defense Business Transformation is being driven by a series of
    strategic objectives, which include: supporting a joint warfighting
    capability; enabling rapid access to information for strategic
    decisions; reducing the cost of Defense business operations; and
    improving the financial stewardship of assets.
        To support the Department's process of identifying joint needs,
    analyzing capability gaps, and implementing improvements, the DOD
    Business Mission Area is aligned with the warfighting mission. This new
    unifying framework, documented in the DOD's roadmap for transformation,
    (the Enterprise Transition Plan), is a capabilities and lifecycle-based
    approach to enterprise business planning and execution, and consists of
    five integrated Core Business Missions, or CBMs: Human Resources
    Management; Weapon System Lifecycle Management; Real Property &
    Installations Lifecycle Management; Material Supply & Service
    Management; and Financial Management. The Deputy Under Secretary of
    Defense (Installations & Environment) is the leader of the Real
    Property & Installations Lifecycle Management CBM. Working with the
    Military Components, considerable progress has been made in
    transforming business processes over the last 2 years.
        Last year, we completed a Business Process Reengineering (BPR),
    effort for managing the Department's real property inventory. The
    inventory reform effort will provide the DOD warfighter and business
    mission with relevant access to needed information on real property.
    The Services and Defense agencies have begun to re-architect their
    business processes and systems to ensure that they will be able to
    provide the standard business processes and data elements identified
    during the BPR. Together, these processes and data elements will enable
    greater visibility of real property assets and associated financial
    resources. The Department has also completed a thorough assessment of
    information systems that will support the inventory. The military
    components are developing plans for economic and timely investment in,
    and achievement of, this new information environment.
        In addition to the inventory, these efforts led to development of a
    site-unique identifier (UID) registry that will improve the visibility
    of our real property assets. The process of assigning UID to sites has
    already begun and this year UIDs will be assigned to all assets, such
    as facilities, runways, and piers. Ultimately, this registry will
    provide a link between real property resources and their locations to
    our warfighting and business personnel and the property they operate.
        Organizing the Department's extensive geospatial and imagery assets
    through the Defense Installation Spatial Data Infrastructure (DISDI)
    program has enabled business transformation on many fronts. For
    example, the innovative use of commercial satellite imagery combined
    with locally validated mapping features significantly heightened the
    quality of the Fiscal Year 2005 BRAC, deliberations. During this first
    year of operations, DISDI saved more than $20 million across the
    business mission simply by sharing commercial satellite imagery across
    the Department. 2005 also saw DISDI completing the first worldwide
    inventory of geospatial assets. This, in turn, is enabling Defense-wide
    software licensing agreements which will reduce future software costs
    by more than 25 percent.
        Reengineering of environment, safety, and occupation health focused
    on two initiatives. First, DOD completed reengineering associated with
    recognizing, valuing, and reporting environmental liabilities, and
    created a standard data model for the majority of these liabilities.
    The Department will finish the remaining environmental liabilities this
    year, resulting in a complete, accurate, and visible inventory of
    environmental liabilities reconciled with asset records. Completion of
    this project will also eliminate a material weakness. Second, DOD began
    re-engineering the management of hazardous materials throughout the
    Department. Although the Services and Agencies handle many hazardous
    materials, different processes are in place to manage the products and
    their support information. These reengineering efforts are designed to
    eliminate the costly, redundant, and ultimately unsafe practices
    associated with these multiple processes.
        The Department's plans for this fiscal year, also documented in the
    Enterprise Transition Plan, will see the continuation of the unique
    identification implementation through the continued population of the
    site registry, and, of greater significance, the employment of the
    asset UID concept. The Department will build and deploy the
    infrastructure to manage asset UIDs, and begin the process of assigning
    them to facilities in our portfolio. The DISDI program will complement
    the inventory development effort, focusing on the physical mapping of
    DOD's real property inventory, and begin a new reengineering effort
    focusing on construction in progress.
                                   conclusion
        In closing, Mr. Chairman, I sincerely thank you for this
    opportunity to highlight our successes and outline our plans for the
    future. I appreciate your continued support of our installations and
    environment portfolio, and I look forward to working with you as we
    transform our plans into actions.

        Senator Ensign. Secretary Eastin.

     STATEMENT OF HON. KEITH E. EASTIN, ASSISTANT SECRETARY OF THE
                 ARMY FOR INSTALLATIONS AND ENVIRONMENT

        Mr. Eastin. Thank you, Mr. Chairman, Senator Akaka, Senator
    Thune. It is a pleasure to be here today. I will try to make my
    remarks short, given the time. I have provided a written
    statement that details our fiscal year 2007 budget request and
    I would ask that it be put in the record.
        Senator Ensign. All of the statements will be made part of
    the record, and especially because we are probably going to go
    until about 3:10. We are going to try to wrap things up by
    about then because we have a vote starting at 3:00. So whatever
    you can summarize so we can get to as many questions as
    possible would be great.
        Mr. Eastin. Yes, sir.
        As you are aware, the Army is very busy these years.
    Concurrent with fighting the long war on terrorism, we are in
    the midst of transforming our Army to better meet the national
    security challenge. We are changing from a division-centric
    force to a brigade-centric force. In addition, we are on the
    verge of repositioning our forces worldwide through both BRAC
    and the Integrated Global Presence and Basing Strategy
    initiative.
        Our plan integrates these three and allows us to divest
    Cold War assets and infrastructure and create the
    infrastructure required for the foreseeable future. All of
    these changes require a large commitment of resources. This
    consolidation will yield tremendous savings over time. We will
    reduce overhead costs by streamlining the installation staffs,
    contract support and infrastructure that will support units and
    activities in their new locations. We are exploiting this
    opportunity to become more efficient and more effective as we
    implement our stationing plan.
        We continue to make significant measurable progress towards
    our goal of eliminating inadequate housing both for our single
    and married soldiers and their families. If enacted, this
    budget request will achieve almost 90 percent of our pre-
    transformational goal of eliminating inadequate permanent party
    barracks. It puts us on a glide path to provide barracks to
    house soldiers returning to the U.S. all by 2011.
        Similarly, for family housing we continue to invest dollars
    in our Residential Communities Initiative. By the end of fiscal
    year 2007, we will have privatized over 76,000 homes. At the
    end state over 90 percent of our housing inventory will be
    privatized.
        These improvements provide soldiers and families with a
    quality of life that recognizes their service to the Nation.
    These programs have a positive and enduring effect on our
    soldiers' morale and contribute immeasurably to our ability to
    sustain our volunteer force.
        Under BRAC we will carry out 12 major and one minor base
    closure, conduct 53 alignments, close 387 Reserve component
    facilities, and construct in their place 125 new Armed Force
    Reserve Centers. All in all, this BRAC round will cause the
    Army to have more than 820 discrete individual actions to take
    place. Many of these actions are joint, requiring close
    coordination with the other Services.
        Through Integrated Global Presence and Basing Strategy
    (IGPBS) and other overseas consolidations, we will also return
    more than 50,000 soldiers and their families from Germany and
    Korea to the U.S. In addition, IGPBS is also repositioning
    forces within our overseas areas, actions that will also
    require a significant resource effort. This repositioning will
    allow the efficient return of overseas forces and enable our
    installation commanders to focus their efforts on enduring
    installations.
        Mr. Chairman, with the generous help of this committee and
    Congress we have made tremendous progress in enhancing training
    and generating combat power in time of war. However, despite
    these major improvements, the Army still requires significant
    resources to overcome years of insufficient investments in its
    installations and infrastructure. If resourced, our stationing
    plan will produce installations better able to train and
    prepare our forces for future missions. Our plan will also
    provide a quality of life that our soldiers and families
    deserve and will help to sustain the all-volunteer force.
        We thank you for your continued support and hope you will
    consider our budget request.
        [The prepared statement of Mr. Eastin follows:]

                   Prepared Statement by Hon. Keith E. Eastin

                                  introduction

        Mr. Chairman and members of the subcommittee, it is a pleasure to
    appear before you to discuss the Army's Military Construction budget
    request for fiscal year 2007. We have a robust budget that is critical
    to the success of the Army's new initiatives and sustainment of ongoing
    programs of critical importance to the Army. We appreciate the
    opportunity to report on them to you. We would like to start by
    thanking you for your unwavering support to our soldiers and their
    families serving our Nation around the world. They are and will
    continue to be the centerpiece of our Army, and they could not perform
    their missions so successfully without your steadfast support.
         overview--transforming installations while the army is at war
        Installations are the home of combat power--a critical component of
    the Nation's force capabilities. Your Army is working to ensure that we
    deliver cost-effective, safe, and environmentally sound capabilities
    and capacities to support the National defense mission.
        The tremendous changes in our national security environment since
    the terrorist attacks on our Nation clearly underscore the need for a
    joint, integrated military force ready to defeat all threats to U.S.
    interests. To meet these security challenges, we require interrelated
    strategies centered on people, forces, quality of life, and
    infrastructure. Regarding infrastructure, we need a global framework of
    Army installations, facilities, ranges, airfields, and other critical
    assets that are properly distributed, efficient, and capable of
    ensuring that we can successfully carry out our assigned roles,
    missions, and tasks that safeguard our security at home and abroad.
        Army infrastructure must enable the force to fulfill its strategic
    roles and missions in order to generate and sustain combat power. As we
    transform our operational forces, so too must we transform the
    institutional Army and our installation infrastructure to ensure this
    combat power remains relevant and ready.
    Stationing
        To transform from a forward-deployed to a U.S.-based power
    projection force, we are consolidating overseas units at enduring
    locations and bringing back units to the United States through the
    effort we collectively call ``stationing.'' Our stationing effort is an
    integrated plan driven by the convergence of three distinct
    initiatives: Base Realignment and Closure (BRAC) 2005, Integrated
    Global Presence and Basing Strategy (IGPBS), and the Army Modular Force
    (AMF) Initiative. Stationing will allow the Army to focus its resources
    on installations that provide the best military value and to best
    posture units for responsiveness and readiness. Eliminating Cold War
    era infrastructure and employing modern technology to consolidate
    activities allows the Army to free financial and human resources that
    we can then focus on our core warfighting mission. The stationing
    initiative is a massive undertaking, requiring the synchronization of
    base closures, realignments, military construction and renovation, unit
    activations and deactivations, and the flow of forces to and from
    current global commitments. Our decisions to synchronize activities
    associated with restationing and realigning our global basing posture
    have been guided by the following key criteria:

             Meeting operational requirements
             Providing economic benefits
             Using existing infrastructure to reduce cost and
            excess capacity
             Funding critical requirements to achieve unit mission
             Compliance with applicable laws
             Minimizing the use of temporary facilities
             Giving facility priority to ranges, barracks, housing,
            vehicle maintenance shops, headquarters and operations, dining
            and instruction facilities

        The completion of this combined set of stationing initiatives will
    result in an Army that is better positioned to respond to the needs and
    requirements of the 21st century security environment, with our
    soldiers and families living at installations that are truly
    ``Flagships of Army Readiness.''
    Infrastructure Quality
        In addition to mission support, our installations provide the base
    of support for soldiers and their families. The environment in which
    our soldiers train, our civilians work, and our families live plays a
    key role in recruiting and retaining the high quality people the Army
    needs. Through efforts such as Barracks Modernization and the
    Residential Communities Initiative (RCI), the Army has made tremendous
    progress in improving the quality of life for soldiers and their
    families. These efforts will combine with the Army's stabilization of
    the force to forge greater bonds between units, soldiers, families, and
    the communities in which they live.
        The quality of our installations is critical to the support of the
    Army's mission, its soldiers, and their families. Installations serve
    as the platforms we use to train, mobilize, and rapidly deploy military
    power. When forces return from deployments, installations enable us to
    efficiently reset and regenerate combat power for future missions. In
    the past year, the Army has made tremendous progress in enhancing
    training and improving its ability to generate and reset the force.
    Through its stationing plans, the Army will be able to focus future
    resources on key installations that provide the most value to our
    mission and provide the quality of life that our soldiers and families
    deserve.
    Base Realignment and Closure (BRAC) 2005
        BRAC 2005 is the fifth round of BRAC actions that is now approved
    for implementation beginning in fiscal year 2006. BRAC 2005 actions are
    designed to optimize the Army's infrastructure assets in concert with,
    and in support of, the operational capacity and warfighting
    capabilities of the Army. BRAC 2005 is also designed to enhance the
    opportunities for joint activities with the creation of joint
    installations and joint operations that create more efficient and
    effective common business-oriented functions within the Department of
    Defense (DOD). As with prior rounds, the Army will achieve savings by
    divesting of installations that are no longer needed and are less
    efficient and effective in supporting a Joint and Expeditionary Army.
    BRAC 2005 goes beyond savings and provides transformational facilities
    and new opportunities for Joint operations and Joint business
    functions. As we reposition forces from overseas, our installations
    must support a Joint and Expeditionary Army.
        BRAC recommendations became law on November 9, 2005, and by law,
    all recommendations must be completed by September 14, 2011. DOD and
    the Army recommended 12 major and 1 minor Army base closures and 53
    Army base realignments. In addition, 176 Army Reserve and 211 National
    Guard facilities will close across 39 states and territories whose
    units will relocate to 125 new Armed Forces Reserve Centers.
        BRAC execution should contribute to the following Army goals:

             Reducing cost and generate savings which can be
            reinvested
             Optimizing military value
             Advancing the Army Modular Force Initiative
             Accommodating the rebasing of overseas units
             Enabling the transformation of both the Active and
            Reserve components as well as rebalancing the forces
             Contributing to joint operations
    Integrated Global Presence and Basing Strategy (IGPBS)
        IGPBS will relocate over 50,000 soldiers and their families from
    Europe and Korea to the United States over the next 5 to 6 years. These
    moves are critical to ensure Army forces are properly positioned
    worldwide to respond in support of our National Military Strategy. The
    majority of the moves/restationing actions are incorporated within the
    BRAC budget, but IGPBS also includes intratheater moves. These include
    moves within Korea relocating units from north of Seoul to Camp
    Humphreys; within Germany from numerous installations to our major hub
    at Grafenwoehr/Vilseck, and moves from Germany to Italy to support the
    standup of a full Airborne Brigade Combat Team in Vicenza.
    Army Modular Force
        The fiscal year 2007 budget includes projects to ensure that our
    facilities continue to meet the demands of force structure, weapons
    systems, and doctrinal requirements. As of fiscal year 2006, we have
    funded 93 percent of the military construction requirements for the
    Stryker Brigade Combat Teams, including National Guard requirements in
    Pennsylvania. Remaining construction funding for both the active Army
    and Army National Guard will be requested in future budget requests.
        The Army Modular Force (AMF) initiative transforms the Army from
    units based on the division organization into a more powerful,
    adaptable force built on self-sufficient, brigade-based units that are
    rapidly deployable. These units, known as Brigade Combat Teams (BCTs),
    consist of 3,500 to 4,000 soldiers. BCTs increase the Army's combat
    power while meeting the demands of global requirements without the
    overhead and support previously provided by higher commands.
        New facility requirements for transforming units are being
    provided, where feasible, through the use of existing assets. Where
    existing assets are not available, the Army is programming high-
    priority projects to support soldiers where they live and work. The
    Army is requesting $242 million in fiscal year 2007, to support BCTs.
    The remaining AMF requirements will be addressed in future budgets.
    BRAC 2005 Implementation Strategy
        The Army will execute BRAC 2005 by implementing interrelated events
    starting with realignment of the operational forces of the active Army,
    both inside and outside the United States, at installations DOD-wide,
    capable of training modular formations at home station. The Army will
    create Joint and Army Training Centers of Excellence to enhance
    coordination, doctrine development, training effectiveness, and improve
    operational and functional efficiencies.
        The Army will transform the Reserve components by realigning and
    closing facilities to reshape the command and control functions and
    force structure and to create Joint or multi-functional installations.
    The Army will close 387 Army Reserve and National Guard facilities and
    build 125 new multi-component Armed Forces Reserve Centers distributed
    throughout the United States and Puerto Rico. The new Armed Forces
    Reserve Centers will improve the readiness and ability of Reserve and
    National Guard units to train, alert, and deploy in support of current
    and future contingency operations, including homeland defense. In
    addition, the Army will disestablish 10 Army Reserve Regional Readiness
    Commands and establish 4 Regional Readiness Sustainment Commands and 6
    new deployable warfighting units.
        In the United States, the Army will consolidate four Installation
    Management Agency regions into two and also consolidate the
    Installation Management Agency, Army Community and Family Support
    Center, and the Army Environmental Center in San Antonio, Texas.
        The Army will partner with DOD to consolidate DOD Research,
    Development, Test, and Evaluation organizations to enhance support of
    DOD transformation and Joint Operations and realign or close
    installations to co-locate headquarters with subordinate commands or to
    station organizations with their service counterparts to provide
    responsive, quality, and cost-effective medical and dental care.
    Finally, the Army will transform materiel and logistics operations by
    realigning or closing installations to integrate critical munitions
    production and storage, manufacturing, depot-level maintenance, and
    materiel management to enhance joint productivity and efficiency and to
    reduce cost.
    BRAC 2005 Budget
        The Army will apply all the necessary resources to accomplish the
    BRAC 2005 mission. In fiscal year 2006, the Army will execute over $865
    million to initiate both BRAC and IGPBS, and begin required National
    Environmental Policy Act actions for all BRAC 2005 requirements. The
    Army will begin planning and design for projects in fiscal years 2006,
    2007, and 2008, and begin construction of 10 projects in fiscal year
    2006. The Army will execute $3,608 million to continue actions for BRAC
    2005 requirements in fiscal year 2007.
    Prior BRAC
        In 1988, Congress established the Defense Base Realignment and
    Closure Commission to ensure a timely, independent, and fair process
    for closing and realigning military installations. Since then, DOD has
    successfully executed four rounds of base closures to reduce
    infrastructure and align the military's infrastructure to the current
    security environment and force structure. Through this effort, the Army
    estimates approximately $10.7 billion in savings through 2006--more
    than $900 million annually from previous BRAC rounds.
        The Army is requesting $51.3 million in fiscal year 2007 for prior
    BRAC rounds ($6.2 million to fund caretaking operations of remaining
    properties and $45.1 million for environmental restoration). In fiscal
    year 2007, the Army will complete environmental restoration efforts at
    two installations, leaving eight remaining BRAC installations requiring
    environmental restoration.
        To date, the Army has spent $2.5 billion on BRAC environmental
    restoration. We have disposed of 229,129 acres (89 percent of the total
    acreage disposal requirement of 258,607 acres), with 29,478 acres
    remaining to dispose of at 15 installations.
                                 the way ahead
        To improve the Army's facilities posture, we have undertaken
    specific initiatives or budget strategies to focus our resources on the
    most important areas--Range and Training Lands, Barracks, Family
    Housing, and Workplaces.
        Range and Training Lands. Ranges and training lands enable our Army
    to train and develop its full capabilities to ensure our soldiers are
    fully prepared for the challenges they will face. Our Army Range and
    Training Land Strategy supports Army transformation, and the Army's
    Sustainable Range Program. The Strategy identifies priorities for
    installations requiring resources to modernize ranges, mitigate
    encroachment, and acquire training land.
        Barracks. Providing safe, quality housing is a crucial commitment
    the Army has made to its soldiers. We owe single soldiers the same
    quality housing that is provided to married soldiers. Modern barracks
    are shown to significantly increase morale, which positively impacts
    readiness and quality of life. The importance of providing quality
    housing for single soldiers is paramount to success on the battlefield.
    The Army is in the 14th year of its campaign to modernize barracks to
    provide 136,000 single enlisted permanent party soldiers with quality
    living environments. The new complexes meet DOD ``1+1'' or equivalent
    standard by providing two-soldier suites, increased personal privacy,
    larger rooms with walk-in closets, new furnishings, adequate parking,
    landscaping, and unit administrative offices separated from the
    barracks.
        Family Housing. This year's budget continues our significant
    investment in our soldiers and their families by supporting our goal to
    have contracts and funding in place to eliminate inadequate housing at
    enduring installations by fiscal year 2007 in the U.S. and by fiscal
    year 2008 overseas. For families living off-post, the budget for
    military personnel maintains the basic allowance for housing that
    eliminates out-of-pocket expenses.
        Workplaces. Building on the successes of our family housing and
    barracks programs, we are moving to improve the overall condition of
    Army infrastructure by focusing on revitalization of our workplaces.
    Projects in this year's budget will address requirements for
    operational, administration, instructional, and maintenance facilities.
    These projects support and improve our installations and facilities to
    ensure the Army is deployable, trained, and ready to respond to meet
    its national security mission.
    Leveraging Resources
        Complementary to these budget strategies, the Army also seeks to
    leverage scarce resources and reduce our requirements for facilities
    and real property assets. Privatization initiatives such as the
    Residential Communities Initiative (RCI), Utilities Privatization, and
    build-to-lease family housing in Europe and Korea represent high-payoff
    programs which have substantially reduced our dependence on investment
    funding. We also benefit from agreements with Japan, Korea, and Germany
    where the Army receives host nation funded construction.
        In addition, Congress has provided valuable authorities to utilize
    the value of our non-excess inventory under the Enhanced Use Leasing
    program and to exchange facilities in high-cost areas for new
    facilities in other locations under the Real Property Exchange program.
    In both cases, we can capitalize on the value of our existing assets to
    reduce unfinanced facilities requirements.
        The Army is transforming military construction by placing greater
    emphasis on installation master planning and standardization of
    facilities as well as planning, programming, designing, acquisition,
    and construction processes. Looking toward the immediate future, we are
    aggressively reviewing our construction standards and processes to
    align with industry innovations and best practices. In doing so, we
    expect to deliver quality facilities at lower costs while meeting our
    requirements more expeditiously. By encouraging the use of manufactured
    building solutions and other cost-effective, efficient processes, the
    Army will encourage non-traditional builders to compete. Small business
    opportunities and set-aside programs will be addressed, as well as
    incentives for good performance. Work of a repetitive nature coupled
    with a continuous building program will provide the building blocks for
    gaining efficiencies in time and cost.
                             military construction
        The Army's fiscal year 2007 budget request includes $7.63 billion
    for Military Construction appropriations and associated new
    authorizations, Army Family Housing, and Base Realignment and Closure.

                       military construction, army (mca)
        The Active Army Fiscal Year 2007 Military Construction budget
    request is $1,982,432,000 for authorization and $2,059,762,000 for
    authorization of appropriations and appropriation. These projects will
    provide the infrastructure necessary to ensure continued soldier
    readiness and family well-being.
        Soldiers as our Centerpiece Projects. The well-being of our
    soldiers, civilians, and families is inextricably linked to the Army's
    readiness. We are requesting $934 million or 46 percent of our MCA
    budget for projects to improve well-being in significant ways.
        The Army continues to modernize and construct barracks to provide
    enlisted single soldiers with quality living environments. This year's
    budget request includes 24 barracks projects to provide improved
    housing for 5,450 soldiers and new barracks in support of major
    stationing moves. With the approval of $840 million for new barracks in
    this budget, 89 percent of our requirement will be funded at the
    ``1+1'' or equivalent standard.
        We are requesting the second increment of funding, $135 million,
    for four previously approved, incrementally funded, multiple-phased
    barracks complexes. In addition, we are requesting full authorization
    of $408 million for an incrementally funded brigade complex, but only
    requesting $102 million in appropriations for this project in fiscal
    year 2007. Our plan is to award this complex subject to subsequent
    appropriations, as single contracts to gain cost efficiencies, expedite
    construction, and provide uniformity in like facility types. The fiscal
    year 2007 budget also includes a $26 million physical fitness center,
    which incorporates a child development center, and eight additional
    child development centers for $68 million. This will provide more than
    1,800 child spaces to allow soldiers to focus on their missions,
    knowing their families are being provided for.
        Overseas Construction. Included in this budget request is $526
    million in support of high-priority overseas projects. In Germany, we
    continue our consolidation of units to Grafenwoehr as part of our
    Efficient Basing--Grafenwoehr initiative. This is our fifth and next to
    last year of funding. Funding requested this year will bring us to 89
    percent funded for this initiative. This initiative allows us to close
    numerous installations as forces relocate to the U.S. and within Europe
    saving base support and enhancing training. In Korea, we are again
    requesting funds to further our relocation of forces on the peninsula.
    This action is consistent with the Land Partnership Plan agreements
    entered into by the U.S. and Republic of Korea Ministry of Defense. Our
    request for funds in Italy is IGPBS related and relocates forces from
    Germany to Vicenza to create a full Airborne BCT as part of the Army's
    transformation to a modular force. The Airborne BCT complex also
    includes new barracks to house 570 soldiers. Additional locations in
    Germany will close as construction is completed.
        Current Readiness Projects. Projects in our fiscal year 2007 budget
    will enhance training and readiness by providing deployment and
    maintenance facilities, brigade complexes and headquarters, other
    operational and administration facilities, and an overseas Forward
    Operating Site base camp for $34.8 million that will provide a brigade
    (minus)-sized operational facility to support rotational training,
    allow for increased U.S. partnership training, and promote new military
    to military relationships.
        We will also construct a battle seminar facility, combined arms
    collective training facilities, shoot houses, digital multipurpose
    training ranges, and purchase land to support collective training.
    These facilities will provide our soldiers realistic, state-of-the-art
    live-fire training. We are requesting a total of $613 million for these
    high-priority projects. We are also requesting the second and final
    phase of funding of $13 million for a defense access road.
        Army Modular Force Projects. Our budget supports transformation of
    the Army to a modern, strategically responsive force. Our budget
    request contains $276 million for five brigade complexes and other
    facilities. Additionally, there are eight child development centers,
    and new barracks to house 1,130 soldiers in support of the Army Modular
    Force.
        Other Support Programs. The Fiscal Year 2007 MCA budget includes
    $192 million for planning and design of future projects. As executive
    agent, we also provide oversight of design and construction for
    projects funded by host nations. The fiscal year 2007 budget requests
    $21 million for oversight of approximately $800 million of host nation
    funded construction for all Services in Japan, Korea, and Europe.
        The fiscal year 2007 budget also contains $23 million for
    unspecified minor construction to address unforeseen critical needs or
    emergent mission requirements that cannot wait for the normal
    programming cycle.
                   military construction, army national guard
        The Army National Guard's Fiscal Year 2007 Military Construction
    request for $473,197,000 (for appropriation and authorization of
    appropriations) is focused on Current Readiness, Transformation, and
    other support and unspecified programs.
        Current Readiness. In fiscal year 2007, the Army National Guard has
    requested $161 million for eight projects to support current readiness.
    These funds will provide the facilities our soldiers require as they
    train, mobilize, and deploy. Included are four maintenance facilities,
    two training projects, one Readiness Center, and an Armed Forces
    Reserve Center.
        Army Modular Force. This year, the Army National Guard is
    requesting $234 million for 32 projects in support of our new missions.
    There are 12 projects for the Stryker Brigade Combat Team initiative, 8
    for our Army Division Redesign Study, 7 Range projects to support the
    Army Range and Training Land Strategy, and 5 Aviation Transformation
    projects to provide facilities for modernized aircraft and change unit
    structure.
        Other Support Programs. The Fiscal Year 2007 Army National Guard
    budget also contains $57 million for planning and design of future
    projects and $21 million for unspecified minor military construction to
    address unforeseen critical needs or emergent mission requirements that
    cannot wait for the normal programming cycle.
                      military construction, army reserve
        The Army Reserve's Fiscal Year 2007 Military Construction request
    for $166,487,000 (for appropriation and authorization of
    appropriations) is for Current Readiness and other support and
    unspecified programs.
        Current Readiness. In fiscal year 2007, the Army Reserve will
    invest $125.1 million to construct five new Army Reserve Centers and
    two Armed Forces Reserve Centers; and invest $13.7 million to construct
    a general purpose warehouse--for a total facility investment of $138.8
    million. Construction of the seven Reserve Centers will support over
    3,800 Army Reserve soldiers and civilian personnel. In addition, the
    Army Reserve will invest $5.2 million to construct three training
    ranges, which will be available for joint use by all Army components
    and military services.
        Other Unspecified Programs. The Fiscal Year 2007 Army Reserve
    budget request includes $19.5 million for planning and design for
    future year projects and $3.0 million for unspecified minor military
    construction to address unforeseen critical needs or emergent mission
    requirements that cannot wait for the normal programming cycle.
                    army family housing construction (afhc)
        The Army's fiscal year 2007 family housing request is $594,991,000
    (for authorization, authorization of appropriation, and appropriation).
    It continues the successful Whole Neighborhood Revitalization
    initiative approved by Congress in fiscal year 1992 and our Residential
    Communities Initiative (RCI) program.
        The fiscal year 2007 new construction program provides Whole
    Neighborhood replacement projects at five locations in support of 538
    families for $241.8 million using traditional military construction.
        The Construction Improvements Program is an integral part of our
    housing revitalization and privatization programs. In fiscal year 2007,
    we are requesting $180.1 million for improvements to 1,084 existing
    units at 4 locations in the United States and 3 locations in Europe, as
    well as $156.8 million for scoring and direct equity investment in
    support of the privatization of 1,615 units at 5 RCI locations.
        In fiscal year 2007, we are also requesting $16.3 million for
    planning and design for future family housing construction projects
    critically needed for our soldiers.
        Privatization. RCI, the Army's Family Housing privatization
    program, is providing quality, sustainable housing and communities that
    our soldiers and their families can proudly call home. This highly
    successful program is a critical component of the Army's effort to
    eliminate inadequate family housing in the United States. The fiscal
    year 2007 budget request of $156.8 million provides equity investment
    to privatize housing at two installations and revise development plans
    to build new housing at three previously privatized installations.
        We are leveraging appropriated funds and Government assets by
    entering into long-term partnerships with nationally recognized private
    sector real estate development/management and homebuilder firms to
    obtain financing and management expertise to construct, repair,
    maintain, and operate family housing communities.
        The RCI program currently includes 43 installations with a
    projected end state of over 82,000 units--over 90 percent of the family
    housing inventory in the United States. The Army has privatized over
    60,000 homes through December 2005, and by the end of fiscal year 2007,
    we will have privatized housing at 36 installations with an end state
    of more than 76,000 homes.
                     army family housing operations (afho)
        The Army's fiscal year 2007 family housing operations request is
    $676,829,000 (for appropriation and authorization of appropriations),
    which is approximately 53 percent of the total family housing budget.
    This account provides for annual operations, municipal-type services,
    furnishings, maintenance and repair, utilities, leased family housing,
    demolition of surplus or uneconomical housing, and funds supporting
    management of the Military Housing Privatization Initiative.
        Operations ($125 million). The operations account includes four
    subaccounts: management, services, furnishings, and a small
    miscellaneous account. All operations subaccounts are considered ``must
    pay accounts'' based on actual bills that must be paid to manage and
    operate family housing.
        Utilities ($106 million). The utilities account includes the costs
    of delivering heat, air conditioning, electricity, water, and
    wastewater support for family housing units. While the overall size of
    the utilities account is decreasing with the reduction in supported
    inventory, per-unit costs have increased due to general inflation and
    the increased costs of fuel.
        Maintenance and Repair ($205 million). The maintenance and repair
    (M&R) account supports annual recurring projects to maintain and
    revitalize family housing real property assets. Since most Family
    Housing operational expenses are fixed, M&R is the account most
    affected by budget changes. Funding reductions result in slippage of
    maintenance projects that adversely impact soldier and family quality
    of life.
        Leasing ($215 million). The leasing program provides another way of
    adequately housing our military families. The fiscal year 2007 budget
    includes funding for 12,091 housing units, including existing Section
    2835 (``build-to-lease''--formerly known as 801 leases) project
    requirements, temporary domestic leases in the United States, and 6,387
    units overseas.
        RCI Management ($26 million). RCI management program provides
    operating funds for the privatization of military family housing. RCI
    costs include pay and travel of Army personnel, selection of private
    sector partners, environmental studies, real estate surveys,
    consultants to assist with developing and implementing projects, and
    oversight and analyses of the privatized housing portfolio.
                           operation and maintenance
        The Fiscal Year 2007 Operation and Maintenance budget includes
    $2.384 billion in funding for Sustainment, Restoration, and
    Modernization (S/RM), $30.6 million for demolition, and $6.396 billion
    in funding for Base Operations Support (BOS). The S/RM and BOS accounts
    are inextricably linked with our Military Construction programs to
    successfully support our installations. The Army has centralized the
    management of its installations assets under the Installation
    Management Agency to best utilize this funding.
        Sustainment, Restoration, and Modernization (S/RM). S/RM provides
    funding for the Active and Reserve components to prevent deterioration
    and obsolescence and restore the readiness of facilities on our
    installations.
        Sustainment is the primary account in installation base support
    funding responsible for maintaining the infrastructure to achieve a
    successful readiness posture for the Army's fighting force. It is the
    first step in our long-term facilities strategy. Installation
    facilities are the mobilization and deployment platforms of America's
    Army and must be properly maintained to be ready to support current
    missions and future deployments.
        The second step in our long-term facilities strategy is
    recapitalization by restoring and modernizing our existing facility
    assets. Restoration includes repair and restoration of facilities
    damaged by inadequate sustainment, excessive age, natural disaster,
    fire, accident, or other causes. Modernization includes alteration or
    modernization of facilities solely to implement new or higher
    standards, including regulatory changes to accommodate new functions,
    or to replace building components that typically last more than 50
    years, such as foundations and structural members.
        Base Operations Support. This account funds programs to operate the
    bases, installations, camps, posts, and stations for the Army
    worldwide. The program includes municipal services, government civilian
    employee salaries, family programs, environmental programs, force
    protection, audio/visual, base communication services, and installation
    support contracts. Army Community Service and Reserve component family
    programs include a network of integrated support services that directly
    impact soldier readiness, retention, and spouse adaptability to
    military life during peacetime and through all phases of mobilization,
    deployment, and demobilization.
                      homeowners assistance fund, defense
        The Army is the DOD Executive Agent for the Homeowners Assistance
    Program (HAP). This program provides assistance to eligible military
    and civilian employee homeowners by providing some financial relief
    when they are not able to sell their homes under reasonable terms and
    conditions as a result of DOD announced closures, realignments, or
    reduction in operations when this action adversely affects the real
    estate market. For fiscal year 2007, HAP will maintain a baseline
    program. The fiscal year 2007 baseline program will be sustained with
    prior year unobligated funds and revenue from sales of acquired
    properties. The HAP baseline program assistance will be continued for
    personnel at installations that are impacted by non-BRAC DOD closure or
    realignment activities resulting in adverse economic effects on local
    communities.
                                    summary
        Mr. Chairman, our fiscal year 2007 budget is a balanced program
    that supports our soldiers and their families, the global war on
    terrorism, Army transformation, readiness, BRAC 2005, and DOD
    installation strategy goals. We are proud to present this budget for
    your consideration because of what this $7.63 billion fiscal year 2007
    budget will provide for our Army:

             New barracks for 7,150 soldiers
             New housing for 1,622 families
             Management of 76,668 privatized homes
             Operation and sustainment of 45,454 government-owned
            and leased homes
             New or improved Readiness Centers for over 3,300 Army
            National Guard soldiers
             New Reserve Centers for 3,800 Army Reserve soldiers
             $175 million investment in training ranges
             Facilities support for two Stryker Brigades
             Facilities support for the Integrated Global Presence
            and Basing Strategy, European Theater
             Facilities support for six Modular Force
            Transformations

        Our long-term strategies for installations will be accomplished
    through sustained and balanced funding, and with your support, we will
    continue to improve soldier and family quality of life, while remaining
    focused on Army and Defense transformation goals.
        In closing, we would like to thank you again for the opportunity to
    appear before you today and for your continued support for America's
    Army.

        Senator Ensign. Thank you.
        Secretary Penn.

     STATEMENT OF HON. B.J. PENN, ASSISTANT SECRETARY OF THE NAVY
                   FOR INSTALLATIONS AND ENVIRONMENT

        Mr. Penn. Thank you. Mr. Chairman, distinguished members of
    the subcommittee: I am honored to represent the sailors,
    marines, and civilians who serve in harm's way, along with
    those who provide critical support roles to defend our freedom
    in far away places in difficult conditions.
        Sir, you asked for brevity, so I am going to be very brief.
    I recognize the concern by some Members of Congress and
    communities regarding whether the substantial revenues DOD has
    obtained from the sale of prior BRAC property, that is property
    closed under the four previous BRAC rounds in 1988, 1991, 1993,
    and 1995, will lead us to seek property sale as a primary or
    exclusive disposal method for BRAC 2005. I want to emphasize
    that we will tailor a disposal strategy for each individual
    closing base in close consultation with the local community. We
    will not resort to an exclusive one-size-fits-all pursuit and
    public sale.
        I look forward to working with the members of this
    committee on issues of mutual concern.
        [The prepared statement of Mr. Penn follows:]

                      Prepared Statement by Hon. B.J. Penn

        Mr. Chairman and members of the subcommittee, I am pleased to
    appear before you today to provide an overview of the Department of
    Navy's shore infrastructure.
        The Navy-Marine Corps team continues to operate in a complex,
    uncertain, and threatening global security environment. We must
    capitalize on our strengths as a rotational, forward-deployed, surge-
    capable force if we are to meet the challenges of a new era. We
    demonstrated our capabilities last year as we continued efforts to win
    the global war on terror while responding to major natural disasters,
    the Indonesian Tsunami and Hurricane Katrina, while continuing recovery
    efforts from Hurricane Ivan in 2004. We have a well skilled, highly
    motivated military, civilian, and contract workforce; with the help of
    this committee, we must provide them the necessary tools to accomplish
    the mission.
                           hurricane recovery efforts
    Hurricane Ivan
        Ivan ravaged the Florida panhandle in mid-September 2004, damaging
    570 housing units, 850 structures, and destroying 100 buildings across
    Naval Air Station (NAS) Pensacola and NAS Whiting Field. A facilities
    task force, led by Rear Admiral Shear, worked rapidly to restore
    critical mission capabilities and initiated the deliberate planning
    required to restore both bases.
        As we look back, the Hurricane Ivan recovery is a tremendous
    success story. In parallel with initial recovery actions, we sought not
    simply to rebuild, but to reshape our facilities footprint to improve
    operational effectiveness, consolidate functions, and eliminate on-base
    excess capacity. Using the Navy Ashore Vision 2030 as a guiding vision
    and other strategic host and tenant planning documents, we project an
    overall 900,000 square foot reduction, along with reduced operating and
    maintenance costs, and efficiency improvements such as consolidating
    like functions from damaged facilities, and relocating destroyed
    facilities to more storm resistant locations.
        The Fiscal Year 2005 Disaster Supplemental provided $468 million in
    operations and maintenance (O&M) and $139 million military construction
    funds for our recovery efforts. We have obligated all O&M funds, and
    five of the eight planned construction projects. We plan to award the
    remaining three construction projects by May 2006. Despite additional
    damage from Hurricane Katrina, NAS Pensacola and Whiting Field are
    fully mission capable.
    Hurricane Katrina
        Hurricane Katrina and subsequent storms severely impacted seven
    major bases, destroying buildings, rendering thousands homeless, and
    effectively shutting down operations for weeks while recovery began in
    earnest. Less than 20 percent of the 1,160 buildings across the seven
    affected bases escaped damage. Using techniques developed after
    Hurricane Ivan, we were prepared to promptly initiate recovery actions
    to ensure mission requirements were met while being good stewards of
    taxpayer funds.
        The Department of Navy has received $1.5 billion in O&M funds, of
    which $853 million provided immediate facility and base support needs.
    Over 60 percent of these funds have been obligated to date. We have
    received an additional $411 million in military construction to support
    34 construction projects. We expect to award all of these construction
    projects by the end of this fiscal year and I am confident that our
    facility execution is on pace to meet requirements and support recovery
    efforts.
        The administration recently requested a fourth Supplemental for
    Hurricane Recovery, which included $43 million in O&M and $78 million
    military construction. These funds will replace collateral equipment,
    complete facility repairs, and provide military construction funds at
    Naval Air Station Joint Reserve Base, Belle Chase, LA; Construction
    Battalion Center, Gulfport, MS; and John C. Stennis Space Center, MS.
    This supplemental request also includes important fund transfer
    authority that will allow us to more effectively use available funds as
    we continue recovery efforts.
    Task Force Navy Family
        The devastation to our infrastructure wrought by the recent spate
    of hurricanes has also left a wide swath of devastation in the personal
    lives of our military, civilian, retirees and their families as they
    tackle their own recovery efforts. The Navy established Task Force Navy
    Family immediately after the hurricane to provide personalized
    assistance to help our Navy family members return to a sense of
    normalcy. A case manager helps family and service members on all
    aspects of personal recovery, from securing accommodations, replacing
    vital documents, filing insurance claims, or reuniting with their pets.
    As we transition Task Force Navy Family functions into our existing
    Navy personnel support architecture, we will continue to help each
    member and family through this time of crisis until all needs are met.
                      the navy's investment in facilities
        The Department of Navy's shore infrastructure is a critical factor
    in determining our operational capabilities and shaping our security
    posture. It's where we train and equip the world's finest sailors and
    marines, while developing the most sophisticated weapons and
    technologies. The Department of Navy manages a shore infrastructure
    with a plant replacement value of $180 billion on 4 million acres. Our
    fiscal year 2007 shore infrastructure budget totals $10.3 billion,
    representing about 8 percent of the Department of Navy's fiscal year
    2007 request of $127 billion.
        The Base Operating Support request of $5.0 billion, excluding
    environmental, comprises the largest portion of the Navy's facilities
    budget request. This account funds the daily operations of a shore
    facility, e.g., utilities, fire and emergency services; air and port
    operations; community support services; and custodial costs.

        Our request for fiscal year 2007 of $5.0 billion reflects a $321
    million increase from the enacted fiscal year 2006 level. This change
    is due in part to pricing changes as well as transfer of Norfolk and
    Portsmouth Naval Shipyards to mission funding.
        Fiscal year 2007 military construction request of $1.2 billion is
    the same as the enacted fiscal year 2006 level. The request includes
    $48 million for Navy and Marine Corps Reserve construction efforts.
    This level of funding keeps us on track to eliminate inadequate
    bachelor housing, and provides critical operational, training, and
    mission enhancement projects.
        While our fiscal year 2007 Family Housing request of $814 million
    is about the same as fiscal year 2006 enacted level of $808 million,
    there are substantial changes within the account: construction funds
    increase, including seed funds for Navy and Marine Corps privatization,
    and O&M funds decline as Government-owned inventory falls by 4,820
    homes due to privatization.
        Sustainment, Restoration, and Modernization (S/RM) includes
    military construction and operation and maintenance funds. Our fiscal
    year 2007 request of $1.7 billion represents only the amount of S/RM
    funded with O&M, and is $192 million below the enacted fiscal year 2006
    level due to efficiencies.
        Our $897 million environmental program at active and Reserve bases
    is comprised of operating and investment appropriations, which combined
    are $31 million below the fiscal year 2006 enacted level. Most of the
    reduction is due to reduced shipboard procurement needs and not
    continuing one-time congressional adds in research and technology
    development.
        Our BRAC program consists of environmental cleanup and caretaker
    costs at prior BRAC locations, and implementation of BRAC 2005
    recommendations.

             Our prior BRAC request is $334 million, an increase of
            $31 million over our fiscal year 2006 program of $303 million.
            The entire prior BRAC effort is financed with revenue obtained
            from the sale of prior BRAC properties.
             This fiscal year 2007 budget continues to implement
            the BRAC 2005 recommendations. The Department of Defense (DOD)
            recently submitted the fiscal year 2006 plan to Congress,
            including $247 million for the Department of Navy. The fiscal
            year 2007 request rises to $690 million.

        Here are some of the highlights of these programs.
                             military construction
    Military Construction Projects
        The Department of Navy's fiscal year 2007 Military Construction
    program requests appropriations of $1.2 billion including $67.8 million
    for planning and design and $9 million for Unspecified Minor
    Construction. The authorization request totals $825.6 million. The Navy
    and Marine Corps Reserve Military Construction appropriation request is
    $48.4 million.
        The active Navy program consists of:

             $85 million for four quality of life projects for
            Homeport Ashore, Great Lakes Recruit Training Command
            recapitalization and the Naval Academy.
             $348 million for 10 waterfront and airfield projects.
            $207 million of this is for six projects supporting new weapons
            platforms such as H60R/S, SSGN, F/A 18 E/F/G, and T-AKE.
             $48 million for four special weapons protection
            projects.
             $88 million for six Operational Support projects such
            as the Joint Deployment Communications Center in Norfolk, VA.
             $29 million for two Research, Development, Testing,
            and Evaluation (RDTE) projects supporting new VXX and MMA
            weapons platforms; and
             $30 million for three training facilities supporting
            simulators for MH60 and a Damage Control Wet Trainer.

        The active Marine Corps program consists of:

             $180 million for five bachelor quarters, three dining
            facilities, and a battle aid station;
             $85 million for seven operations and training
            facilities;
             $33 million for continuing an environmental compliance
            project at Marine Corps Base Camp Pendleton;
             $60 million to provide six maintenance facilities at
            Marine Corps Air Station New River, Camp Pendleton, CA; and
            Marine Corps Air Ground Task Force Center Twentynine Palms, CA;
             $51 million for a variety of projects including land
            acquisition, armories, a missile magazine, ammunition supply
            point upgrades, and a fire station; and
             $62 million for the final settlement for acquiring
            Blount Island property.

        The Navy and Marine Corps Reserve program consists of two
    Administrative and Boat Storage Facilities for Inshore Boat Units, five
    Reserve Centers, and an Aviation Joint Ground Support Facility.
    Incremental funding of Military Construction Projects
        Military construction projects are said to be incrementally funded
    when full authorization and only partial appropriation is sought in the
    first year. None of the annual appropriation requests provide a
    ``complete and usable'' portion of the facility. The Office of
    Management and Budget directed a new policy beginning with the fiscal
    year 2007 budget submission that permits incremental funding of new
    construction projects only on an exception basis. Previously approved
    incrementally funded projects, and construction projects for BRAC are
    exempted. This new policy replaces the previous policy, which allowed
    incremented projects in part if the cost exceeded $50 million and
    construction was expected to exceed 2 years. Our fiscal year 2007
    budget request includes only one new incrementally funded project, the
    National Maritime Intelligence Center.
        Marine Corps Special Operations Command (MARSOC)
        On 28 October 2005, the Secretary of Defense approved a Marine
    component within the Special Operations Command. The new Marine
    component will provide approximately 2,600 Marine and Navy billets
    within U.S. Special Operations Command (SOCOM), led by a Marine
    Brigadier General. The MARSOC will conduct direct action, special
    reconnaissance, counterterrorism and foreign internal defense. MARSOC
    will have an initial operational capability this fall and full
    operational capability by 2010. The budget request includes $152
    million for construction projects at Camp Lejeune and Camp Pendleton
    for the standup of MARSOC.
    Certification of fiscal year 2007 construction costs
        The conference report accompanying the Military Quality of Life and
    Veterans Affairs Appropriations Act of 2006 directed each assistant
    secretary with responsibility for installations to certify that the
    impact of natural disasters on project costs had been considered in
    preparing the budget submission. Our fiscal year 2007 military
    construction request includes a directed 3.1 percent inflation cost
    adjustment. While we have been experiencing up to a 30-percent cost
    increase for construction costs in the Southeast and Gulf Coast, our
    fiscal year 2007 request contains relatively few projects in this area.
    We expect that labor and material costs will stabilize by the time
    these projects are ready to be executed in fiscal year 2007.
                             facilities management
    Facilities Sustainment, Restoration, and Modernization (SRM)
        DOD uses a sustainment model to calculate life-cycle facility
    maintenance and repair costs. These models use industry-wide standard
    costs for various types of building and geographic areas and are
    updated annually. Sustainment funds in the operation and maintenance
    accounts are used to maintain facilities in their current condition.
    The funds also provide for preventative maintenance, emergency
    responses for minor repairs, and major repairs or replacement of
    facility components (e.g. roofs, heating and cooling systems) that have
    reached the end of their service life. Both the Navy and the Marine
    Corps are budgeting and nearly achieving the DOD goal of 95 percent
    sustainment.

        Restoration and modernization provides major recapitalization of
    our facilities using Military Construction, Operation and Maintenance,
    Navy Working Capital Fund, and Military Personnel funds. The ``recap''
    metric is calculated by dividing the plant replacement value by the
    annual investment of funds and it is expressed as numbers of years. The
    DOD goal is to attain a 67-year rate by fiscal year 2008. This is a
    relatively coarse metric, as demonstrated by the dramatic improvement
    in execution from the substantial investment of the fiscal year 2005/
    2006 Hurricane Supplemental, which substantially improved only those
    bases affected by the storm. We are working with the Office of the
    Secretary of Defense and the other components to develop a recap model
    similar to the sustainment model.

    Base Operating Support Models
        The Navy uses business-based models and capabilities based approach
    to budget for Base Operating Support costs. The models use defined
    metrics and unit costs that are benchmarked against historic
    performance and industry standards, and link resources to definable,
    variable levels of outputs. Funding requirements are identified for at
    least three levels of output (or capability level) for each major shore
    service and support function, and the cost and risk of each output
    level. This new CBB process allows us to set funding levels on needed
    output levels, deliverables, and associated risks rather than prior
    funding levels. In a resource-constrained environment, it is imperative
    that we program, budget and execute the right resources at the right
    time for the right service.
    Naval Safety
        Navy Secretary Winter has continued former Navy Secretary England's
    commitment to making mishap reduction one of the top five Department of
    Navy performance objectives. We want safety to be an active--not
    passive--aspect of our work and play. In addition to keeping our people
    safe, there are substantial cost avoidance through robust risk
    management. Fiscal year 2005 produced solid progress in Navy and Marine
    Corps mishap reduction. At the end of fiscal year 2005, we performed
    better than the 5-year average in two-thirds of the mishap categories.
        One very successful effort has been the Occupational Safety and
    Health Administration (OSHA) Voluntary Protection Program (VPP), which
    focuses on management leadership and employee involvement teaming
    together to improve safety. Portsmouth, VA; Norfolk, VA; and Puget
    Sound, WA, naval shipyards have successfully achieved VPP STAR
    recognition from OSHA, while Pearl Harbor Naval Shipyard's application
    is under review. Lost workday rates due to injury have been reduced by
    50 percent at Norfolk and 60 percent at Puget Sound in 3 years, 37
    percent at Pearl Harbor in 2 years, and Portsmouth has consistently
    exceeded the DOD 50 percent mishap reduction goal.
        Facilities Management Consolidation
        Commander, Navy Installations (CNI) has now successfully completed
    its second year and has made significant improvements to Navy shore
    services. Among the many significant CNI efforts this year was the
    hurricane disaster recovery response in the Gulf Coast Region. Recovery
    and assessment teams responded promptly to restore infrastructure, make
    immediate repairs and capture critical data to plan for long-term
    rebuilding of devastated bases like the Seabee Base in Gulfport, MS;
    Stennis Space Center in Bay St. Louis, MS; naval bases in New Orleans
    as well as several Reserve centers in the Gulf Region.
        Similarly, the Marine Corps is transforming its bases from
    singularly managed and resourced entities to ones strategically managed
    in geographic regions. Our bases and stations (except recruit training
    depots) will fall under the direction of five Marine Corps Installation
    Commands with the majority of the installations under the oversight of
    Marine Corps Installation Command--East and Marine Corps Installation
    Command--West. Regionalization will enhance warfighter support, improve
    alignment, enhance the use of regional assets, return Marines to the
    Operating Forces, and reduce costs.
    Encroachment mitigation
        We are successfully applying the recent authority to enter into
    agreements with state and local governments and eligible non-government
    organizations to address potential development near our installations
    and ranges that could limit our ability to operate and train. In the
    past 2 years, we have acquired restrictive easements from willing
    sellers covering over 3,360 acres in the vicinity of Marine Corps Base,
    Camp Lejeune, NC; Marine Corps Air Station, Beaufort, SC; Mountain
    Warfare Training Facility, La Posta, CA; Naval Air Station, Pensacola,
    FL; and Outlying Landing Field, Whitehouse, FL. We have used our
    operation and maintenance funds and DOD Readiness and Environmental
    Protection Initiative (REPI) funds. Our partners have used our
    contributions together with their own resources to acquire property
    interests from willing sellers and re-conveyed restrictive easements to
    us.
        We expect that this program will continue to grow. Navy and Marine
    Corps are developing service-wide encroachment management programs to
    guide future priorities. Marine Corps is participating in conservation
    forums across the country with a variety of state and local governments
    and conservation organizations. The fiscal year 2007 President's budget
    includes $8.5 million for Navy and $5 million for Marine Corps
    encroachment protection initiatives, and we expect allocation of a
    share of the fiscal year 2007 $20 million REPI funds.
        Energy
        Through the end of fiscal year 2005, the Department of Navy reduced
    its energy consumption, compared to a fiscal year 1985 baseline, by
    nearly 30 percent, thus meeting Executive Order 13123 goals.
        Last year the Navy opened a wind/diesel power plant at Naval
    Station Guantanamo Bay, Cuba. The four--950 KW windmills generate 30
    percent of the base's electrical needs. The Navy also awarded a
    geothermal power plant at NAS Fallon, NV, that will generate a minimum
    of 30 MW of power. Similar to the Navy's existing 270 MW geothermal
    power plant at Naval Air Warfare Center, China Lake, CA, these power
    plants generate electricity from the earth's heat without creating
    pollution. The Navy is testing a wave power buoy off Marine Corps Base,
    Kaneohe, HI, and is finalizing the design of an Ocean Thermal Energy
    Conversion (OTEC) plant off Diego Garcia that will produce the island's
    electrical and potable water requirements using the temperature
    difference between warm surface water and cold, deep ocean water. These
    projects will reduce the Department of Navy's use of foreign oil,
    reduce greenhouse gas production, and improve energy security.
                                    housing
        Our fiscal year 2007 budget continues progress in improving living
    conditions for sailors, marines, and their families. We have programmed
    the necessary funds and expect to have contracts in place by the end of
    fiscal year 2007 to eliminate all of our inadequate family and
    virtually all inadequate unaccompanied housing.
    Family Housing
        Our family housing strategy consists of a prioritized triad:

             Reliance on the Private Sector. In accordance with
            longstanding DOD and DoN policy, we rely first on the local
            community to provide housing for our sailors, marines, and
            their families. Approximately three out of four Navy and Marine
            Corps families receive a Basic Allowance for Housing and own or
            rent homes in the community.
             Public/Private Ventures (PPVs). With the strong
            support from this Committee and others, we have successfully
            used statutory PPV authorities enacted in 1996 to partner with
            the private sector to help meet our housing needs through the
            use of private sector capital. These authorities allow us to
            leverage our own resources and provide better housing faster to
            our families.
             Military Construction. Military construction will
            continue to be used where PPV authorities don't apply (such as
            overseas), or where a business case analysis shows that a PPV
            project is not financially sound.

        As of March 1, we have awarded 19 projects totaling over 38,000
    units. As a result of these projects, over 24,000 homes will be
    replaced or renovated. Additionally, close to 3,000 homes will be
    constructed for Navy and Marine Corps families. Through the use of
    these authorities we have secured about $4 billion in private sector
    investment from $453 million of our funds for the 19 projects. This
    represents a leverage ratio of over nine to one.
        During fiscal year 2006 and 2007, we plan to award 10 Navy and
    Marine Corps family housing privatization projects totaling almost
    28,000 homes. By the end of fiscal year 2007, the Navy and Marine Corps
    will have privatized 97 percent and 98 percent, respectively, of their
    U.S. housing stock.
        Our fiscal year 2007 family housing budget request includes $305
    million for family housing construction and improvements. This amount
    includes $175 million proposed for use as a Government investment in
    family housing privatization projects planned for fiscal year 2007
    award. It also includes the replacement or revitalization of inadequate
    housing located at locations where privatization is not planned, most
    notably Guam and Japan. Finally, the budget request includes $509
    million for the operation, maintenance, and leasing of Government-owned
    inventory.

    Unaccompanied Housing
        Our budget request of $207 million for unaccompanied housing
    construction projects continues the emphasis on improving living
    conditions for our unaccompanied sailors and marines. There are three
    challenges:

              1. Provide Homes Ashore for our Shipboard Sailors. There are
            approximately 13,000 E1-E3 unaccompanied sailors worldwide who
            live aboard ship even while in homeport. The Navy's goal
            remains to program funding through fiscal year 2008 to achieve
            its' ``homeport ashore'' initiative by providing ashore living
            accommodations for these sailors. We intend to achieve this
            goal through a mix of military construction, use of
            privatization authorities and, for the interim, more intensive
            use of our unaccompanied housing capacity by assigning two or
            more sailors per room. Our fiscal year 2007 budget includes one
            ``homeport ashore'' construction project for $21 million to
            complete Naval Station Everett, WA (410 spaces).
              2. Ensure our Barracks Meet Today's Standards for Privacy. We
            are building new and modernizing existing barracks to increase
            privacy for our single sailors and marines. The Navy uses the
            ``1+1'' standard for permanent party barracks. Under this
            standard, each single junior sailor has a private sleeping area
            and shares a bathroom and common area with another member. To
            promote unit cohesion and team building, the Marine Corps was
            granted a waiver to adopt a ``2+0'' configuration where two
            junior marines share a room with a bath. The Navy will achieve
            these barracks construction standards by fiscal year 2016; the
            Marine Corps by fiscal year 2012. We have also been granted a
            waiver to the ``1+1'' standard to allow us to build an enlisted
            unaccompanied housing project in Norfolk to private sector
            standards. We believe this will provide better housing for
            unaccompanied sailors without increasing the average housing
            cost.
              3. Eliminate gang heads. The Marine Corps has programmed all
            necessary funding, through fiscal year 2005, to eliminate
            inadequate unaccompanied housing with gang heads \1\ for
            permanent party personnel. The Navy will achieve over 99
            percent of this goal by fiscal year 2007.
    ---------------------------------------------------------------------------
        \1\Gang heads remain acceptable for recruits and trainees.
    ---------------------------------------------------------------------------
    Unaccompanied Housing Privatization
        We continue to pursue unaccompanied housing pilot privatization. We
    are in exclusive negotiations with a private partner for our first
    pilot project at San Diego. This project would build 700 apartments for
    unaccompanied E4s and above and privatize 254 existing Government-owned
    unaccompanied housing modules. Although the construction of new units
    does not directly target the Homeport Ashore requirement (unaccompanied
    E1-E3s assigned to sea duty), it will help by freeing up existing rooms
    as other sailors move out of Government-owned unaccompanied housing and
    move into privatized housing. We expect to award this project this
    spring.

        We have also started procurement for a second pilot project at
    Hampton Roads, Virginia. This project would build 725 apartments at up
    to 3 different sites and privatize 806 existing unaccompanied housing
    modules. All housing will be targeted to unaccompanied shipboard E1-E3
    personnel. We recently selected four highly qualified teams and invited
    them to submit detailed technical and financial proposals. We expect to
    award this project in April 2007.
        Last year we were evaluating the Pacific Northwest as a third pilot
    site. We have since concluded that the Pacific Northwest is not viable
    because the requirement is linked with one large ship (unlike San Diego
    and Hampton Roads which are fleet concentration areas), the private
    partner cannot recapitalize the housing over the long-term given
    projected cash flows. We will now proceed to use the fiscal year 2005
    appropriated and authorized funds as a MILCON project at Bremerton. We
    are evaluating opportunities at other locations.
                                  environment
    Marine Mammals/Sonar R&D investments
        The Navy recognizes the need to protect marine mammals from
    anthropogenic sound in the water and has budgeted $10 million in fiscal
    year 2006 and 2007 for research and development efforts. Funding will
    focus on techniques to track the location of marine mammals, their
    abundance and movement (particularly beaked whales); determining sound
    criteria and thresholds; and developing new mitigation and monitoring
    techniques. The Navy has expanded its research on the effects of mid-
    frequency sonar to include effects on fish. Navy's Protective Measures
    Assessment Protocol (PMAP) has become a routine operating procedure
    during all exercises. PMAP measures include surface vessels using
    trained look-outs in marine mammal areas, and submarines monitoring
    passive acoustic detection for vocalizing marine mammals.
    Shipboard Programs
        The Navy continues to convert air conditioning and refrigeration
    plants on its surface fleet from ozone depleting CFCs to
    environmentally friendly coolants. We plan to spend a total of $400
    million on this effort, including $22 million in fiscal year 2007. We
    expect to complete the conversion of nearly 900 CFC-12 plants by 2008,
    and over 400 CFC-114 plants by 2014.
        The Navy has also been installing pollution prevention equipment on
    16 ship classes. We will have spent $35 million to install suites of
    pollution prevention equipment (e.g., aqueous parts washers, cable
    cleaners/lubricators, paint dispensers) on ships upon completion this
    September.
    Natural and Cultural Resources
        The Department spends about $30 million per year on natural and
    cultural resources at Navy and Marine Corps installations. Resources
    are invested in preparing, updating, and implementing Integrated
    Natural Resources Management Plans (INRMPs). Protecting threatened and
    endangered species and their habitats is a major aspect of the INRMPS
    at many bases. The National Defense Authorization Act for Fiscal Year
    2004 included a provision that allowed the Secretary of Interior to
    forgo designation of critical habitat on military lands upon a
    determination that the INRMP provided sufficient species and habitat
    protection. I am pleased to report that all final critical habitat
    designations since 2004 have excluded designations on Navy and Marine
    Corps property.
        Our cultural resources provide a tangible link with our past while
    supporting the mission of today's Navy and Marine Corps warfighters.
    Both Navy and Marine Corps are developing Cultural Resources Management
    Plans similar to INRMP. A major effort is to prepare broad based
    programmatic alternatives to case-by-case consultation similar to the
    highly successful program comments on Capehart-Wherry era family
    housing. DON is also working to expand its efforts to make cultural
    resources management an integral part of our broader asset management
    program.
    Alternative Fuel Vehicles
        In fiscal year 2005 the Department of the Navy (DoN) met or
    exceeded the Alternative Fuel Vehicle (AFV) acquisition mandates from
    the Energy Policy Act and Executive Order 13149. The DoN was named
    winner of the National Biodiesel Board's National Energy Security Award
    and the U.S. Marine Corps won a White House Closing the Circle Award
    for meeting Executive Order 13149 requirements 3 years earlier than
    required. Among the AFV related initiatives are increased use of
    Biodiesel (B-20), increased fleet fuel economy, increased procurement
    of hybrid vehicles and increased use of neighborhood vehicles. Ethanol
    (E-85) is becoming a more significant alternate fuel. The Navy has
    approximately 7,000 vehicles capable of operating on E-85. We are also
    investigating the use of hydrogen fuel cell vehicles.
    Installation Restoration Program (IRP)
        The DoN has completed cleanup or has remedies in place at 75
    percent of our 3,700 contaminated sites. We plan to complete the
    program by 2014. The cost-to-complete the installation restoration
    program continues a downward trend with efficiencies of $600 million
    over the past 10 years. Use of new technologies, land use controls,
    remedy optimizations, contract efficiencies, and a dedicated
    professional staff has contributed to these efficiencies. Our fiscal
    year 2007 request of $304 million consists of $219 million for IRP, $41
    million for program management, and $44 million for Munitions response.
    Munitions Response Program (MRP)
        This relatively new program provides cleanup actions for Munitions
    and Explosives of Concern (MEC) and Munitions Constituents (MC) at all
    DoN locations other than operational ranges. We plan to complete
    preliminary assessments at all 213 known sites on 56 active
    installations by 2007. Site inspections (which include sampling) will
    be completed by 2010. We will not have credible cleanup cost estimates
    until these assessments are completed in 2010. We are conducting major
    cleanups at the former range on Vieques, Puerto Rico and at Jackson
    Park Housing Complex in Washington State, in addition to efforts at
    prior BRAC locations.
                     prior brac cleanup & property disposal
        The BRAC rounds of 1988, 1991, 1993, and 1995 were a major tool in
    reducing our domestic base structure and generating savings. The DoN
    has achieved a steady state savings of approximately $2.7 billion per
    year since fiscal year 2002. All that remains is to complete the
    environmental cleanup and property disposal on portions of 17 of the
    original 91 bases.
        Last year we conveyed the last 427 acres at the former Naval
    Complex, Charleston, SC, and the last acre at Naval Air Station, Key
    West, FL. Additionally, at the former Hunters Point Naval Shipyard in
    San Francisco, the DoN conveyed the first parcel of 75 acres to the San
    Francisco Redevelopment Agency. Of the original 161,000 acres planned
    for disposal from all four prior BRAC rounds, we expect to have less
    than 5 percent (about 8,000 acres, excluding Roosevelt Roads) left to
    dispose by the end of this fiscal year.
    Land Sale Revenue
        We have continued our success in using property sales to assist in
    environmental cleanup and property disposal as well as recover value
    for taxpayers. We have used General Services Administration (GSA)
    onsite auctions, GSA Internet auctions, and Internet auctions using
    commercial real estate brokers. Through a combination of cost Economic
    Development Conveyances, Negotiated Sales, and Public Sales, the DoN
    has received over $1.1 billion in revenues. We have applied these funds
    to finance and accelerate our entire fiscal year 2006 and fiscal year
    2007 environmental cleanup at the remaining prior BRAC locations.
        Last year the DoN completed its largest public sale via Internet
    auction consisting of four parcels totaling 3,720 acres at the former
    Marine Corps Air Station, El Toro in Irvine, CA, for a total of $649.5
    million. The Internet auction public sale of 62 acres at the former San
    Pedro housing site in Los Angeles, CA, sold for $88 million. We also
    completed a GSA internet auction for the former Naval Hospital Oakland,
    CA. Known as Oak Knoll, we anticipate closing escrow for $100.5 million
    in early March 2006. These sales have provided the communities with
    taxpayer and community benefits by getting the property onto local tax
    rolls and redeveloped more quickly, with the local community
    controlling that development through traditional land use planning and
    zoning. It benefits DOD and the Federal taxpayer by divesting unneeded
    property sooner and reducing the environmental cleanup time and expense
    incurred by DOD. These sales enabled the buyers to work with the
    homeless assistance organizations to provide the type of services
    needed in that community, either in land and buildings or funds for
    needed programs. In addition, the El Toro sale enabled the community to
    fulfill its vision of creating a public park without using local tax
    dollars.
        We are pursuing disposal of the former Naval Station Roosevelt
    Roads through a mix of public benefit, economic benefit, property
    transfer to Army, as well as property sale planned for late 2007.
    Prior BRAC Environmental Cleanup
        The DoN has spent over $2.6 billion on environmental cleanup at
    prior BRAC locations through fiscal year 2005. We estimate the
    remaining cost to complete cleanup at about $482 million for fiscal
    year 2008 and beyond, most of which is concentrated at fewer than 20
    remaining locations and includes long-term maintenance and monitoring
    obligations for remedies already installed and operating at many
    locations. As we have done previously, the DoN will use any additional
    land sale revenue beyond that projected in our fiscal year 2006 budget
    to further accelerate cleanup at these remaining prior BRAC locations,
    which are primarily former industrial facilities that tend to have the
    most persistent environmental cleanup challenges.
        Significant environmental progress is planned for fiscal year 2006/
    2007, with nearly half of the funding planned for three bases. At
    Alameda Naval Air Station, progress will include funding environmental
    planning, design, and construction activities for the majority of
    active sites. Hunters Point Shipyard's progress will include completion
    of the radiological program for all land parcels and completion of all
    Remedial Investigations and Feasibility Studies. Progress at the former
    Moffett Federal Air Field includes completion of all remaining
    environmental construction activities.
                            brac 2005 implementation
        The BRAC 2005 Commission recommendations became legally binding on
    the DOD on 9 November 2005. In contrast to prior BRAC commissions, the
    BRAC 2005 recommendations have fewer closures and more realignments,
    particularly realignments that involve more than one military service
    or Defense agency. The Department of Navy has 6 ``fence line'' closures
    and 81 realignment recommendations involving 129 bases.
    BRAC 2005 Implementation Funds
        I am pleased to report that the DoN has fully financed its BRAC 05
    implementation plans across the FYDP. We have put in place the
    management structure, oversight, and funding to accomplish all closure
    and realignment actions within the 6-year statutory time frame.
        We are financing our implementation plans through a combination of
    (1) funds previously set aside by OSD for this purpose and recently
    allocated in all years of the FYDP (i.e., the BRAC wedge); (2)
    identification, capture, and reinvestment into the BRAC account of
    savings (primarily infrastructure and civilian personnel savings)
    generated by closure and realignment actions; (3) investment of $500
    million in Navy funds. Additional savings, notably MILPERS savings and
    realignment of Fleet Readiness Centers, are being used to finance other
    Department of the Navy priorities. Annual savings exceed annual costs
    in fiscal year 2010. The budget reflects only modest savings in fiscal
    year 2007, but it is expected that overall savings will exceed $1
    billion annually after fiscal year 2011.

    Preparing to Implement BRAC 2005
        Due to the complexity of the many joint recommendations, DOD is
    using detailed business plans for each BRAC recommendation to ensure
    consistent, timely execution and all necessary coordination across the
    components. Each of our business plans, which averages 40 pages in
    length, includes extensive details on costs and savings, schedules, and
    supporting Form DD1391s for each construction project. Each business
    plan must be reviewed and approved by the Infrastructure Steering Group
    \2\ prior to any expenditure of funds for a given recommendation. We
    expect approval of the first Navy business plans in the near future. In
    the meantime, the first BRAC 2005 funds are being released by OSD to
    begin formal planning efforts, beginning construction design and
    prepare contracting documents, and initiate National Environmental
    Policy Act (NEPA) studies for disposal and receiver sites.
    ---------------------------------------------------------------------------
        \2\ The Infrastructure Steering Group is chaired by the Under
    Secretary of Defense for Acquisition and Technology and Logistics, and
    includes the Deputy Under Secretary of Defense and Service Assistant
    Secretaries for Installations and Environmental, and the Service Vice
    Chiefs of Staff.
    ---------------------------------------------------------------------------
        We prioritized our fiscal year 2006 and fiscal year 2007
    implementation plans to give priority to actions with higher savings,
    funding all NEPA requirements, initiating the necessary military
    construction planning and design, and incrementally funding larger
    MILCON projects based on how much work can be accomplished in each
    fiscal year. All construction projects in fiscal year 2006 use design/
    build as the acquisition methodology and qualify as a NEPA categorical
    exclusion. Fiscal year 2007 projects are primarily design build, and
    require no more than a NEPA Environmental Assessment before
    construction can begin. We are working closely with the other
    components to establish firm requirements, schedules, and the scope and
    funding for required military construction for implementing joint
    recommendations.
        The table below depicts our fiscal year 2006 and fiscal year 2007
    plans. At several receiver sites, design and construction will begin in
    fiscal year 2006 in conjunction with planning of closure actions at the
    respective closing installations. Realignments of several commands from
    leased space to owned space in the National Capital Region will begin
    in fiscal year 2006. Five major realignments will start in fiscal year
    2007. Other smaller closure and realignments begin in fiscal year 2006
    and continue in fiscal year 2007.

        We are building on our experience with cleanup and property
    disposal from prior BRAC rounds. A BRAC Program Management Office has
    overall responsibility for coordination of BRAC actions, as well as for
    completing cleanup and disposal of the remaining property from all BRAC
    rounds.
        Much has changed since the last BRAC round in 1995. Environmental
    contamination at remaining bases has largely been characterized, and
    cleanup has been completed or is now well underway. In contrast to
    prior BRAC, the cost to cleanup environmental contamination at BRAC
    2005 locations is about $60 million. Private sector capabilities have
    emerged and matured for ``brownfield'' redevelopment and insurance
    industry products to address environmental liabilities when there is a
    CERCLA early transfer of contaminated property. We expect to take
    advantage of these private sector capabilities.
        The Department will use a mix of public and economic benefit
    conveyances, transfers to other components or Federal agencies, as well
    as public sale for property disposal. We expect developers with the
    experience and expertise to complete the cleanup during redevelopment.
    Communities get the property onto local tax rolls and redeveloped more
    quickly, and controls development through traditional land use planning
    and zoning.
                        meeting the execution challenge
        The ambitious programs I have outlined above, encompassing military
    and family housing construction, continuing recovery efforts in the
    Gulf Coast, and BRAC-related construction, represent an execution
    effort of over $3.4 billion over the fiscal year 2006/2007 timeframe. A
    daunting challenge, but one that the Navy is well-positioned to meet.
    The global pre-positioned presence of a highly trained workforce that
    offers the full spectrum of products and services allows us to shift
    execution outside of traditional regional boundaries to balance spikes
    in workload caused by events such as the natural disasters of 2004 and
    2005 and BRAC. The Navy has a wide array of contracting tools and in-
    place capacity to efficiently address substantial workload increases.
    We will work to master the challenges with the supply of a competitive
    contractor workforce, and market conditions affecting costs of
    materials and equipment.
                                   conclusion
        The Navy cannot meet the threats of tomorrow by simply maintaining
    today's readiness and capabilities of our physical plant. We must
    continue to transform and recapitalize for the future without
    jeopardizing our current readiness and the strides we have made--and
    continue to make--in managing our shore infrastructure. With our
    partners in industry, the acquisition community, and with the
    continuing support of Congress, the Department of Navy will build and
    maintain installations that are properly sized, balanced--and priced
    for tomorrow.

        Senator Ensign. Wow.
        Secretary Anderson.

     STATEMENT OF HON. WILLIAM C. ANDERSON, ASSISTANT SECRETARY OF
      THE AIR FORCE FOR INSTALLATIONS, ENVIRONMENT, AND LOGISTICS

        Mr. Anderson. Good afternoon, Mr. Chairman, Senator Akaka,
    Senator Thune. It is a pleasure to be here, and I also will
    keep my remarks brief.
        The Air Force has three main challenges. The first
    challenge is winning the long war on terror. As I testify
    today, there are airmen accomplishing the traditional Air Force
    missions, supporting Operations Iraqi Freedom and Enduring
    Freedom. I am sure all of you are familiar with those
    contributions.
        But let me share some things that the Air Force is doing
    that you may not know about. The Air Force has over 3,000
    airmen deployed in lieu of other U.S. forces, performing
    critical outside the wire duties like security, explosive
    ordnance disposal, construction, and convoy. To date over 1,000
    Air Force civil engineers have overseen repair of schools,
    clinics, rebuilding of airports, managed construction of 147
    police stations, border forts, and numerous other military
    facilities.
        Our second challenge is developing and caring for our
    airmen. With your help, the Air Force is on track to eliminate
    all inadequate dorms and the budget request that we have before
    you will fully fund that effort.
        Another success story is family housing. The Air Force
    budget request completes funding to eliminate inadequate
    housing stateside and continues our progress overseas.
        Our installations restoration program is on track to have
    all of our cleanup remedies in place by 2012, which is 2 years
    earlier than the DOD goal. We are going to do that while saving
    scarce resources through cutting edge processes and new
    technologies.
        Because our most valuable asset is our people, we are
    implementing a comprehensive environmental safety and
    occupational health program. By benchmarking against industry
    programs to leverage our own experience, the Air Force is
    reducing the risk of injuries and keeping the environment
    clean.
        The readiness of our airmen and the capabilities of our
    weapons systems depend upon the infrastructure we support. We
    appreciate your support in the past and your continuing
    support, and I welcome any questions you might have.
        [The prepared statement of Mr. Anderson follows:]

                 Prepared Statement by Hon. William C. Anderson

        Mr. Chairman, Senator Akaka, and distinguished members of the
    committee, as the Air Force continues to transform, we have three major
    priorities: winning the war on terror, developing and caring for our
    airmen, and recapitalizing and modernizing our air and space systems.
    The Quadrennial Defense Review (QDR) guides and supports Air Force
    transformation and enables us to deliver more sovereign options for the
    defense of the United States of America and its global interests. We
    will fund transformation through organizational efficiencies, process
    efficiencies, and reduction of legacy systems, which will ultimately
    reduce our manpower requirements. Our military construction (MILCON)
    and Base Realignment and Closure (BRAC) programs are vital to achieving
    our vision to develop and care for our airmen, as well as optimizing
    our weapon systems' capabilities and effects. Quality bases,
    facilities, and homes are the foundation of developing and caring for
    our airmen.
        The Air Force fiscal year 2007 MILCON submission represents our
    commitment to these three priorities. A key and essential enabler in
    Air Force transformation, MILCON continues critical weapon system
    beddowns and improves the Quality of Life (QOL) of our airmen. This
    year's Air Force MILCON budget request is the largest in 15 years, over
    $1.3 billion, with increases across the spectrum of air and space
    operations and throughout our Total Force. Our fiscal year 2007 family
    housing submission will keep us on target to eliminate inadequate
    housing and enables us to exceed the OSD goal to privatize 60 percent
    of our CONUS housing by the end of fiscal year 2007. We are accepting
    risk in both facility recapitalization and facility sustainment in
    fiscal year 2007. We will narrowly miss the OSD goal of a 67-year
    facility recapitalization rate in fiscal year 2008. The risk taken in
    facility recapitalization and facility sustainment allows the Air Force
    to better fund other priorities in transformation and weapons
    modernization.
        Sound investment in our installations allows us to take care of our
    people and their families through quality of life and work place
    improvements. We believe the fiscal year 2007 President's budget
    proposal will provide the construction bedrock for continued success of
    our mission.
                                  introduction
        Air Force facilities, housing, and environmental programs are key
    components of our support infrastructure. At home, our installations
    provide a stable training environment and a place to equip and
    reconstitute our force. Both our stateside and overseas bases provide
    force projection platforms to support combatant commanders. Because of
    this, the Air Force has developed an investment strategy focused on
    supporting QDR transformational decisions, providing quality dorms for
    airmen, providing quality family housing for our families, implementing
    BRAC, proactively supporting the environment, properly sustaining our
    infrastructure, striving to recapitalize our aging infrastructure, and
    working to build an appropriate installation support baseline. Our
    total force MILCON, family housing, and sustainment, restoration, and
    modernization programs are paramount to supporting operational
    requirements and maintaining a suitable quality of life for our men and
    women in uniform and their families.
        The Air Force fiscal year 2007 President's budget request of just
    over $1.3 billion for Total Force MILCON reflects our highest
    construction priorities. It balances transformation, QOL improvements,
    new mission requirements, future project designs, and limited funding
    for emergency requirements. This request includes $1.16 billion for
    active MILCON, $126 million for the Air National Guard, and more than
    $45 million for the Air Force Reserve.
        The Air Force's fiscal year 2007 President's budget request of
    $1.18 billion for the Military Family Housing investment program
    balances new construction, improvements, and planning and design work.
    Combined with our highly successful privatization program, we think
    this is a good news story for airmen and their families. While we
    continue to strive to eliminate inadequate housing, we cannot allow
    more housing to fall into disrepair. We need your support to keep our
    housing operations and maintenance submission intact.
        In fiscal year 2007, we will bolster our operation and maintenance
    (O&M) investment in our facilities infrastructure. This investment has
    two components: Sustainment, (S) and Restoration, and Modernization
    (RM), which we refer to together as our SRM program. Sustainment funds
    are necessary in order to keep ``good facilities good.'' R&M funding is
    used to fix critical facility deficiencies and improve readiness. In
    this request we have dedicated $1.68 billion to Total Force
    sustainment. That is 86 percent of the requirement from OSD's
    Facilities Sustainment Model. Additionally, in fiscal year 2007 the Air
    Force's Total Force RM funds is only $310 million. This means we must
    defer some RM requirements, which has a cumulative effect on Air Force
    facilities and infrastructure that we must reverse. In the out years we
    hope to invest more heavily in critical infrastructure maintenance and
    repair through our O&M program in order to achieve the Department of
    Defense (DOD) goal of a facility recapitalization rate of 67 years by
    2008 and to fully fund facility sustainment by 2008.
                           accommodate transformation
        Our airmen are without a doubt the best in the world, but superior
    weapons have also played a key role in recent joint warfighting
    successes in the global war on terror. Transformational and advanced
    weapon systems enable our combatant commanders to respond quickly in
    support of national security objectives, and the military construction
    budget directly supports many of the transformational QDR decisions.
    The fiscal year 2007 Total Force military construction program consists
    of 29 projects that are essential to transformation, totaling $544
    million. The Global Hawk beddowns in Guam and Europe, and Predator
    beddowns at Creech AFB, Nevada; March ARB, California; Ellington Field,
    Texas; and Hector IAP, North Dakota, support QDR decisions to vastly
    increase Unmanned Aerial Vehicle coverage and to boost Intelligence,
    Surveillance and Reconnaissance (ISR) capabilities to identify and
    track moving targets in denied areas. The Combat Search and Rescue
    Group headquarters at Davis-Monthan AFB, Arizona helps to enable our
    Special Operations Forces to perform the most demanding and sensitive
    missions worldwide. The Distributed Common Ground Systems at Langley
    AFB, Virginia; Beale AFB, California; and Osan AB, Korea harness the
    power of information and allow us to conduct integrated, net-centric
    warfare that our enemies cannot match. The C-130J tactical airlift
    beddown at Ramstein AB, Germany improves our Joint Mobility capability
    to operate in irregular warfare environments. Depot Maintenance
    Reengineering and Transformation at Hill AFB, Utah, and Robins AFB,
    Georgia is transforming our industrial base to support warfighter
    requirements more effectively. Integrated Global Presence and Basing
    Strategy projects at Andersen AFB, Guam provide the foundational
    infrastructure for our joint air strike and reconnaissance capabilities
    in the Pacific. F-22A Raptor aircraft beddown at Elmendorf AFB, Alaska;
    Hill AFB; and Tyndall AFB, Florida ensures fifth generation stealth
    capabilities are available when and where they are needed.
        The global war on terror has changed the role of airmen in how we
    provide effects and capabilities to combatant commanders. Our airmen
    now work and live ``outside the wire'', and to ensure our airmen have
    the right skills and more efficiently wage the war on terrorism we are
    standing up the Common Battlefield Airmen Training Complex. Training
    will include weapons proficiency, land navigation, small units tactics,
    physical conditioning, and further instill the warrior mindset in our
    pararescuemen, combat controllers, tactical air control party
    personnel, battlefield weathermen, and other battlefield airmen career
    fields. Additionally, to ensure seamless integration into the joint
    battlefield, we are constructing Tactical Aircraft Control Program
    facilities at Fort Bliss, Texas, and Fort Knox, Kentucky.
        A significant portion of our 2007 MILCON budget goes toward
    expediting our transformation into a fully integrated (joint and
    coalition) planning and operational environment. These facilities
    enable and enhance QDR requirements for improved Joint Command and
    Control capabilities. Strategic Planning facilities at Hurlburt Field,
    Florida for Air Force Special Operations Command, and Andrews AFB,
    Maryland for the National Capital Region are key links to our highly
    networked, virtual environment that enables real-time collaboration and
    rapid production of high quality planning products. At MacDill AFB,
    Florida, the Air Force is constructing a consolidated Joint
    Intelligence Center for United States Central Command (CENTCOM).
    CENTCOM's area of responsibility is the geographic and ideological
    heart of the global war on terror. A war without borders, it spans 27
    countries in the Central Asian region of the world. The Joint
    Intelligence Center provides the CENTCOM Commander with the situational
    awareness and long range analysis needed to defeat adversaries within
    the AOR, promote regional stability, support allies, and protect U.S.
    national interests.
                              beddown new missions
        In addition to the transformational new missions, we continue to
    beddown missions that capitalize on existing capabilities. One of the
    key enablers of the national defense is our strategic airlift
    capability. We are continuing our investment to beddown C-5s at Memphis
    IAP, Tennessee, and Martinsburg, West Virginia. The extensive beddown
    program for the C-17s continues at Elmendorf AFB; Travis AFB and March
    ARB, California; Dover AFB, Delaware; Hickam AFB, Hawaii; Jackson Air
    Guard Station, Mississippi; and Lakehurst Naval Air Station, New
    Jersey. Thanks to your support, the construction funding requirements
    for Charleston AFB, South Carolina, and McChord AFB, Washington are
    complete. The request for fiscal year 2007 includes 13 C-17 beddown
    projects worth over $184 million.
               continue to invest in quality of life improvements
        The Air Force sees a direct link between readiness and quality of
    life. We strive to provide quality family housing for our families,
    quality Dorms-4-Airmen, functional fitness centers, and safe child
    development centers. When airmen deploy, time spent worrying whether
    their families are safe and secure is time not spent focusing on the
    mission. Our QOL initiatives are critical to our overall combat
    readiness and to recruiting and retaining our country's best and
    brightest. Our QOL initiatives reflect our commitment to our airmen.
    Family Housing
        The Air Force Family Housing Master Plan details our housing
    MILCON, O&M, and privatization efforts. It is designed to ensure safe,
    affordable, and adequate housing for our members. To implement the
    plan, our fiscal year 2007 budget request for the family housing
    investment program is $1.9 billion, the largest in Air Force history.
    DOD Strategic Planning Guidance is to eliminate inadequate family
    housing units in the United States by 2007 and overseas family housing
    units by 2009. The fiscal year 2007 budget request completes our
    efforts to meet the goal in the CONUS, and continues our progress
    overseas. In fiscal year 2007 our installations in Germany, Japan, and
    the United Kingdom have housing projects that not only support our
    airmen directly, but also spur additional private investor interest to
    provide quality housing for years to come. We thank you for your
    assistance in helping keep us on the path to meet these goals.
        For fiscal year 2007, the $1.18 billion requested for our housing
    investment program will provide approximately 2,300 new homes at 10
    bases and improve more than 2,200 homes at 13 bases. An additional $755
    million will be used to pay for operations, maintenance, utilities and
    leases to support the family housing program.
    Dormitories
        We are just as committed to providing adequate housing for our
    unaccompanied junior enlisted personnel. We are making great progress
    in our Dormitory Master Plan, a three-phased dormitory investment
    strategy. Phase I, eliminating central latrine dormitories, is complete
    and we are now concentrating on the final two phases of the investment
    strategy. In Phase II, we are building new dormitories to eliminate our
    room shortage. In Phase III, we will replace existing dormitories at
    the end of their useful life with a standard Air Force-designed private
    room to improve the QOL of our young airmen.
        The total Air Force requirement for dormitory rooms is 60,200. With
    the fiscal year 2007 proposal, we are on track to replace all
    inadequate permanent party dormitory rooms by fiscal year 2007 and all
    inadequate technical training dormitories by fiscal year 2009. This
    request includes $159 million for nine dormitory projects--creating
    1,426 new rooms for unaccompanied personnel at both stateside and
    overseas bases. We anticipate our requests in fiscal year 2008 and
    fiscal year 2009 to only include technical training dormitories.
    Community Support
        Our MILCON program also supports the Air Force holistic approach to
    wellness. The four pillars of Air Force Wellness are social, emotional,
    physical and spiritual aspects of life. Our ``Dorms-4-Airmen'' design
    underpins on our wingman concept by keeping our dorm residents socially
    and emotionally fit. Our fitness centers are a critical component of
    the Air Force's QOL and mission accomplishment. Our expeditionary
    nature requires that airmen deploy to all regions of the world, and
    into extreme environments, and they must be physically prepared to deal
    with these challenges. In 2007, we will construct a fitness center at
    Eielson AFB, Alaska. Spiritual wellness is the fourth pillar of
    wellness. We are keenly aware of the establishment clause in the
    Declaration of Independence, which prohibits endorsement of any
    religion; however, we are committed to ``free exercise'' clause as
    well. Many of our airmen and their families find spiritual fulfillment
    through our chapel programs. The 2007 MILCON submittal includes a
    project to replace the chapel center at Eielson AFB.
               sustain, restore, and modernize our infrastructure
        The Air Force remains focused on sustaining, restoring, and
    modernizing our infrastructure. As I stated previously, in 2007, we
    have focused sustainment funding on preserving our existing investment
    in facilities and infrastructure and targeted limited R&M funding to
    fix critical facility deficiencies to maintain readiness.
        Our sustainment program is aimed at maximizing the life of our
    infrastructure and preserving our existing investment. Without proper
    sustainment, our infrastructure wears out more rapidly. In addition,
    commanders in the field use O&M accounts to address facility
    requirements that impact their mission capabilities.
        When facilities require restoration or modernization, we use a
    balanced program of O&M and MILCON funding to make them ``mission
    ready.'' Unfortunately, R&M requirements in past years exceeded
    available O&M funding, causing us to defer much-needed work. It is
    important for us to steadily increase the investment in restoration and
    modernization in order to halt the growth of this backlog, while fully
    funding sustainment to maximize the life of our good infrastructure.
        The Air Force Total Force fiscal year 2007 sustainment funding is
    $1.68 billion andR&M funding is $310 million. This budget carefully
    balances SRM, and MILCON programs to make the most effective use of
    available funding in support of the Air Force mission.
        I am concerned about the potential impact of a change in the
    appropriation acts that separates the SRM Account from the rest of the
    O&M appropriation. This would, in effect, create a fence around SRM. In
    past years, all O&M was funded from the Defense Appropriation.
    Commanders used the flexibility to move money between O&M accounts to
    effectively manage budget shortfalls and unexpected requirements such
    as utility rate increases, natural disasters, infrastructure failures,
    or mission-driven requirements. Without legislation that would permit
    the movement of funds between all O&M accounts, commanders would face
    serious challenges addressing these emergent requirements. Let me say,
    I share the concern expressed by Members of Congress about the use of
    SRM or Base Support accounts as ``bill payers.'' However, for 19 of the
    past 21 years the Air Force has obligated more in SRM than was
    requested in the President's Budget. Air Force commanders are committed
    to taking care their mission, people, and facilities. Accordingly, I
    believe combining legislative language allowing free movement of funds
    among all O&M accounts, with obligation floors for SRM and Base Support
    is the most effective solution. In this way, commanders will have the
    ability to manage their O&M requirements to meet mission needs,
    including support for critical facility repairs.
               continue demolition of excess, obsolete facilities
        In addition to modernizing and restoring worn out facilities, we
    also demolish excess and obsolete facilities. This ensures funds are
    focused on facilities we need, not on sustaining ones we do not. For
    the past 8 years, the Air Force has aggressively demolished or disposed
    of facilities that were unneeded or no longer economically viable to
    maintain. From fiscal year 1998 through fiscal year 2005, we demolished
    20.3 million square feet of non-housing facilities and infrastructure
    at a cost of $238 million in O&M funding. This is equivalent to
    demolishing more than three average size Air Force installations and
    has allowed us to target our infrastructure funding on facilities we
    need for the long-term mission. For fiscal year 2007 and beyond, the
    Air Force will continue to aggressively identify opportunities to
    eliminate excess and obsolete facilities.
                                mission support
        The Air Force MILCON program is carefully shaped to reflect the
    most urgent priorities. We have decentralized the process for existing
    mission projects so that MAJCOM commanders have more input into which
    construction priorities get executed. We provide them a funding target
    based on their percentage of Air Force Plant Replacement Value, and
    they have flexibility in prioritizing the projects which are most
    important to their mission. This is appropriate because they are closer
    to the missions and uniquely situated to determine priorities. The 2007
    MILCON program has 16 mission support projects worth $155.3 million.
    These projects range from the most basic electrical and water
    distribution infrastructure on one end of the spectrum to high tech
    space test and evaluation facilities on the other end of the spectrum.
               planning and design/unspecified minor construction
        This year's Air Force MILCON request includes $124.6 million for
    planning and design (P&D), of which $13.2 million is for military
    family housing. The request includes $87.5 million for Active-Duty,
    $18.8 million for the Air National Guard, and $5.1 million for the Air
    Force Reserve. These funds will allow us to complete the design work
    for fiscal year 2007 construction programs and to start the designs for
    fiscal year 2008 projects, allowing us to award contracts in the year
    of authorization and appropriation.
        This year's request also includes $25.5 million for the Total Force
    unspecified minor construction program which is our primary means for
    funding small, unforeseen projects that cannot wait for the normal
    military construction process. Because these projects emerge over the
    course of the year, it is not possible to predict the total funding
    requirement. When unspecified minor construction requirements exceed
    our funding request, we augment them by reprogramming available MILCON
    construction funds.
                  optimize use of public and private resources
    Housing Privatization
        Air Force airmen and their families appreciate your staunch
    commitment to their quality of life. We have used privatization
    authorities to accelerate our housing program. To date, we have awarded
    17 privatization projects providing 16,200 privatized homes for our Air
    Force families. That translates to the Air Force leveraging an
    investment of $209 million with private sector funding to provide $2.4
    billion in total development, yielding a leverage of approximately
    eleven dollars of private investment for each public tax dollar.
        Since last year, the Air Force completed construction of our fifth
    privatization project, Phase I of the Wright-Patterson AFB, Ohio,
    privatization project, joining the four previously completed projects
    at Dyess AFB, Texas; Elmendorf AFB (Phase I); Lackland AFB (Phase I),
    Texas; and Robins AFB (Phase I), providing a total of 3,856 homes for
    our Air Force families. Additionally, the Air Force has eight projects
    under various stages of construction at Buckley AFB, Colorado;
    Elmendorf AFB (Phase II); Hanscom AFB, Massachusetts; Hickam AFB (Phase
    I); Kirtland AFB, New Mexico; Little Rock AFB, Arkansas; Moody AFB,
    Georgia; and Patrick AFB, Florida. When these 8 ongoing projects are
    complete, we will have 12,352 more new homes available for families.
    Recently, the Air Force awarded four more privatization projects at
    Dover AFB, Hill AFB, Offutt AFB, Nebraska, and Scott AFB, Illinois,
    which are mobilizing for construction this Spring.
        Three years ago the Air Force committed to a goal of privatizing 60
    percent of U.S.-based family housing by 2007; we are proud to say we
    will eclipse that mark by an additional 15 percent and will privatize
    75 percent of our (Government-owned) housing in the United States and
    its territories. In total, the Air Force will leverage $575 million in
    MILCON dollars, yielding total construction development expenditures on
    and around Air Force installations exceeding $7.9 billion and providing
    over 47,000 quality homes for our Air Force families.
    Utility Privatization
        In addition to privatizing housing, the Air Force is interested in
    privatizing utilities where it makes economic sense and does not
    adversely affect readiness, security, or mission accomplishment. Our
    installations are key to our operational capabilities. Our network of
    bases provides necessary infrastructure for deploying, employing, and
    sustaining air and space operations and re-deploying and reconstituting
    the force afterwards. Our bases are also the training platforms from
    which skilled airmen learn their trades and prepare for deployment.
    Reliable utility services are essential to operations at every Air
    Force base.
        To date, the Air Force has conveyed 16 utility systems: 10 under
    OSD's utilities privatization program (10 U.S.C. 2688) and 6 under
    previous efforts. Some 275 systems are currently in the competitive
    process. By the time the program is complete, we anticipate as many as
    100 of about 500 systems could be privatized. During the course of this
    process, we expect that many competitive solicitations will end up as
    sole source procurements from local utility companies.
                       base realignment and closure 2005
        The Secretary of Defense transmitted his recommended closures and
    realignments, to include those recommendations developed by and
    affecting the Department of the Air Force, to the Defense Base Closure
    and Realignment Commission and to Congress on May 13, 2005, and
    published them in the Federal Register on May 16, 2005, pursuant to
    Public Law 101-510, as amended. The Air Force recommendations
    reaffirmed DOD's commitment to defend the homeland, to establish a
    capabilities-based defense strategy, and to challenge the military
    departments to transform themselves to better meet new threats in a
    changed security environment. Consistent with the goals outlined by the
    Secretary of Defense, the Department of the Air Force established four
    BRAC goals to support right-sizing of its force and to enhance its
    capabilities:

             Maximize warfighting capability efficiently,
             Transform the Total Air Force by realigning
            infrastructure to meet future defense strategy,
             Maximize operational capability by eliminating excess
            physical capacity, and
             Capitalize on opportunities for joint activity.

        These goals were formulated with a Total Force perspective--Active-
    Duty, Air Force Reserve, and Air National Guard--to optimize
    operational capability in response to a projected declining force
    structure given a 20-year view. In turn, these facilitated ongoing
    transformation within the Air Force to meet the challenges and
    opportunities of the 21st century, and restructure important support
    functions that capitalize on advances in technology and business
    practices. Of the 222 recommendations submitted by the Secretary of
    Defense, the BRAC Commission accepted, without change, about 65
    percent. In all, the Commission revised 34 percent of the
    recommendations regarding the Air Reserve component, and 37 percent of
    the Joint Cross-Service Group recommendations that affected Air Force
    installations. While the Commission's final decisions fell short of the
    Air Force's overall goals for BRAC--particularly in eliminating excess
    physical capacity--they did, however, help us take a major step towards
    reshaping our Total Force structure. For example, as a result of BRAC,
    Air Reserve component flying squadrons are increased to a more
    effective operational size, such as from 15 aircraft per fighter
    squadron to 18 per squadron after BRAC, and from 8 aircraft per
    mobility squadron to 12 after BRAC. This increases the percentage of
    Reserve component squadrons that are optimally-sized from the current 4
    percent to 59 percent. Additionally, the Air Force will cease flying
    operations at 23 locations in response to a declining fighter and
    mobility force, and the Air Force will realize new operational
    synergies through joint recommendations that pair Air Force and Army
    forces at locations such as Eglin AFB, Florida and Shaw AFB, South
    Carolina. As the Air Force continues to transform, BRAC is but one tool
    we will use to align our force to future defense strategy.
                              brac implementation
        The Air Force has begun to develop an implementation schedule for
    its BRAC 2005 recommendations, and is working in close partnership with
    the Air National Guard, the Air Force Reserve, and our Active-Duty
    major commands to further develop and refine this schedule. In the
    previous four rounds of BRAC, the Commission recommended 22 major
    closure and 17 major realignment actions of Air Force installations. In
    comparison, the 2005 BRAC Commission recommended 5 major closures and
    12 major realignments of Air Force installations. Additionally, there
    were numerous other smaller realignment actions at Air Force
    installations, many of which were transformational in nature. Given the
    transformational nature of this BRAC round, these types of
    recommendations, particularly those that consolidate or co-locate joint
    activities, or those that establish joint operations, pose new
    implementation challenges for the Air Force. To implement these joint
    recommendations, and to best realize their full intent and operational
    payoff, we are working hand-in-hand with our sister Services, the
    affected Defense agencies, and the Office of the Secretary of Defense.
    As directed by the Under Secretary of Defense (Installations and
    Environment), we are developing 64 BRAC Business Plans to effect those
    actions for which the Air Force was designated as the lead military
    department for implementation. These Business Plans serve as a high-
    level foundation to outline required actions, the timing of these
    actions, and the associated costs and savings associated with
    implementing each recommendation, and will ensure our BRAC 2005
    recommendations are implemented efficiently and effectively.
        DOD recently delivered its budget justifications reports describing
    the specific programs, projects, and activities for the $1.46 billion
    appropriated in fiscal year 2006 to begin implementing its BRAC
    actions. This figure includes $231 million for Air Force BRAC 2005
    activities during fiscal year 2006, which will begin the P&D phases and
    requisite National Environmental Policy Act (NEPA) environmental
    studies that precede the construction and renovation of facilities
    needed to relocate functions, missions, and weapons systems
        Our fiscal year 2007 BRAC MILCON program includes a robust 77
    projects totaling $508.8 million for fiscal year 2007, including P&Dand
    the Air Force share of Joint Cross-Service Group projects,
        With respect to the BRAC Commission's language on Cannon AFB, New
    Mexico, the Air Force is leading the DOD's review on potential reuse of
    the installation. This action is consistent with the Commission's
    recommendation that Cannon ``shall remain open until December 31, 2009
    during which time the Secretary of Defense shall seek other newly-
    identified missions with all military services for possible assignment
    to Cannon Air Force Base.'' The Air Force has aggressively pursued the
    Commission's direction to seek re-use, and expects to provide the
    Secretary of Defense with its findings and recommendations this summer.
        As the Air Force begins to gauge the impact of other processes
    external to BRAC, such as the results of the QDR and the Air Force's
    Total Force Integration implementation plan, it will continue to refine
    its facility requirements needed to implement BRAC actions as a direct
    result of these and other transformational influences. While it is yet
    unknown what impact the projected end strength reductions might have,
    or the exact facility requirements that are needed for emerging Total
    Force missions, be assured the Air Force will continue to adjust its
    infrastructure footprint to best align its infrastructure as
    efficiently for the future in full compliance with all statutory
    obligations.
        Downsizing infrastructure during BRAC was a difficult task, as all
    Air Force bases are outstanding installations that stand as a credit to
    our Nation and to the exceptional communities that support them.
    However, we had to make hard infrastructure decisions to posture
    ourselves for new security challenges, and to preserve limited
    resources for readiness and modernization. As such, the Air Force
    recognizes it has an obligation to assist its partner communities
    affected by BRAC 2005. In previous rounds of BRAC, the Air Force
    established an excellent record of closing bases as quickly as
    possible. This aggressive approach provided the quickest savings to the
    Air Force and assisted local communities in their efforts to begin
    economic revitalization. The Air Force will continue to maximize
    savings at closure installations and work closely with local
    communities to facilitate a prompt transition and the best reuse
    opportunities. The Defense Economic Adjustment Program will continue to
    assist communities to plan for the civilian redevelopment of available
    real property, and implement local adjustment actions to assist
    impacted workers, businesses, and other affected community interests.
    The Air Force also recognizes the importance of ensuring that those
    communities whose Air Force installations gain new missions under BRAC
    have the capacity to support these new missions with adequate planning,
    housing, education, infrastructure, and community services. The Air
    Force is working with these communities to plan and carry out
    adjustment strategies that will enhance their ability to support both
    our airmen and other uniformed men and women at the receiving
    installations.
                  environmental cleanup and property transfer
        Environmental clean up and transfer of BRAC real property is often
    technically challenging and has involved extended timeframes to
    complete. At the end of fiscal year 2005, the Air Force has deeded
    approximately 75 percent of 87,000 acres of BRAC property. Our real
    property disposal efforts have led to the creation of over 54,000 reuse
    jobs in the affected communities. To complete the clean up and transfer
    of the remaining property, the Air Force is attempting to leverage
    private sector experience in developing former industrial property
    similar to Air Force facilities. Privatization and guaranteed fixed
    price contracting are two promising examples of this type of process
    innovation.
        As we transfer BRAC real property for civic and private reuse, the
    Air Force has a continuing responsibility for environmental clean up
    from past industrial activities. The Air Force takes our responsibility
    to protect human health and the environment seriously, and, since 1991,
    we have spent more than $2 billion on environmental clean up at our
    BRAC installations. For fiscal year 2007, the Air Force is requesting
    $116 million for clean up activities.At our remaining non-BRAC
    facilities, the Air Force is reshaping our infrastructure to meet the
    demands of the 21st century. The Air Force will utilize new tools to
    optimize our resources and obtain value from our excess capacity. We
    are developing enhanced use leasing as a means of returning value from
    underused Air Force property and as a flexible alternative to property
    disposal or demolition.
                      environmental program transformation
        The Air Force continues to be a leader in environmental management
    by enhancing mission capability and sustaining the public trust through
    prudent environmental trusteeship. To date, the Air Force environmental
    program has been a good news story as our current processes have served
    us well. In the Installation Restoration Program, the Air Force is on
    pace to having 100 percent of its cleanup remedies in place by fiscal
    year 2012 while saving hundreds of millions of dollars through cutting-
    edge processes and technologies. The Air Force will have its cleanup
    remedies in place a full 2 years before the DOD goal of fiscal year
    2014. In fiscal year 2005, the Air Force avoided over $60 million in
    waste disposal fees due to an aggressive solid waste diversion program,
    provided over 38 billion gallons of safe drinking water, and because of
    Eggerts Sunflower recovery efforts at Arnold AFB, Tennessee, the plant
    was removed from the Threatened and Endangered Plants List. At Hill
    AFB, the elimination of hexavalent chromium in aircraft pre-painting
    operations resulted in an EPA Award for Environmental Excellence.
    Through fiscal year 2005, the Air Force has reduced hazardous waste
    disposal by 57 percent, managed over 8 million acres of land including
    over 575,000 acres of forests, 234,000 acres of wetlands and habitat
    for over 70 threatened and endangered species, and conducted controlled
    burns of over 100,000 acres to reduce the risk of wildfires while
    improving the health of the ecosystem. However, emerging challenges
    such as increased encroachment and significantly greater state emphasis
    on munitions related and unregulated contaminant issues suggest we need
    to build upon our success and transform our programs.
        Therefore, the Air Force is transforming its environmental program
    to a more proactive approach, versus a past reactive system, that seeks
    to sustain, restore and modernize natural infrastructure to maximize
    mission capability. The ability of the Air Force to effectively train,
    test, and operate requires access to a finite set of natural
    infrastructure resources (land, air, water, air space, etc.). Our
    installations, ranges, and airspace are critical national assets that
    allow the Air Force to test equipment, develop new tactics, and train
    our forces to be combat-ready. While our primary focus is to manage
    this natural infrastructure asset base to support operational
    requirements, meeting environmental legal obligations is inherent in
    all our efforts. Throughout this transformation, Air Force efforts
    continue to maximize protection of human health and the environment
    while maximizing mission capability.
        The U.S. Air Force Transformation Flight Plan defines this
    transformation as a process by which the military achieves and
    maintains advantage through changes in operational concepts,
    organization and/or techniques that significantly improve its
    warfighting capabilities or ability to meet the demands of a changing
    security environment. All airmen must frame their objectives in support
    of the larger goals of the Department, or face irrelevancy.
        Our environmental programs, similarly, must be reframed to identify
    deficiencies and opportunities that either impede or must be seized
    upon to create military value for the Air Force warfighter. A construct
    the Air Force has developed is the recognition that there are key
    assets in the environmental management domain that provide critical
    access for Air Force test, training and operational needs, as part of a
    larger infrastructure vital to developing and maintaining a dominant
    military advantage for the Air Force, our Joint Forces, and coalition
    and allied partners. While built infrastructure assets and the
    capacities and capabilities they provide are more clearly recognized
    and identified, we are undertaking efforts to identify, inventory, and
    assess natural infrastructure assets and their capacities and
    capabilities in order to perform effective, efficient and comprehensive
    operational asset management.
        The mutually beneficial relationship between the Air Force and the
    natural infrastructure within which it operates is easy to recognize.
    Measuring and managing the state of that relationship, however, is not
    as easy. We now understand the importance of directly relating
    environmental management to military capability.
        We know that Air Force basing and training requirements often
    require significant land, air, and water resources in locations where
    there is significant competition or regulation constraining access to
    the natural infrastructure. This competition and regulation is
    increasing. At the same time, Air Force leadership is faced with
    difficult decisions concerning force structure and location as we
    transform, consolidate, and realign the Air Force. Now more than ever,
    the Air Force must be able to provide support for planning and
    decision-making with defensible cost/benefit, operational risk, and
    compliance risk analyses of different natural infrastructure asset
    management alternatives.
         a systems-based approach to air force environmental management
        A systems approach to executing environmental programs allows the
    Air Force to view mission/environment interdependencies and intersects
    holistically, and to align and optimize environmental management
    program objectives to meet military mission strategic goals and
    objectives. In conjunction with this systems approach and through
    operational asset management, we are:

             inventorying natural infrastructure assets (to include
            regulatory- or procedurally-based rights-of-access to assets,
            such as permits and easements),
             assessing asset capacities, capabilities and values,
             comparing these assets with mission requirements to
            identify significant aspects and positive and negative impacts,
             benchmarking other asset managers' best practices,
             creating value propositions to address deficiencies
            and opportunities,
             prioritizing and selecting compelling value
            propositions, and
             making value-conscious investment decisions to
            sustain, restore and modernize assets in order to optimize
            military capability and value.
      a commitment to good governance in air force environmental programs
        Our operational asset management, systems-based approach clearly
    supports the President's Management Agenda and Executive Order 13327
    (Federal Real Property Asset Management) by improving our ability to
    deliver results that matter to the American people, while promoting the
    efficient and economical use of America's real property assets.
    Integrating performance and budgeting, emphasizing results over
    process, allocating scarce resources to programs that deliver results--
    these hallmarks of good governance are the same hallmarks our systems
    approach reflects.
            compliance assurance in air force environmental programs
        Traditionally, our environmental programs have centered on
    achieving and maintaining compliance with statutory and regulatory
    requirements or other binding agreements. Commitment to and application
    of sound management principles for protecting human health and the
    environment have served us well as a military department, as a Federal
    agency, as a Federal land-manager, and as a neighbor to the communities
    and land-holders adjacent to our Air Force installations and ranges. We
    are proud of our record as an environmentally conscious, considerate,
    and compliant Air Force, and fully committed to sustaining and
    improving as we transform. Our commitment to environmental compliance
    assurance is not negated--it is in fact enhanced--by our
    transformation.
              operationalizing air force environmental management
        The U.S. Air Force provides exceptional environmental management
    for over 800,000 Air Force Active-Duty, Reserve, Guard, and civilian
    personnel at over 180 installations worldwide. We are the proud trustee
    of over 8 million acres of Federal property, including forests,
    prairies, deserts, rivers, streams, wetlands, and coastal habitats.
        The Air Force is proud of its successes in environmental management
    and is transforming to exceed past performance. The shift to natural
    infrastructure management will enable us to reduce environmental
    burdens and risks, and sustain and/or enhance mission capabilities
    while maintaining compliance assurance as the foundation of our
    programs.
        By integrating environmental programs into the overall Air Force
    mission objectives, we strengthen our environmental performance. By
    recognizing the operational asset value in our natural infrastructure
    we strengthen our commitment to effective, efficient and compliant
    environmental management. By aligning environmental management
    objectives to help deliver Air Force military mission objectives, we
    operationalize Air Force environmental management. By defining mission
    requirements, inventorying and assessing capacities and capabilities,
    identifying deficiencies and opportunities, developing prioritized
    value propositions, then investing and managing assets to sustain,
    restore, and modernize our mission infrastructure--we create value for
    the Air Force warfighter, and deliver military capability.
                       airmen safety and workforce health
        In our discussion of infrastructure programs and sustainment, I
    would be remiss in not talking about our most valuable asset--our
    workforce. Just like our facilities, our workforce needs to be
    sustained and restored and our means to do that modernized. To this
    end, we are diligently implementing an Air Force-wide environment,
    safety, and occupational health management system by leveraging the
    great work already accomplished in establishing our environmental
    management system.
        Our workforce must have the right skills and be available to
    support our mission. All of our workforce--civilian and airmen, deserve
    to be provided a working environment free from recognized hazards that
    are likely to cause death, injury or illness. Injuries and illnesses
    detract from workforce availability and hinder mission accomplishment.
    As we mature our ESOH management system, we will develop methods to
    holistically view safety, occupational health, and environmental risks
    to provide the knowledge needed to support our enterprise management
    process. In order to meet this objective, we strive to consistently
    anticipate, evaluate and control safety and occupational health and
    environmental hazards, both at home and when deployed. To this end, we
    are developing a fully integrated ESOH Management Information System to
    provide all levels of leadership and management the knowledge necessary
    to ensure the availability of our workforce by preventing illness and
    injury.
                                   conclusion
        In conclusion, Mr. Chairman, I thank the committee for its strong
    support of our military construction, housing, transformational
    efforts, and environmental programs. The near and long-term readiness
    of our airmen depends upon this infrastructure. We will continue to be
    good stewards of our installations' assets and the environment and will
    continue to work hard to ensure Air Force infrastructure is properly
    distributed to optimize military readiness as well as meet our Nation's
    defense needs. I would be pleased to take your questions.

        Senator Ensign. Very good. I thank the witnesses and we
    will begin questioning.
        Mr. Grone, at a recent meeting the two of us had in my
    office we discussed positive benefits of improving the
    transparency of MILCON contract execution. While I have seen,
    personally seen the success of this in my own State both in the
    private and public sector, can you provide this committee an
    update on the DOD's progress to date on meeting Congress's
    intent and goal for the implementation of this program and
    share with the committee your opinion on the potential benefits
    to be gained by the DOD by this program? What more also can be
    done to leverage the rapid advancement of technology toward the
    goal of efficient and effective contract management?
        Mr. Grone. Thank you, Chairman Ensign. I appreciate the
    opportunity to provide an update.
        Consistent with the direction we received from Congress, we
    have established just within the last week or so a portal on
    the acquisition technology and logistics web page that we are
    currently testing for seamlessness, transparency. We are also
    working with the components to ensure that the same type of
    data is entered in the right way, that we understand
    definitions, construction management definitions, in the same
    manner. Our expectation is that we should have through the two
    next phases of testing an ability to have that capability stood
    up by the deadline requested by Congress in the middle of July
    2006.
        We will continue to do that. Our plan is to update the
    information in that system every month.
        To your broader question, we have taken the opportunity
    from the dialogue that we have had to initiate a potential or a
    possible business process reengineering effort initiative
    within the domain that I have the privilege of chairing within
    the business management modernization program in real property
    to further extend business process reengineering in the
    construction in progress part of the portfolio, to either use
    technology and to standardize approaches and among the
    components to improve efficiency.
        We believe there is a lot of potential efficiency and cost
    effectiveness to come out of programs like this and we will
    continue to work with the oversight committees to develop this
    further.
        Senator Ensign. Thank you. This committee looks forward to
    continuing the work and the evaluation of how the transparency
    is working, cost savings, quality, the various measures. I
    think that the potential for improving the way things are done,
    especially when it comes to construction, is great. If things
    that are happening in the private sector around the country are
    any indications I think that the military is going to be very
    pleased as well as the public.
        Also, the DOD has included in the fiscal year a request for
    $5.7 billion to carry out planning, MILCON, environmental
    actions related to the 2005 BRAC. This request for $5.7 billion
    is not accompanied at this time by any project-level detail or
    justification. DOD is still reviewing business plans submitted
    by the military departments, which includes updated cost and
    implementation schedules for each one of the recommendations.
        Could you describe the challenges the DOD is experiencing
    in the review and approval of the business plans, and when
    exactly will the DOD inform this committee of the specific
    projects and business plans for the 2007 BRAC funds?
        Mr. Grone. Mr. Chairman, let me take the latter part of
    your question first. As the Comptroller, Tina Jonas and I have
    previously testified to the Appropriations Committee in the
    House, we expect to meet our internal milestones of a March
    delivery of the fiscal year 2007 budget justification for BRAC,
    as Senator Akaka indicated, this month. That is consistent with
    the standards for prior BRAC rounds in terms of second year
    budget justification. They came to Congress in about the March
    time frame.
        Our challenge this time, frankly, has been that this round
    of BRAC ended about 3 months later than prior rounds of BRAC
    had ended. The recommendations became legally viable in
    November. The commission changed about 35 percent of the
    recommendations in ways large and small, which caused some
    shifting in the planning profile, as well as our budget request
    for fiscal year 2006 was reduced by about $370 million.
        So we have had a little bit of a challenge in making those
    adjustments. But despite those challenges, we will be in
    position to deliver a complete justification book this month.
        I would make a couple of points about the 2007
    justification book if I have the opportunity at this point in
    time. Certainly, that project level detail will continue the
    emphasis in the 2006 project level detail, particularly with
    regard to the Army, supporting the Army modular force
    initiatives within BRAC, and certainly those projects that are
    necessary to accommodate the return of forces from abroad are
    critically important to the broader Army strategy and the
    broader national strategy of repositioning forces globally.
        But more so in the 2007 than currently in the 2006, the
    report will be nearly three dozen MILCON projects that are
    directly related to moving missions from installations that are
    slated to be closed and moving those missions to their
    dedicated end base. That is an important aspect of the entire
    budget--will be an important aspect of the entire budget
    request, because our ability to get to the next phase in BRAC,
    the base reuse piece of this, to transition assets that we no
    longer require to communities for effective economic reuse is
    dependent upon our ability to move that mission.
        So as we work with you on the budget request for fiscal
    year 2007, it will support a broad array of the DOD's
    initiatives, but certainly the criticality of those funds to
    being able to carry out those actions that then, in those cases
    where we have a base closure free up those assets for effective
    community reuse in the most expeditious way possible, is also a
    critically important part of the program.
        But we look forward to dialoguing with you on it,
    discussing with you, as soon as we are able to deliver all the
    detailed 1391s and program profile here in the coming weeks.
        Senator Ensign. I do not know if we will get to a second
    round of questions, but I have a lot of other questions that we
    will probably end up doing for the record. But my time has
    expired, so Senator Akaka.
        Senator Akaka. Thank you very much, Mr. Chairman.
        Mr. Grone, last fall, there was a proposal that would have
    required DOD to convey all BRAC property to the local
    communities at no cost. The Senate rejected that proposal. This
    amendment was motivated in part by a concern that the DOD
    intends to auction most or even all of this property to the
    highest bidder rather than attempting to work with the local
    community to support their reuse plan.
        I anticipate this issue will be raised again as DOD
    proceeds through the BRAC disposal process. Will you please
    describe how DOD intends to strike a balance between maximizing
    the return on the investment that the Federal taxpayers have
    made with supporting the reuse plans of the local communities,
    particularly with respect to decisions about when to seek fair
    market value for this property?
        Mr. Grone. Senator Akaka, I thank you for the question
    because it is a critically important one. For the information
    of the committee, DOD published its final rulemaking on certain
    aspects of base reuse policy earlier this week in the Federal
    Register. That was largely to conform the existing rule to
    changes in statute that had happened over a number of years.
        We will release this week, likely tomorrow, a revision to
    our base reuse implementation manual that we traditionally have
    used as a framework for dialogue with communities, guidance to
    State and local government, guidance to our own people
    operating in the field. The fundamental thrust of that policy
    document is precisely along the lines that you suggested that
    we should pursue.
        We are trying to design a very general framework within
    which to conduct disposal activity, but that framework allows
    for considerable discretion in recognizing that the ability for
    economic and effective economic reuse to take hold at the local
    level it requires tailored approaches in disposal. So in sum,
    all of the tools that we have that we emphasize in that
    document--public benefit conveyances, economic development
    conveyances at cost and no cost, conservation conveyances,
    forms of public sale and other conveyance authorities that we
    have--are all part of that tool basket, all part of that
    toolkit that we will work with local communities.
        DOD will not dictate a reuse approach to a community. We
    will not dictate the form of disposal. It is a partnership and
    a collaboration.
        At the Federal interagency level, I have the privilege to
    chair at the subcabinet level the economic adjustment committee
    for the Secretary of Defense, where 22 Federal agencies have
    come together and will continue to work on all of the various
    programs that the interagency can bring to bear to help
    communities in economic adjustment, both in the cases where we
    have a base closure, but also in those cases, as you and
    Senator Ensign have pointed out, where we have significant
    growth, where we must take into account those impacts that we
    will have, those effects that our activities will have on
    communities where we will have population and mission growth.
    So for the housing, the schools, the transportation, we all
    recognize that those communities that have supported us in the
    past require a tailored approach to transition them to a strong
    economy; and for those communities where we will have assets
    enduring into the future, we have an obligation to continue our
    partnership arrangement.
        So we will work with the oversight committees on this as we
    move forward and we certainly are going to work very closely
    with local communities in partnership, without going down the
    path of particular one size fits all approaches.
        Senator Akaka. Mr. Grone, I want to thank you for that
    reassurance as to how you will continue with that process.
        Secretary Penn, the QDR released last month stated the
    DOD's intention to increase the Navy's presence in the Pacific.
    According to the QDR the Navy will ``adjust the force posture
    to provide at least six operational, available, and sustainable
    carriers and 60 percent of its submarines in the Pacific.''
        DOD officials have stated that the QDR will be implemented
    beginning with the 2008 budget. Is the Navy going to make a
    decision about whether to base a carrier in Hawaii or Guam in
    the 2008 budget?
        Mr. Penn. Sir, the Navy is evaluating the recently released
    QDR on global carrier laydown. We have no money in the budget
    for 2006 or for 2007 to relocate a carrier. So if a decision is
    made, then we will put it in 2008.
        Senator Akaka. Thank you.
        Secretary Eastin, the Army has used emergency authorities
    and supplemental funding to temporary station new modular
    brigades on an expedited basis to help reduce the stress on the
    force. While this is a short-term goal Congress has supported,
    unfortunately for the taxpayers it means that over the long-
    term we will end up paying twice to station many of these
    brigades, first to establish temporary facilities and then
    second to build permanent facilities.
        I would remind you that our fiscal year 2006 committee
    report required you to submit a report to us on this issue by
    the end of this month. Furthermore, the Army has stated that
    modularity is funded in the base budget beginning in 2007. I
    understand there are $276 million in modularity MILCON projects
    in this budget request. Will the MILCON to support modularity
    consist entirely of permanent facilities funded in the base
    budget from here on out? If not, please explain why not.
        Mr. Eastin. We at the Army have heard the message from
    Congress concerning temporary and relocatable facilities. We
    too do not like having to pay for these twice. This year starts
    the process of building permanent facilities to replace some of
    the temporary facilities we put in as the situation in the
    Mideast heated up.
        We have two projects in this fiscal year, at Fort Lewis and
    at Fort Stewart, and they are basically for swing space, where
    we move people out of one particular activity, a barracks or a
    depot or a maintenance facility, move them over to temporary
    space and build on the space where they were. That is the only
    reason that we have any temporary facilities in this budget
    request. It is not our interest at all in proceeding with
    temporary facilities except in rather extreme cases.
        Senator Akaka. Thank you very much, Mr. Chairman. My time
    has expired.
        Senator Ensign. Senator Thune.
        Senator Thune. Thank you, Mr. Chairman, and thank you to
    the panel. Secretary Anderson, I especially want to express my
    appreciation for the emphasis the Air Force and all the
    Services are placing on MILCON and particularly in the area of
    family housing and dormitory areas. I would say that I can
    attest personally to how nice the new base housing is for E-6
    and below at Ellsworth Air Force Base (AFB), and if you have
    not been out to see it I would encourage you to do that,
    because these are 1,900 square foot homes with double-size or
    double garage, oversize two-car garages, covered patio, lots of
    storage room. In fact, when the last phase opened here recently
    a blinding snowstorm did not stop anybody from moving. I do not
    think there was a U-haul available in Rapid City for folks who
    were anxious to get into those new facilities.
        I think it is important that we give the proper attention
    to make sure that we are providing the right accommodations for
    the people who are serving our country. The Air Force even got
    it right, including all the way down to the blinds. The blinds
    were installed by the builder. So I appreciate that, and the
    work that is going into some of the fitness centers that are
    being installed in various installations and what-not. So I
    want to compliment you for that.
        I do want to raise one question that is raised with
    respect, and some mention has been made this morning and some
    of you have testified about the transitional issues that you
    are dealing with with respect to BRAC. That is something that
    is very much on my mind these days as well, and I would direct
    a question to Secretary Grone about that post-BRAC process. I
    would hope that the Services would invest as much energy in
    adding value and missions to the bases that survive the BRAC
    closing as they did to closing them in the first place.
        I am particularly interested--in my situation in South
    Dakota we have a base and we are looking for some additional
    mission opportunities. But one of the things, one of the
    questions I posed this morning to Secretary Wynne, who was at
    the full committee, as well as General Moseley, had to do with
    air space. It seems to me at least the Federal Aviation
    Administration (FAA) has concluded that we do not have enough
    air space if you look at the different training ranges and the
    issues that have arisen with respect to congestion, lack of
    unfettered air space, especially restricted air space for
    unmanned aerial vehichle (UAV) operation.
        What might be on your radar screen, either Secretary
    Anderson or Secretary Grone, with respect to finding additional
    air space and looking for training ranges that might be able to
    be expanded or improved upon or where we can get additional
    training opportunities for what I think, I am told at least,
    has gotten to be a lot of pressure on some of the current
    ranges?
        Mr. Anderson. Specifically as related to air space,
    Senator--an excellent question. As we are configured at the
    moment, the air space is adequate to meet our needs. You allude
    to new missions, changes in where we bed down missions, as a
    result of not only BRAC, but the transformation and
    modernization of the Air Force. Those issues are being
    considered with the changes that we are contemplating.
        I do not think I can give you a definitive answer at this
    point of where we may or may not have issues. It is under
    consideration. It is an important point and it is part and
    parcel with the overall transformation activity that we are
    considering right now.
        Mr. Grone. Senator Thune, certainly the effort, the
    emphasis we have placed on the sustainability of our ranges in
    a post-BRAC environment, if you assume that that is a 10, 15,
    20, 25-year laydown of our installations, as mission sets
    change and as technology comes aboard, as you well know, we are
    increasingly challenged in the way in which the training box
    bumps up against at least the capabilities that are currently
    sort of on the board.
        So our ability to sustain what we have and to continue to
    enhance it either through technology, expansion, redesign and
    particularly in the case of air space, as you well know, it is
    the width, it is the depth, it is the height, but it is also
    related to what we can do in relation to that air space to what
    is on the ground. So the notion of joint and combined operating
    areas, where ground forces and aviation assets can be utilized
    in combination, is something that is also of critical
    importance.
        We recognize how precious these test and training range
    assets are, and I think it is a fair statement to say that all
    components of the DOD are looking for as much flexibility,
    sustainability, and interoperability of those ranges into the
    future as we can possibly have. We are certainly interested in
    working with members on ways to improve that, as we have over
    the last few years.
        Senator Thune. I know that the command will say that, or
    folks will say that the command sets requirements. But I just
    want to put on your radar screen as a matter of policy, it is
    your job to plan for the future, to identify obstacles to the
    challenges and the needs we have in the future. It is clear, I
    think, if you look at what the FAA is saying, and particularly
    in some of these metropolitan areas where you have more and
    more congestion in the air space, that areas that are wide
    open--and part of that is a function of, as you said, the
    height, the depth, the width, all those, if I say that right,
    but also the technology and the things that you can put on the
    ground. That is something that I want to explore more fully
    with you because I think there are some real assets out there
    that can be put to work for us.
        So again, as I said, I brought this up earlier at the full
    committee hearing and I want to have you give some
    consideration to it as well. So thank you.
        Thank you, Mr. Chairman.
        Senator Ensign. Senator Inhofe.
        Senator Inhofe. Thank you, Mr. Chairman.
        Some of you might remember when we were contemplating this
    last BRAC round, there were several of us, and I was somewhat
    of a leader in that group, who felt it was not appropriate to
    have this last BRAC round. I did it for a different reason, not
    just the purgatory that my friend from Kansas always refers to,
    but that we had gone through the downsizing of the military and
    the squeeze of the 1990s and we were just really getting really
    desperate for money. While you have all kinds of projections as
    to how much money is going to be saved by a BRAC round, the one
    thing that is for certain and that is that in the first 2 or 3
    years it is going to cost more and we could not afford to go
    into it at that time.
        There are some other reasons. Nonetheless, with my five
    major installations in Oklahoma, we only lost our effort to
    stop that round by, I think, two votes. But when we had the
    thing and it was inevitable, I went back to my places in
    Oklahoma and I said: Now, I was opposed to having this round, I
    think right now when we are going to be upsizing it does not
    make sense to bring our infrastructure down when we do not know
    for sure what we need in the future. But since they are going
    to do it anyway, even if it means a negative impact on my
    installations in Oklahoma, I am going to fight at the very
    front to make sure that those recommendations are carried out.
        Now, I say that because in the last month we have had two
    occasions--one, Secretary Anderson, as you well know, in the
    Air Force, and then one was in the Army--where they are trying
    to change from the recommendations. Now, these are
    recommendations that have been signed into law by the
    President, so it is law today--to circumvent those just as if
    they were not current law.
        One had to do with some 13 T-38s that were going to be
    transferred from Moody AFB to Vance AFB. The other was--and I
    think also 14 T-6s. The other had to do with the United States
    Army. Since then it has been worked out and I feel good about
    it.
        But what I do not feel good about is that we do not know
    what to look for in the future. I guess what I want to extract
    from you folks is, you are not going to allow people to vary
    from this no matter how skillfully they try to do it; if a BRAC
    recommendation is now made into law, that you are going to
    stand behind that law and make sure that it is enforced. I
    would like to have each one of you respond to that.
        Mr. Grone. Senator, certainly from the perspective of the
    Office of the Secretary of Defense, we spent 2\1/2\ years in
    the development of comprehensive recommendations, most of which
    sustained the scrutiny of the commission, all of which in a
    post-commission environment sustained the scrutiny of the
    President of the United States and the Congress of the United
    States. From my perspective, one of our responsibilities is to
    ensure that they are effectively carried out and that the
    recommendations are carried out as they were designed to be
    carried out, and that we will follow the law.
        Senator Inhofe. Do the rest of you agree with that?
        Mr. Penn. Yes, sir.
        Mr. Eastin. Yes, sir.
        Senator Inhofe. Good.
        Then here is the other, borderline cases----
        Senator Sessions. I did not hear Secretary Eastin say yes.
        Mr. Eastin. I am a lawyer. I cannot just say yes. You have
    to explain yourself.
        Senator Inhofe. Oh yes you can.
        Senator Sessions. Secretary Eastin, do you want to respond
    differently than Secretary Grone?
        Mr. Eastin. No, no, not at all.
        Senator Inhofe. Okay. Then they have the cases where they
    can--and let me also say, I do not want you to misinterpret
    this. General Moseley could not have been more cooperative and
    we went over this thing and it is taken care of now.
        But then I happened to think, and one of the staff
    suggested this was a possibility, what if in this case or in
    any other case that they say there was a recommendation, it is
    signed into law, it is current law, you agree it should be
    done, but the military does not agree. In a case like this,
    instead of moving those functions from Moody AFB to Vance AFB,
    they would say: Fine, we will go ahead and send those 13 T-38s
    to Vance AFB, leave them there overnight, and then send them to
    someplace else, and we have complied with the law, with the
    letter of the law, but not the spirit of the law.
        Now, if something like that should come up, could you
    depend on each one of you in your individual Services to
    evaluate that and say, we are not going to tolerate that, that
    is the same as breaking the law, even if you are circumventing
    it by just going there for 24 hours? That is just one case. It
    could happen in any other cases, too. In fact, we had one,
    Secretary Eastin, in the Army.
        Mr. Eastin. What I was going to expand upon before is that
    it is not just our obligation to live up to the law; I think we
    will do that clearly. But it is also the obligation of the
    Services and Office of the Secretary of Defense (OSD) to live
    up to the spirit of this thing and not try to chisel away at
    the edges. So if we have some parties that are trying to do
    that sort of thing, I think it is up to the policymakers in the
    Services and OSD to try to reason with them as to what the law
    intends.
        Senator Inhofe. I think that is a very reasonable answer.
        Yes, Mr. Secretary.
        Mr. Penn. We also had to sign statements, sir, that we
    complied with the law, and none of us are going to jeopardize
    that.
        Senator Inhofe. Okay, fine.
        The other thing I wanted to get in, if I can squeeze this
    in real quick, Mr. Chairman: During the downgrading of the
    military in the 1990s, I was very much disturbed. At that time
    they called them Real Property Maintenance (RPM) accounts. I
    think they call them Sustainment, Restoration, and
    Modernization (SRM) accounts now. Anyway, it is RPM. These are
    the things, along with base ops, that had to be done. While we
    at that time did not have the ammunition we needed for
    training, we did not have the things--it was just a disaster
    that we faced in the military--they were taking money out of
    the RPM accounts and the base operations accounts.
        I can remember at Fort Bragg, going down there, Senator
    Sessions, where it was raining and they were inside the
    barracks with water just coming right down through the roof,
    using their parkas to protect their weapons.
        Now I see that we have the 90-90 plan. My question would
    be, why is 90-90 good enough, and in the case of the Air Force
    it actually was 86 percent on your SRM account. Number one, is
    that acceptable? Number two, why would it be that much lower
    than it was in previous years for other Services? Then for all
    of you to answer, why is 90-90 acceptable as opposed to 100-
    100?
        Secretary Anderson?
        Mr. Anderson. Yes, Senator, thank you. The 86 percent in
    our minds, of course, is not acceptable. We realize that that
    number does drive some risk and we are taking some bets here.
    We are trying to push ourselves through this transformation and
    modernization process, which I know you are well aware of. Out
    of that we believe that there is going to be some fruits in
    terms of cutting down on operating and maintenance type costs
    as we transform the Air Force.
        It is not where we want to be. We understand that this is
    an important issue. We are going to watch it very closely.
    There will be some tradeoffs. We hope that we retain the
    flexibility within the operating accounts to be able to move
    things back and forth as are necessary, especially in the case
    of natural disasters, where it is very important to be able to
    do that.
        We are committed to make sure that our facilities are
    appropriate for the mission in every single base.
        Senator Inhofe. Any others? [No response.]
        I would only respond, Secretary Anderson, that it seems to
    me some things should be exempt from the tradeoffs, and perhaps
    if anything should be exempt it would be the RPM and the base
    ops accounts.
        Thank you, Mr. Chairman. I have used more than my time.
        Senator Ensign. Senator Sessions.
        Senator Sessions. Thank you, Mr. Chairman.
        We did indeed have an intense year of BRAC process. Senator
    Inhofe, I remember, opposed, and was really a key player in
    delaying another BRAC because the last BRAC did not go through
    like it was supposed to have, and there were some political
    manipulations of it, and it left a lot of hard feelings here.
    It took a number of years before we ever got back to getting up
    the votes to pass it again.
        So I guess I want to share my thoughts. Our State loses, it
    gains some, but you do not want to end up losing and not
    getting your gain because there is not any money in the account
    to take care of the move. So I am concerned that there is not
    sufficient funds to execute the MILCON in the Future Years
    Defense Program (FYDP) to accomplish the realignment.
        So Mr. Grone, I would ask, how much is DOD short over the
    FYDP by each year, if you would explain that? How are we going
    to meet the requirements of the realignment?
        Mr. Grone. Senator Sessions, from the perspective of--and I
    described earlier the situation with regard to the fiscal year
    2006 and fiscal year 2007 budget request. We are comfortable
    that we have requested--and I know it sounds like a rather
    large, and it is a rather enormous sum--$5.7 billion for fiscal
    year 2007 to accommodate--$5.6 billion of that roughly is for
    future BRAC and just a little bit for environmental remediation
    and caretaker costs from prior BRAC. But $5.6 billion roughly
    for fiscal year 2007 for this round is an enormous sum.
        I tried to describe some of what you will see in the 2007
    budget request. We had laid in just as a matter of programmatic
    effort several years ago a long-term wedge to accommodate the
    cost, the then-unknown cost because we could not make any
    decisions, obviously, in advance. We tried to look at the
    experience of the 1993 and 1995 rounds and lay in a funding
    profile for BRAC across the program, and we did that. That had
    not been done by DOD previously.
        We are also tracking savings very earnestly in a way that
    the DOD had not done previously, all of which is to try to
    improve, A: the management of the resources; but B: also to
    ensure that resources as we free them up can be put back on
    BRAC activity.
        For overall in the program, when you see the FYDP you will
    see a number. It is somewhere near around $20 billion or so.
        Senator Sessions. $20 billion for what?
        Mr. Grone. For the program. Our Cost of Base Realignment
    Actions (COBRA) estimated cost for all of BRAC is $23 billion,
    based on the assessment of the commission. One of the
    challenges we have now is working through the 2008 to 2011
    profile on all the business plans as we work on cost and cost
    containment and to reposition savings as we develop them and
    put them back into the program.
        Senator Sessions. Let us just talk about that, though. Let
    me just interrupt you because my time will be up and you will
    have talked the whole time and not answered my question. Is
    there sufficient funds in this budget over the FYDP to do the
    construction necessary to effect the BRAC? I understand there
    is not. How much are we short?
        Mr. Grone. I do not have today--and that is what we are
    working to close here, to provide you that information in the
    month of March. We do not have all the analysis complete to
    demonstrate what we expect that cost profile from here through
    2011 to be, and that is what we are working on here, to close
    here in the month of March, to provide that to the committee.
        I am convinced that there is sufficient savings that will
    be generated through this process and reapplying them that we
    will be able to fully fund our commitments and to legally--to
    fulfill all of our legal obligations by 2011.
        Senator Sessions. But on the budgetary documents that we
    have seen over the FYDP, would you agree there is not
    sufficient funding to do the construction to house the
    transferred units and civilians in all aspects of the BRAC? Are
    you saying you are going to have to find some savings somewhere
    and that you will fill it in? Or are you saying that your
    budget request calls for sufficient funds to carry out the
    required moves?
        Mr. Grone. We have sufficient funds in fiscal year 2006. We
    would like to have had the $370 million Congress reduced the
    account in fiscal year 2006. We have sufficient funds in fiscal
    year 2007 to begin those critical actions to move out on
    implementation of BRAC.
        Senator Sessions. What about 2008 and beyond? That is where
    I understand the FYDP does not have enough money set aside to
    complete the----
        Mr. Grone. I cannot tell you today, based on our assessment
    of costs, how short or imbalanced that amount is. That is what
    we are working to conclude today. But we have nearly $20
    billion across the program for the implementation of BRAC and
    we know that we are going to have identified savings that we
    will be able to plow back into the program. But we are still
    working through the detail.
        Senator Sessions. I think Senator Inhofe is correct that we
    all know that BRAC cost upfront.
        Mr. Grone. It does.
        Senator Sessions. I think a bad decision was made the last
    BRAC to close Fort McClellan. Eight years went by and it still
    has not paid for itself. I understand you expected all of those
    base closings to pay for themselves in 3 to 5 years, and now
    this one may never pay for itself, frankly. So you cannot
    always count to have as much money as the rose-colored glasses
    people projected when they called for this. That is what I am
    concerned about.
        Now, BRAC is now law, so it is now law and unamendable, as
    Secretary Eastin said. You agree with that, is that correct? I
    mean, it is amendable by Congress, but not by any commanders.
        Mr. Grone. Right, that is correct.
        Senator Sessions. No commander, headquarters commander, can
    reverse the BRAC requirements because they have now decided it
    would be a better idea not to; is that correct?
        Mr. Grone. That is correct.
        Senator Sessions. Each of you said you will try to work on
    that, because when you are moving civilians and all there is
    some pain. Some people do not want to do it until they know it
    is going to happen and they have a place to go, and as long as
    there is uncertainty, the longer this thing hangs out there,
    the more problems we have. Would you agree with that?
        Mr. Anderson. Yes, sir.
        Mr. Penn. Yes.
        Senator Sessions. So if you do not have money people start
    saying: we will just save money, we just will not move, then
    you will save a lot of money. Then you have a morale problem
    that could be avoided.
        The way we see it, for example, the Missile Defense Agency
    (MDA) is $100 million short in budget dollars in 2008 for the
    move there.
        Mr. Grone. Senator Sessions, I do not know whether that
    amount at the end of the day is going to be accurate or not.
    Those are the things we are working through today. One of the
    things that we see in implementation is we often see a lot of
    get-wellism in the field. Our requirement is that only those
    things that are truly attributable to BRAC requirements are
    those things that ought to be funded with BRAC dollars.
        So we take very seriously our responsibility to the
    oversight committees and our responsibility to the taxpayer to
    ensure that the BRAC account only pays for those things that
    are directly related to the mission move requirement pursuant
    to law.
        With the indulgence of the chairman, one additional point
    in relation to that cost question because I believe it to be
    very important. When we went through the analysis in BRAC, the
    Government Accountability Office has consistently suggested
    that COBRA-based assessment costs tend to be overstated,
    savings tend to be understated. Now, in a program profile that
    we have where in the past it was about one third, one third,
    one third between environmental cleanup, operations and
    maintenance, permanent change of station, and other moves, and
    MILCON, we are looking at a program profile that is probably
    somewhere going to end up between two-thirds and three-quarters
    MILCON--a significantly different program profile for a program
    that we estimated, based on our COBRA-based assessment of the
    commission's changes, to be $20 billion.
        We took as a Department significant management steps to
    Reserve the bulk of that, the funding that would be necessary
    to undertake that activity, very early in the administration.
    We had not done that as aggressively as we had in prior rounds
    of BRAC. It is not a criticism. It is just we tried to do what
    we could to reserve as much funds as we could, and that the
    record of the internal deliberations of the Department that
    were provided to the commission would suggest that, based on
    our assessment of costs and savings, that the funds that had
    been reserved, in combination with the savings that would be
    generated, are sufficient to pay for the program.
        Senator Ensign. Senator Bill Nelson.
        Senator Bill Nelson. Thank you, Mr. Chairman. I know you
    are trying to get to the vote, so I will make this quick.
        Senator Sessions. Senator, would you yield just 1 second.
        I ask if you would submit an MDA report cost within the
    month. Could you do that for me?
        Mr. Grone. We will provide you what is required on any
    recommendation, Senator.
        [The information referred to follows:]

        On March 31, 2006, the Department submitted the fiscal year 2007
    budget justification books supporting the Base Realignment and Closure
    budget request. Included in that submittal are the cost and savings
    estimates for the Missile Defense Agency for that recommendation, by
    fiscal year.

        Senator Bill Nelson. Mr. Chairman, thank you. I want to
    thank Secretary Grone. When we visited earlier, this Senator is
    trying to protect your largest training and testing area for
    the military, which is the eastern Gulf of Mexico off of
    Florida. Fortunately, the process all happened so that we ended
    up getting the letter from Secretary Rumsfeld that said it
    would be incompatible to have oil rigs out there where you are
    doing your testing and training, so we are going to take that
    from here. So I wanted to thank you on that.
        What Senator Martinez and I have done, since that military
    mission line was set in the early 1980s, we have given you a
    25-mile buffer to the west so that in the course of the next 5
    years if you decide that you need that additional space where
    there would not be any drilling, that that would be the
    prerogative of the DOD. So I just wanted you to know that.
        Just a couple quick questions. What we have--DOD had
    approved, but the Office of Management and Budget (OMB) killed,
    in this supplemental appropriations, appropriations for Eglin
    AFB and also for Naval Air Station (NAS) Key West. This was
    related to storm damage--Hurricane Katrina and before that
    Hurricane Dennis, which was the first hurricane in the year.
    Eglin AFB has all of that sophisticated equipment out there on
    Santa Rosa Island. In another hurricane, it is not going to
    survive. There is no development out there except the Air Force
    equipment and it needs beach renourishment or else that island
    is not going to survive.
        That got axed by OMB. It was a request by DOD. So I hope
    that you have a plan to get this into the supplemental
    appropriation.
        The same thing down in Key West. Key West NAS--Wilma, the
    last storm of the year, significant damage, and DOD came forth.
    I bring that to your attention and you know what the amounts
    are: $150 million for beach renourishment on Santa Rosa Island
    and about $100 million for storm recovery at NAS Key West.
        Now, Secretary Penn, there is starting an Environmental
    Impact Statement (EIS) relative to home porting a nuclear
    carrier at Mayport. This is under the policy set forth by the
    Chief of Naval Operations and the Secretary of the Navy, and
    today in the Budget Committee that policy reiterated by the
    Deputy Secretary of Defense, Secretary England, who says you do
    not want all your eggs in one basket, the lessons of Pearl
    Harbor. You want to disperse your nuclear assets.
        Admiral Giambastiani said today here he remembered one time
    on Christmas that there were five nuclear carriers all lined up
    docked together on Christmas, and that is not a good position.
        I will conclude with this, Mr. Chairman. I know we have to
    go vote. Navy has sent me notification to start another EIS,
    but there was an EIS in 1997, and I want to make sure that you
    build on that other EIS and that this thing does not get slow-
    walked. So this study is going to give you a benefit and
    analysis and a faster time line based on the work already done
    in the EIS in 1997.
        Can you build on that EIS in 1997 and will you walk this
    thing through?
        Mr. Penn. We will supplement it, yes, sir, and we are
    moving out. In fact, the Under Secretary may have mentioned
    that we are going to look at expanding it to include other
    vessels besides the nuclear carriers. We want to disperse as
    much as possible.
        So yes, sir, we are proceeding.
        Senator Bill Nelson. Do not let this thing get sidetracked.
        Mr. Penn. No, sir.
        Senator Bill Nelson. Okay.
        Mr. Grone. Mr. Chairman, in relation to the other issue
    that the Senator from Florida raised, I might for purposes of
    the record, the supplemental request also carries a request of
    the Appropriations Committee to allow us broad transfer
    authority between a number of different accounts in order to
    accommodate and flexibly accommodate other requirements that we
    may have. So we will continue to work with the committees on
    the questions that Senator Nelson raised and see if we can see
    a way to addressing it.
        Senator Bill Nelson. Okay. Can you talk specific dollar
    amounts for transfer authority for the record?
        Mr. Grone. My understanding is it was special transfer
    authority. I do know that it was limited to specific amounts
    between and among bills. But we can clarify that for you for
    the record.
        Senator Bill Nelson. Would you, please? I can tell you the
    commanders have their hair on fire down there because they are
    afraid they are going to lose that island.
        [The information referred to follows:]

        The Department requested for $300 million in transfer authority for
    hurricane-related funds, including transfers involving military
    construction appropriations. In addition, the Department requested a
    provision to expand the scope of existing transfer authority to include
    military construction (funds appropriated in the last hurricane
    supplemental). These provisions provide the Department with the
    flexibility needed to react to changing conditions and ensure that
    funds are appropriately allocated as estimates arc updated. Without
    these authorities, the Department's ability to respond to changes is
    severely limited.

        Senator Ensign. I thank all the witnesses and thanks for
    the brevity today. We got to most of our questions and the rest
    of them will be submitted for the record. We would appreciate a
    timely response.
        The hearing is adjourned.
        [Questions for the record with answers supplied follow:]
                   Questions Submitted by Senator John Warner
                fort monroe, virginia construction requirements
        1. Senator Warner. Secretary Eastin, the seawall flood protection
    system at Fort Monroe, Virginia, was destroyed by Hurricane Isabel on
    September 18, 2003. The Army received $30.3 million in 2004 emergency
    supplemental funds to make necessary repairs and improvements after
    citing the urgent requirement to, quoting the justification document
    received by Congress, ``eliminate life, safety, and health deficiencies
    . . . associated with the piers and seawall.'' The Army also stated in
    the same document that ``If this project is not provided, Fort Monroe
    will continue to operate, placing personnel, personal property,
    facilities, and infrastructure at risk. . . Failure to repair Fort
    Monroe may expose the government to future liabilities resulting in
    life, health, and safety issues.'' Unfortunately, despite the urgency
    of the requirement, the Army has not awarded a contract to complete the
    repairs and improvements to the seawall as of this date. Two years
    later in November 2005, a decision was made to close Fort Monroe under
    the authority of the Base Realignment and Closure (BRAC) process.
    Congress passed a legislative provision in 2005 which prohibited the
    military departments from obligating funds for military construction
    (MILCON) projects on installations that were to be closed as a result
    of BRAC 2005. Congress did include an exception to the prohibition,
    quoting the law, ``this section shall not apply to MILCON projects. . .
    for which the project is vital to the national security or the
    protection of health, safety, or environmental quality.'' Clearly,
    Congress intended for the Department of Defense (DOD) to be able to
    carry out specific construction projects at military installations to
    be closed, if certain urgent circumstances warranted the investment.
    With this background, can you explain why this emergency requirement to
    protect life, safety, and health, for which funds were provided 2 years
    ago, has not been completed?
        Mr. Eastin. The design was initiated in early 2004 and completed in
    July 2005, which is a reasonable time to complete a design of this
    scope and magnitude. Concurrently, emergency repairs to stabilize the
    seawall were initiated in March 2004 and completed in May 2005. The
    design has been completed. The solicitation and award of this project
    was put on hold on July 22, 2005, due to the then-ongoing BRAC process.
    However, once we receive the required State Historical Preservation
    Office final approval, we will request an exception to the BRAC 2005
    restrictions so we can proceed with solicitation, award, and project
    execution.

        2. Senator Warner. Secretary Eastin, what is the Army's plan to
    protect the personnel at Fort Monroe from catastrophic damage of a
    future storm?
        Mr. Eastin. Fort Monroe is vulnerable and will be until the
    improved seawall is constructed. However, the improved seawall will not
    guarantee protection against all categories of storms. Therefore, Fort
    Monroe plans to evacuate the garrison in the event of a destructive
    storm that would endanger the life, health, and safety of persons and
    property on Fort Monroe.

        3. Senator Warner. Secretary Eastin, were the improvements to the
    seawall proposed by the Army in 2004 intended to contribute to the
    elimination of life, safety, and health deficiencies in order to
    further protect personnel at Fort Monroe?
        Mr. Eastin. Yes. Without this project, conveyed property and
    historical value will be at risk for flooding that exceeds the 5-year
    flood event. The project is vital to correct deficiencies that threaten
    real property, including historical ambiance, and associated health,
    safety, or environmental concerns of the people living, working, and
    visiting Fort Monroe. This project is needed before property is
    disposed under BRAC 2005.

        4. Senator Warner. Secretary Eastin, does the Department of the
    Army plan to dispose of excess property resulting from BRAC that may be
    an immediate threat or risk to the life, safety, or health of the local
    community or other receiving entity?
        Mr. Eastin. The Army will comply with all Federal and State laws
    and regulations regarding condition and safety of property as we convey
    BRAC sites to the local communities. There may be cases where a local
    community desires to receive property for immediate reuse opportunities
    before cleanup is completed. Such transfers would only be done with the
    concurrence of the State Governor, and safety of the local community
    would be protected by restricting use of the property until cleanup is
    complete.

                                    museums
        5. Senator Warner. Mr. Grone, I have been very concerned for some
    time that the DOD has been asked to divert critical readiness and
    training resources in order to support a proliferation of military
    museums sprouting up both on military installations and in local
    communities. I firmly support the efforts of the military Services to
    preserve their heritage, legacy, and history in order to serve as an
    educational opportunity as well as supporting pride and esprit de
    corps. To that effect, I have endorsed the concept of each military
    Service working with a nonprofit foundation to establish an official,
    national museum in a consolidated, efficient effort to build a world-
    class facility worthy of the sacrifice of our military personnel. All
    Services now have either an established museum, or are engaged in
    activities to complete a museum. To get an understanding of the impact
    of the remaining inventory of museums supported by the Department,
    Congress directed the Secretary of Defense to prepare a comprehensive
    report on that inventory to be provided to the congressional defense
    committees by March 15, 2005, and to update that report annually. As of
    the date of this hearing, the initial report has not been delivered to
    this committee. When will the DOD submit the museum report directed by
    Congress in Public Law?
        Mr. Grone. Ken Krieg, Under Secretary of Defense (Acquisition,
    Technology, and Logistics), signed the letters forwarding the report to
    Congress on March 20, 2006.

        6. Senator Warner. Secretary Eastin, the Army fiscal year 2007
    MILCON budget request includes $27 million for a museum support center
    at Fort Belvoir, Virginia. For what requirement will this project
    satisfy?
        Mr. Eastin. The museum support center will replace leased space in
    Washington, DC. The leased space has over 15,000 pieces of Army art and
    40,000 artifacts. The current leased facility does not have appropriate
    artifact storage, treatment, and restoration capabilities, or the
    ability to study historical collections. The museum support center at
    Fort Belvoir will provide a secure, museum-quality, climate controlled
    facility to house, process, and treat unique and priceless historical
    artifacts to meet the Army's current and future requirements.

        7. Senator Warner. Secretary Eastin, is this project intended to
    support the proposed National Museum of the United States Army or to
    support all archiving and preservation efforts of the Army Historian?
        Mr. Eastin. The federally-funded museum support center is a stand-
    alone facility; it will be helpful to have it located in proximity of
    the proposed privately funded National Museum of the United States Army
    campus, though not required. The museum support center project will be
    managed by Department of the Army civilian employees to meet Federal
    law, Army regulations, and professional preservation guidelines. The
    facility will support the Chief of Military History by storing and
    maintaining artifacts, material culture, and the Army art collection.
    Storage of Army artifacts is an Army responsibility. Display of
    artifacts may be accommodated in the Army Museum.

                             hospitals in virginia
        8. Senator Warner. Mr. Grone, two military hospitals were
    authorized by Congress in 2005 to be constructed in Virginia, the first
    a replacement costing $100 million for DeWitt Army Community Hospital
    at Fort Belvoir, and the second an addition and alteration to the
    hospital costing $50 million at Langley Air Force Base. Both of these
    projects were to have construction contracts awarded by March 2005 and
    construction completed by December 2007. As of this date, both of these
    projects do not even have designs completed. I understand that DeWitt
    was impacted in a positive way by the decisions of the 2005 BRAC
    process, but I find this delay to these critical care facilities to be
    completely unacceptable and not indicative of the support we provide to
    military members and their families. When will these projects be
    awarded?
        Mr. Grone. The design for the Fort Belvoir project was placed on
    hold in June 2005. The Fort Belvoir installation is affected by
    movement of medical personnel and services to this location as a result
    of BRAC. The Fiscal Year 2005 Hospital Replacement project is too small
    to accommodate this action and the site is too constrained to consider
    an addition to meet the escalating requirements due to BRAC. The
    expanded health care requirement will be accomplished under BRAC. We
    intend to design and construct this hospital in an expeditious and
    cost-effective manner to meet the BRAC directed completion date of
    September 15, 2011, without any degradation of health care services to
    our eligible beneficiaries.
        The Langley Air Force Base hospital was completely designed.
    However, when the project was advertised for construction, the bid
    results exceeded the appropriated amount of the project by more than 59
    percent. The excessive costs were due largely to a lack of competition
    in the local market, exacerbated by a national and global problem of
    materials price escalation. The solicitation was canceled. The
    alteration of the existing hospital tower and main floor alteration
    work within the existing facility has been significantly reduced,
    resulting in a 32.4-percent scope reduction, overall. Congressional
    notice of this scope reduction was made on February 15, 2006. The new
    construction portion of the project has been reengineered and, if
    favorable bids are received, an award is expected in late April or
    early May.

        9. Senator Warner. Mr. Grone, what is the Department's plan to
    expedite the completion of the construction of these facilities in
    order to meet the original construction completion date provided in
    official documents to Congress?
        Mr. Grone. The new hospital at Fort Belvoir must be moved to a new
    site and redesigned as a result of BRAC. The current design cannot
    accommodate the volume of workload required by the BRAC solution. Other
    than to confirm that construction will be complete by September 15,
    2011, it is too early to state the actual date when the new facility
    will open. The Langley Hospital project cannot meet the original
    completion date due to previous unfavorable bid results; however, the
    project design was repackaged and section 2853 notification was made in
    February 2006. A new solicitation for bids has been announced and the
    results are expected in late April or early May.
                                     ______

                   Questions Submitted by Senator John Ensign
                         cleanup of unexploded ordnance
        10. Senator Ensign. Mr. Grone, in the National Defense
    Authorization Act (NDAA) for Fiscal Year 2002, and in the Senate Report
    on the NDAA for Fiscal Year 2005, this committee expressed its concern
    with the problem of cleanup of unexploded ordnance (UXO) at the
    Department's active bases, formerly-used defense sites, and facilities
    closed by BRAC. What are the Department's goals for cleaning up UXO?
        Mr. Grone. For the cleanup of munitions response sites, which
    includes the cleanup of UXO, the Department has established the
    following near-term goals:

             Completion of all Comprehensive Environmental
            Response, Compensation, and Liability Act (CERCLA) preliminary
            assessments by the end of fiscal year 2007.
             Completion of all CERCLA site inspections by the end
            of fiscal year 2010.
             Remedy-in-place or response complete for munitions
            response sites at BRAC sites (first four rounds--not BRAC 2005)
            by the end of fiscal year 2009.

        DOD is in the process of evaluating the inventory of munitions
    response sites to establish program end goals (i.e. remedy-in-place or
    response complete) at active installations and formerly-used defense
    sites. These goals are expected to be in place by the end of fiscal
    year 2006.

        11. Senator Ensign. Mr. Grone, what is the time line to clean up
    UXO at all DOD sites?
        Mr. Grone. The timeline to clean up munitions response sites at
    other than operational ranges is directly related to the performance
    goals the DOD is currently developing. The DOD expects to have end-of-
    program goals established by the end of fiscal year 2006. These goals
    will bound the military munitions response program.

        12. Senator Ensign. Mr. Grone, how much does the Department
    estimate this will cost?
        Mr. Grone. The Department's Cost-to-Complete estimates (fiscal year
    2006 to completion) for the Military Munitions Response Program are as
    follows:

             Active Army installations - $4.3 billion
             Active Navy installations - $466 million
             Active Air Force installations - $1.3 billion
             BRAC Army installations - $1.1 billion
             BRAC Navy installations - $97.6 million
             Formerly Used Defense Sites - $16.4 billion

        These estimates are site level costs only and do not include
    management and support costs.

                         brac environmental activities
        13. Senator Ensign. Mr. Grone, how long does the Department
    estimate it will take to clean up facilities closed or realigned by the
    2005 round of BRAC?
        Mr. Grone. The most recent estimated Response Complete (RC) data
    shows 98 percent of the major BRAC will be RC by 2012. For all BRAC
    actions, which include both facility closures and realignments, DOD
    estimates 91 percent RC by fiscal year 2012 in the Installation
    Restoration Program (IRP), and 85 percent RC by fiscal year 2017 in the
    Military Munitions Response Program (MMRP).
        DOD estimates 100 percent RC by fiscal year 2057 for the IRP and by
    fiscal year 2035 for the MMRP. These RC dates include facilities that
    are closing as well as facilities that are realigning.

        14. Senator Ensign. Secretary Eastin, the Army is engaged in a
    massive relocation of its troops from bases overseas, as well as moving
    forces as a result of BRAC 2005. In some cases, large numbers of troops
    will be moving to bases that are already challenged to comply with
    environmental laws without negatively impacting training. Other bases
    face serious issues of urban encroachment. How is the Army ensuring
    that its planned restationing of forces will not run into environmental
    problems when large numbers of relocated troops need to conduct local
    training in environmentally sensitive areas and be housed at bases that
    are already facing environmental challenges?
        Mr. Eastin. During the preparation of the BRAC 2005
    recommendations, the Army performed preliminary environmental impact
    and encroachment assessments on all of the recommendations. These
    studies determined that there were no known environmental impediments
    to implementing the recommendations.
        To prepare for the large relocation of troops associated with BRAC
    and Integrated Global Presence and Basing Strategy (IGPBS) initiatives,
    the Army initiated a number of comprehensive National Environmental
    Policy Act (NEPA) studies that focus on both the potential
    environmental impacts and mitigation measures. These ongoing specific
    NEPA studies are installation-specific and are meant to capture all of
    the potential cumulative, environmental, and social impacts caused by
    the incoming troops, training activities, and planned construction.
    These studies also identify specific mitigation measures, such as
    training restrictions, that are meant to protect sensitive areas and/or
    minimize the impacts on local communities.
        In addition, the installations gaining troops will continue to
    abide by all applicable Federal, State, and local laws and regulations
    that are meant to protect environmentally sensitive areas and minimize
    impacts on local communities. The Army places a very high priority on
    environmental and urban encroachment issues and will continue to
    proactively minimize impacts as realignments occur. By actively
    engaging local communities and State regulatory authorities throughout
    the next 6 years, the Army will ensure that planned training and
    construction is compatible with the limitations that are specific to a
    particular installation.

        15. Senator Ensign. Secretary Eastin, for overseas location such as
    Korea, what are the responsibilities of the United States to perform
    environmental cleanup and restoration of installations formerly used by
    U.S. forces?
        Mr. Eastin. Legally, these responsibilities are determined by
    negotiated international agreements which vary from nation to nation,
    and by guidance provided by Congress in subtitle C, section 321, of the
    NDAA for Fiscal Year 1999. Further, the DOD has an internal policy (DOD
    Instruction 4715.8, Environmental Remediation for DOD Activities
    Overseas) which authorizes remediation actions to eliminate known
    imminent and substantial endangerment to human health and the
    environment; to meet the requirements of an international agreement; or
    to maintain operations and protect human health and safety.

        16. Senator Ensign. Secretary Eastin, specifically for
    installations in the Republic of Korea, how much will it cost and who
    will pay for the environmental cleanup and restoration of installations
    formerly used by U.S. forces?
        Mr. Eastin. These negotiations are currently in progress and
    extremely sensitive in nature. It is not appropriate to comment at this
    time regarding the outcome, or to speculate on any specific details.

        17. Senator Ensign. Mr. Grone, should any agreement for the DOD to
    share the costs of environmental cleanup and restoration of
    installations formerly used by U.S. forces in Korea be considered a
    precedent for other host nations?
        Mr. Grone. As negotiations are currently in progress and extremely
    sensitive in nature, it is premature to speculate on the nature of the
    outcome on other relationships around the world. However, DOD is
    cognizant of potential impacts in this arena.

                             weapons dumped at sea
        18. Senator Ensign. Secretary Eastin, the Army has recently
    discovered chemical and other weapons that were dumped at sea--from as
    long ago as the period after World War I until as recently as the
    1970s--in waters off Hawaii, New Jersey, and at other sites impacting
    at least 11 States. What is the Army doing to assess the number and
    location of all such sites and their danger to the public?
        Mr. Eastin. The Army and its sister Services are conducting an
    archive search of historical records on the disposal of military
    materials at sea. This review includes records at the National Archives
    and studies and survey reports on sea disposal sites. The Services are
    also working with the National Oceanic and Atmospheric Administration
    to review the historical information for the explosives disposal sites
    on that agency's nautical charts.
        In the early 1970s, Navy conducted monitoring and data collection
    of deep water sea disposal sites in the Atlantic and Northern Pacific.
    This data collection effort included two sites that disposed of
    chemical warfare materiel. The Navy found no evidence of any
    environmental impact at any of these sites.
        The Army is currently reviewing past scientific studies, both U.S.
    and international, on the effects of seawater on chemical munitions and
    the potential impacts of sea disposal on marine environments. This
    research will enable the DOD to: (a) better understand the current
    condition of sea disposed materiel; (b) the effects of seawater on
    chemical warfare material; (c) the potential impacts of sea disposal on
    marine environments; and (d) the current condition of disposal sites.
    Our preliminary information suggests that these disposal sites do not
    pose an imminent or substantial threat to public health, safety, or the
    environment.

        19. Senator Ensign. Secretary Eastin, do you commit to keep this
    subcommittee informed of the Army's actions and any needs that may
    arise from this situation?
        Mr. Eastin. Absolutely.

                              mid-frequency sonar
        20. Senator Ensign. Secretary Penn, the Navy is currently involved
    in litigation challenging the Navy's compliance with environmental laws
    regarding use of mid-frequency sonar. Mid-frequency sonar is the most
    common form of active sonar used by surface ships, submarines, and
    helicopters. What is the status of this litigation and its potential
    impact on the Navy's ability to use sonar?
        Mr. Penn. On October 19, 2005, the Natural Resources Defense
    Council and other nongovernmental organizations filed suit in the
    Central District of California alleging that the Navy's use of mid-
    frequency active (MFA) sonar during testing and training activities
    violates the NEPA, the Marine Mammal Protection Act, and the Endangered
    Species Act. Plaintiffs have asked the court to declare the Navy in
    violation of the law and to order Navy to propose a plan to remedy the
    alleged violation, including a mitigation plan for all uses of MFA
    sonar during testing and training activities. Plaintiffs have not asked
    for injunction to halt any training activities, but they could still do
    so, thus the potential exists to impact current and future testing and
    training activities involving MFA sonar. Navy filed a motion to dismiss
    or, in the alternative, for summary judgment on February 17, 2006. A
    hearing on the Navy's motion is scheduled for May 22, 2006.

        21. Senator Ensign. Secretary Penn, the Navy has begun the process
    of complying with the NEPA regarding its plan to build a shallow water
    training range for use of sonar on the east coast of the United States.
    The Washington Post recently reported that the National Oceanic and
    Atmospheric Administration (NOAA) had raised serious concerns about the
    Navy's Environmental Impact Statement (EIS) for this range. What is the
    status of the East Coast Shallow Water Training Range?
        Mr. Penn. The public comment period for the draft EIS for the
    Undersea Warfare Training Range (USWTR) ended January 30, 2006. The
    Navy is in the process of addressing the comments received, and
    preparing the final EIS.

        22. Senator Ensign. Secretary Penn, what is the Navy doing to
    respond to NOAA's concerns?
        Mr. Penn. The Navy is currently in discussions with NOAA, which is
    a cooperating agency on the USWTR EIS, to address their concerns.

        23. Senator Ensign. Secretary Penn, why is this range so important
    to the Navy?
        Mr. Penn. Effective use of active sonar is a perishable skill that
    must be continually honed, both by the technicians who operate the
    system and the fleet assets that deploy the technology. USWTR will
    provide for training at sea on active sonar techniques versus
    underwater targets (actual and simulated subs) and provide real time
    feedback to operators to maximize the effect of training. The training
    will occur in the depths of water that most closely mimic littorals
    where we operate our Carrier Strike Groups (CSGs) and Expeditionary
    Strike Groups around the world.

                                  perchlorate
        24. Senator Ensign. Mr. Grone, the problem of perchlorate
    contamination of drinking water resources is a major concern in many
    western States. What has the DOD done over the last year to address the
    perchlorate issue?
        Mr. Grone. DOD continues to actively address the perchlorate issue.
    DOD has established a perchlorate policy that directs the military
    Services to sample for perchlorate and take actions to protect public
    health. The policy establishes a level of concern of 24 ppb of
    perchlorate in water consistent with EPA's health-based reference dose.
    The DOD level of concern is a level at which, absent a governing
    Federal or State standard or requirement, DOD will take unilateral
    actions to ensure protection of human health. The policy provides
    specific sampling guidelines for DOD-owned drinking water systems,
    wastewater effluent sampling requirements, and directs assessment for
    off-range migration from operational ranges consistent with DOD
    Directives 4715.11 and 4715.12.
        The DOD completed perchlorate remediation activities at three
    installations, and continues with remediation activities at five other
    installations. Site risk assessments are underway at the remaining
    installations where perchlorate is suspected to have been released.
    Specific examples of DOD's perchlorate remediation activities in the
    West include Vandenberg Air Force Base, where groundwater has been
    treated to non-detect levels of perchlorate, and Edwards Air Force
    Base, where groundwater perchlorate levels have been reduced by ten-
    fold during the current treatability study.
        Working collaboratively with the State of California, the DOD
    prioritized sites where response activities will be initiated: Of the
    84 DOD installations evaluated, 24 were prioritized for action. Of the
    227 Formerly Used Defense Sites evaluated, 14 were prioritized for
    action. In the 9 months since the prioritization was completed, DOD and
    State regulators have agreed that 46 sites at 12 installations did not
    have perchlorate associated with them. In addition, DOD is awaiting
    response from the State of California to our request to have all 14
    FUDS removed from the prioritized list as a result of our
    investigations. In addition, 32 sites at 6 facilities are currently
    being discussed with State regulators to determine if sampling is
    needed; 2 sites at 1 installation are currently being sampled; the
    remaining 3 installations, with 1 site at each, have initiated
    response/remedial actions.
        Since September 2005, DOD has been working with water surveyors and
    California Department of Health Services to perform a treatment
    demonstration project in southern California. Implementation of the
    perchlorate treatment technology demonstrations creates approximately
    5,000 gallons per minute new treatment capacity in the Inland Empire
    region.

        25. Senator Ensign. Mr. Grone, how is the DOD dealing with States
    like California which have a perchlorate standard that is tougher than
    the EPA and DOD standard?
        Mr. Grone. As stated in the January 26, 2006 perchlorate policy
    memorandum: ``Until such time as EPA or a State promulgates standards
    for perchlorate, DOD is establishing 24 ppb as the current level of
    concern for managing perchlorate. Once established, DOD will comply
    with applicable State of Federal promulgated standards whichever is
    more stringent.'' Thus, if a State establishes a perchlorate standard
    through the normal process for rulemaking, DOD will comply with that
    standard. Absent a promulgated standard in a State, DOD will continue
    to use 24 ppb as a departure point for making risk management
    decisions.

                          drinking water contamination
        26. Senator Ensign. Secretary Penn, as a result of the action by
    this committee in the NDAA for Fiscal Year 2005, the Government
    Accountability Office (GAO) is conducting a study on drinking water
    contamination and related health impacts at Marine Corps Base Camp
    Lejeune, North Carolina, and an assessment of the ongoing study of the
    possible health impacts being conducted by the Agency for Toxic
    Substances and Disease Registry (ATSDR). Are the Department of the Navy
    and the Marine Corps cooperating in the work being done by the GAO and
    the ATSDR?
        Mr. Penn. Yes. The Marine Corps cares deeply about the health and
    well-being of our current and former Marine Corps families. We believe
    the best way to support them is through continued cooperation with the
    ATSDR and GAO. We are funding the ATSDR's activities to include the
    ongoing health study, the water model that supports the study by
    estimating when and where on the base the water was impacted, and the
    Community Assistance Panel that is examining the feasibility of
    additional studies. We also provide requested data and respond to
    inquiries from both the ATSDR and the GAO.

        27. Senator Ensign. Secretary Penn, has any new information come to
    light about the extent of the possible exposed population or the
    potential health impacts?
        Mr. Penn. The ATSDR estimates their epidemiological study will be
    complete in late 2007. ATSDR's epidemiological study includes drinking
    water system modeling that should provide us with specific information
    to identify which former Camp Lejeune residents consumed the impacted
    water and their level of exposure. It is unclear which former Camp
    Lejeune residents consumed impacted drinking water and how much of the
    chemicals these residents may have consumed. This is because not all of
    the Base's wells were impacted, different wells were used at different
    times, and we do not yet know when the affected wells were first
    impacted. We hope that the water model and the completed health study
    will provide answers to the many questions that surround this difficult
    issue.

        28. Senator Ensign. Secretary Penn, please describe what the
    Department of the Navy and the Marine Corps have done to address this
    issue and the concerns of marines and their families who believe they
    have health-related impacts due to contaminated drinking water at Camp
    Lejeune?
        Mr. Penn. We understand the concerns of these marines and their
    families. We are supporting the ATSDR epidemiological study of unborn
    children of mothers who were pregnant while living at Camp Lejeune
    during 1968-1985. As part of that study, the Marine Corps assisted
    ATSDR in identifying former Camp Lejeune residents through searches of
    hospital and housing records, personnel databases, and a public
    notification campaign. The Marine Corps published articles in various
    base and Marine Corps publications, sent two administrative messages to
    all marines, conducted a Camp Lejeune Open House, conducted a press
    briefing at the Pentagon, and notified potential participants through
    an extensive media campaign covering over 3,500 media outlets. Due to
    these efforts, ATSDR was able to contact 12,598 participants for their
    survey approximately 80 percent of the total estimated survey
    population. We continue to maintain a webpage (www.usmc.mil/clsurvey)
    that has information on the history of this issue and answers to
    frequently asked questions. We also operate a toll-free information
    line (877-261-9782) to respond to inquiries from members of the public.
    Further, Marine Corps representatives are participating in the
    community assistance panel that was convened by the ATSDR to examine
    the feasibility of conducting additional studies. Be assured that the
    Marine Corps takes this issue seriously and is willing to support
    potential future initiatives that may include other studies and
    additional notification to former Camp Lejeune residents and employees.

                    navy project for outlying landing field
        29. Senator Ensign. Secretary Penn, the Navy's efforts to build a
    new Outlying Landing Field (OLF) in Washington County, North Carolina,
    to support Navy aircraft stationed on the east coast has been delayed
    due to environmental litigation. What is the status of the OLF and what
    are the Navy's plans for this proposed facility?
        Mr. Penn. In September 2005, the U.S. Fourth Circuit Court of
    Appeals upheld a District Court finding that Navy's EIS was deficient,
    and Navy must complete a supplemental EIS to address its shortcomings.
    The Navy is preparing a Supplemental Environmental Impact Statement
    (SEIS) to remedy the deficiencies of the original EIS. Navy is
    collecting additional data on all five of the northeastern North
    Carolina alternative OLF sites, and will hold public hearings upon
    release of the draft SEIS this fall. Ultimately, a new Record of
    Decision (ROD) is anticipated in the spring 2007. Although land
    purchases in Washington County from willing sellers have been permitted
    by the court, no construction or other irreversible actions can be
    taken at any alternative site until a ROD is issued selecting a site
    based on both the original EIS and the additional data and analysis of
    the SEIS. Upon issuance of a ROD, Navy will proceed with construction
    of the OLF and to purchase the remaining core and buffer area land on
    the OLF project at the site selected in the ROD.
        The facility is planned to support field carrier landing practice
    training requirements for the introduction of the F/A-18 E/F (Super
    Hornet) aircraft to the east coast of the United States. The OLF
    remains critical to our ability to efficiently surge east coast CSGs
    and the associated airwing assets.

        30. Senator Ensign. Secretary Penn, will the Navy be able to
    obligate the funding of $7.9 million requested for this project in
    fiscal year 2007, regardless of the status of the SEIS?
        Mr. Penn. Navy can obligate all of the money requested for fiscal
    year 2007 once the EIS is completed and the ROD is signed, unless
    litigation continues and an injunction is issued prohibiting
    construction and property condemnation.
        The Fourth Circuit Court of Appeals decision of September 7, 2005,
    allows Navy to resume efforts preliminary to land acquisition such as
    property surveys and appraisals, title searches, relocation surveys and
    hazardous materials surveys; to undertake architectural and engineering
    work necessary for planning and design of an OLF; and to prepare for
    land purchases from willing sellers. MILCON funds are now being used to
    pursue these court-approved actions.
        The Department's fiscal year 2007 request of $7.9 million is
    predicated on completing the SEIS, signing the ROD in April 2007, and
    awarding a construction contract in the fourth quarter of fiscal year
    2007. The Navy is confident that it has structured the SEIS to
    explicitly address all concerns expressed by the court.
        Plaintiffs may challenge the SEIS and revised ROD. If the District
    Court chooses to enjoin construction and involuntary land acquisition
    activities pending resolution of that challenge, there are to date
    insufficient landowners in the core and buffer areas who have indicated
    they could be willing sellers of their property to obligate in fiscal
    year 2007 the prior year and budgeted fiscal year 2007 funds for OLF.

                                  buffer zones
        31. Senator Ensign. Secretary Anderson, the Army has taken an
    aggressive position in taking advantage of recent congressional
    authority to enter into agreements with third parties--such as
    environmental groups and State and local governments--to create buffer
    zones on real estate that provides an environmental benefit to military
    bases and ranges. Although the Air Force has pursued a similar
    initiative by partnering with Florida to create the Northwest Florida
    Greenway, the Air Force has generally been less aggressive in using
    this buffer zone authority. What is the Air Force position on
    partnering with third parties to obtain the advantage of leveraging
    their interests and funding to achieve environmental benefits for the
    Department?
        Mr. Anderson. The Air Force considers the authority in 10 U.S.C.
    2684a, as amended, as one tool of many available to us for use in
    addressing encroachment concerns. The Air Force prioritizes these tools
    when it comes to encroachment strategies. Our first priority is to
    fully pursue no-cost strategies such as the Air Installation Compatible
    Use Zones (AICUZ) Program. The Air Force has 30 years' experience
    working with neighboring communities and counties in collaborative
    planning efforts under AICUZ, supplemented as needed with Joint Land
    Use Studies, interagency/intergovernmental coordination and outreach
    with local and State governments, and State and Federal agencies. In
    those situations where land use planning solutions are inadequate, or
    inappropriate, we have, thanks to Congress, a number of authorities
    available for our use to include 2684a. The Air Force is currently
    evaluating how to best use the partnering opportunities provided by 10
    U.S.C. 2684a in a comprehensive encroachment strategy.

        32. Senator Ensign. Secretary Anderson, are there Air Force
    installations or ranges facing encroachment problems where partnership
    with local governments and environmental groups to create a buffer zone
    might be beneficial?
        Secretary Anderson. The Air Force supports and encourages all forms
    of partnerships that contribute to mission sustainability. These
    include partnering with local governments to achieve functional buffers
    through collaborative planning efforts, formal or informal partnering
    with other land management agencies to deconflict missions, and with
    environmental organizations to achieve mutual goals.
        The Air Force is currently evaluating how to best use the
    partnering opportunities provided by 10 U.S.C. 2684a in a comprehensive
    encroachment strategy. In April, the Air Force will be soliciting
    candidate projects for Office of the Secretary of Defense's (OSD)
    fiscal year 2007 Readiness and Environmental Protection Initiative. We
    will evaluate each candidate project for cost effectiveness and
    beneficial support of current and known future operational mission
    requirements.

                    impact of changes to environmental laws
        33. Senator Ensign. Mr. Grone, the NDAAs for Fiscal Years 2003 and
    2004 made changes to environmental laws intended to provide greater
    clarity for the Department and to ensure that the Department could
    provide realistic combat training to our young men and women while also
    being good stewards of the environment. Specifically, Congress modified
    the Migratory Bird Treaty Act in the NDAA for Fiscal Year 2003, and the
    Endangered Species Act and Marine Mammal Protection Act in the NDAA for
    Fiscal Year 2004. What has been the impact of those changes on the
    Department's ability to conduct realistic combat training while also
    safeguarding the environment?
        Mr. Grone. The amendments to all three laws have been positive from
    both a readiness and an environmental perspective.
        Amendments to the Migratory Bird Treaty Act exempting military
    readiness activities from incidental take prohibitions are allowing
    testing and training to proceed, preventing regulatory creep, and
    avoiding new and expensive regulatory burdens. At the same time, DOD
    continues to study impacts of actions on migratory birds and to take
    protective actions. DOD maintains a leadership role in partnerships and
    programs to protect migratory birds. One example is Partners in Flight,
    a consortium of Western Hemisphere partners dedicated to the
    conservation of neotropical migratory birds and their habitats.
        Amendments to the Endangered Species Act associated with the use of
    Integrated Natural Resource Management Plans (INRMPs) to serve in place
    of critical habitat designations, upon the decision of the Secretary of
    Interior, are avoiding the fragmentation and reduction of test and
    training areas, allowing more realistic training, and avoiding loss of
    lands capable of supporting military missions. These provisions allow
    holistic approaches to natural resource management. To date, there are
    35 installations where INRMPs successfully avoided a critical habitat
    designation. DOD continues to coordinate INRMP development with the
    U.S. Fish and Wildlife Service and State fish and wildlife agencies.
        Amendments to the Marine Mammal Protection Act redefining the
    definition of ``harassment'' to exclude biologically insignificant
    behavioral changes, adding a national security exemption, and
    clarifying language on small takes and geographic operating limitations
    follow the recommendations of independent scientists and research
    panels. These changes have brought greater certainty to both the
    regulators and DOD, which in turn has provided for greater training
    flexibility and increased realism. DOD remains committed to its
    leadership role in marine mammal research and continues to develop
    protective measures for marine mammals.

                      environmental legislative proposals
        34. Senator Ensign. Mr. Grone, the DOD has previously offered
    proposals to amend the Clean Air Act, the Resource Conservation and
    Recovery Act (RCRA), and the CERCLA, commonly known as the Superfund
    Law, as part of its Readiness and Range Preservation Initiative. Does
    the Department intend to offer these proposals again this year?
        Mr. Grone. The DOD has resubmitted the legislative proposal to
    provide the States with authority to accommodate military readiness
    activities subject to the Federal conformity requirements under the
    Clean Air Act. It has also resubmitted the legislative proposal to
    clarify the application of RCRA and CERCLA to munitions used for their
    intended purposes on operational ranges. The two proposals have
    additional sectional analysis provided, but are otherwise the same as
    submitted last year.

        35. Senator Ensign. Mr. Grone, what has the DOD done to overcome
    the opposition of State regulatory agencies, State attorneys general,
    and environmental groups to these proposals?
        Mr. Grone. Most of the changes to the current legislative proposal
    grew out of intensive discussions with State officials and
    environmental groups and are designed to address specific concerns
    raised by the States and environmental groups. The DOD has continued to
    discuss with various State representatives and environmental groups the
    need to address issues relating to military readiness and particularly
    those dealing with its operational ranges. This is a multi-faceted
    discussion that includes many subjects and is not limited to the two
    legislative proposals resubmitted this year.
    Clean Air Act (CAA)
        The CAA amendment has changed in two ways from the original
    proposal submitted in 2002. Both of these changes are in direct
    response to concerns addressed by environmental stakeholders.
        First, in response to concerns expressed by State regulators and
    environmental associations that our proposal forced States to accept
    new readiness activities in areas that were not in compliance with CAA
    standards, we added an express requirement for written State
    concurrence before the 3-year extension to complete conformity planning
    is effective. The DOD never intended that our proposal would be
    interpreted to require the States to accept new readiness missions over
    their objections. By adding the requirement for written State
    concurrence, we have made it clear that the provision is intended to
    offer flexibility, rather than impose new missions on unwilling States.
        In addition, the ``hold harmless'' concept embodied in early
    versions of the amendment has been expanded upon. In our discussions
    with States, we learned that the proposal had not provided adequate
    assurances that States would not be penalized if a failure to meet air
    quality standards was a result of the 3-year extension in conformity
    compliance offered by the proposal. Specifically, we were asked to add
    a reference to section 187(g) of the CAA which deals with carbon
    monoxide non-attainment. We have added that reference.
    RCRA/CERCLA
        The DOD has actively reached out to stakeholders, listened to their
    concerns regarding our proposals, and addressed those concerns by
    modifying and clarifying our RCRA/CERCLA proposal. The result has been
    an evolution in our proposal since it was first submitted in 2002 that
    we believe provides essential protections for munitions related
    readiness activities on our operational ranges and ensures protection
    of health and the environment. Over the past several years, we have
    worked with EPA to make it absolutely clear that nothing in our
    proposal alters EPA's existing protective authority in section 106 of
    CERCLA. In our proposal, EPA retains the authority to take any action
    necessary to prevent endangerment of public health or the environment
    in the event such a risk arose as a result of use of munitions on an
    operational range. Further, the proposed changes were modified to
    clarify that they do not affect our cleanup obligations on ranges that
    cease to be operational. This was in response to the misapprehension by
    some that the proposal could apply to closed ranges. To make this
    latter point even clearer, after submitting our proposal to Congress 3
    years ago, EPA and DOD continued to refine the RCRA/CERCLA provision.
    This collaboration produced a further revision designed to underscore
    that our proposals have no effect whatsoever on our legal obligations
    with respect to the cleanup of closed bases or ranges or on bases or
    ranges that close in the future.
        In the summer and fall of 2003, we presented the language we had
    developed in cooperation with EPA to a broad range of stakeholders for
    their consideration. As a result of discussions with individual State
    representatives and at meetings of associations of State officials,
    such as the Environmental Council of the States, the National
    Governors' Association, the National Association of Attorneys General,
    and the Conference of Western Attorneys General, we eliminated the
    ``CERCLA preference'' which had been included in previous versions of
    the proposal. Earlier drafts of the RCRA provision provided that
    munitions or constituents that migrate off range are considered a
    waste, but only if they are not addressed under CERCLA. In response to
    the criticism that this provision went beyond DOD's intent to protect
    our readiness activities on ranges, the DOD deleted it from the current
    discussion draft.
        Finally, the present language reflects modifications to address
    concerns raised by environmental stakeholders. In addition to
    renumbering and reorganizing the provisions in response to stakeholder
    concerns regarding clarity, we modified some of the language to address
    concerns that the language could be interpreted to shield munitions
    disposed of off an operational range from the operation of RCRA. As
    noted, since our proposal is intended only to provide protections for
    the use of munitions for their intended purpose in testing and
    training, and only so long as they remain on an operational range, we
    were happy to provide this clarification.
        The DOD has instituted new policy and processes dealing with
    assessments of environmental contamination on operational ranges. This
    is a direct result of our conversations with the various parties that
    have expressed concern with our legislative proposals over the last
    several years. A major concern expressed was the possibility of
    contamination migrating off an operational range and only then being
    subject to remediation. To address this concern, the DOD has instituted
    this new policy to seek to discover potential contamination before it
    migrates away from impact areas and especially before it spreads off a
    range.

        36. Senator Ensign. Mr. Grone, if the proposals are going to be
    offered, what is the compelling basis for making these changes to these
    environmental laws now?
        Mr. Grone.
    CAA
        The DOD regularly relocates forces among installations throughout
    the United States in order to best position them for potential use and
    to optimize training opportunities. The CAA's ``general conformity''
    requirement, applicable only to Federal agencies, has threatened
    deployment of new weapons systems and the movement of forces among
    installations despite the relatively minor levels of emissions
    involved. Without a reasonable time period to meet CAA conformity
    requirements, the ability to operate in CAA non-attainment or
    maintenance regions is threatened.
        The DOD has experienced several ``near-misses'' where the CAA
    conformity requirement threatened the realignment of forces:

             The planned movement of F-14s from Naval Air Station
            (NAS) Miramar to NAS Lemoore in California was only possible
            because of the fortuity that neighboring Castle Air Force Base
            in the same air-shed had closed, creating offsets. The same
            coincidence enabled the home basing of new F/A-18s at NAS
            Lemoore.
             The movement of F/A-18s from Cecil Field, Florida to
            NAS Oceana in Virginia was made possible only by chance, since
            Virginia was in the midst of revising its State Implementation
            Plan and was able to accommodate the new emissions. The Hampton
            Roads area in which Oceana is located will likely impose more
            stringent limits on ozone in the future, reducing the State's
            flexibility.

        As these near-misses demonstrate, under the existing CAA conformity
    requirement there is limited flexibility to accommodate readiness
    needs, and DOD is barred from even beginning to take readiness actions
    until the requirement is satisfied.
    RCRA and CERCLA
        The main concern addressed by our RCRA and CERCLA proposals is to
    protect against litigation concerning the longstanding, uniform
    regulatory policy that use of munitions for testing and training on an
    operational range is not a waste management activity or the trigger for
    cleanup requirements.
        This legislation is needed because of RCRA's broad definition of
    ``solid waste,'' and because States possess broad authority to adopt
    more stringent RCRA regulations than EPA (enforceable both by the
    States and by environmental plaintiffs). EPA therefore has quite
    limited ability to afford DOD regulatory relief under RCRA. Similarly,
    the broad statutory definition of ``release'' under CERCLA may also
    limit EPA's ability to afford DOD regulatory relief.
        Although its environmental impacts are negligible, the effect of
    this proposal on readiness could be profound. Environmental plaintiffs
    filed suit at Fort Richardson, Alaska, alleging violations of CERCLA
    and an Alaska anti-pollution law they argued was applicable under RCRA.
    Among plaintiffs' assertions were claims that the Army's use of
    munitions on the Eagle River Flats (ERF) range in training its soldiers
    required RCRA permits, as well as initiation of cleanup activities
    under CERCLA. Plaintiffs' lawsuit sought to enjoin further live-fire
    training at ERF. Because of ambiguities in current law regarding the
    applicability of environmental regulations, including those under RCRA
    and CERCLA, to critical testing and training on operational ranges, the
    Army settled the case as the best way to ensure training could continue
    at ERF. Had the plaintiffs been successful, the case would not only
    have potentially forced remediation of the ERF impact area and
    precluded live-fire training at the only mortar and artillery impact
    area at Fort Richardson, but it could have set a precedent
    fundamentally affecting military training and testing at virtually
    every test and training range in the U.S. This was a risk that the Army
    and the DOD could not afford to take.
        In addition to the Fort Richardson case, the United States was sued
    under RCRA on three occasions regarding Navy operations at the range on
    the island of Vieques, Puerto Rico. Most recently, in Waterkeeper v.
    Department of Defense, plaintiffs sued to stop Navy training on the
    range. The RCRA claims covered ordnance debris and unexploded ordnance
    on the Live Impact Area (LIA) of the Vieques range in addition to
    claims that the actual firing of ordnance onto the LIA constituted a
    disposal of solid or hazardous waste.
        Some critics of these proposals have argued that such suits are not
    a sufficient justification to go forward with the RCRA/CERCLA
    provision. We believe, however, that the risks inherent in these
    lawsuits provide ample justification for the proposals. This is
    particularly true because the proposals merely clarify longstanding
    regulatory practice and understanding of the DOD, the Environmental
    Protection Agency, and the States. Together, the provisions simply
    confirm that military munitions are subject to EPA's 1997 Military
    Munitions Rule while on range, and that cleanup of operational ranges
    is not required so long as the material stays on range.

        37. Senator Ensign. Mr. Grone, are any of these changes necessary
    to carry out the decisions resulting from the 2005 round of BRAC?
        Mr. Grone. Based on our current understanding of environmental
    requirements, no.

                 budget request to carry out 2005 brac actions
        38. Senator Ensign. Mr. Grone, the DOD has included in the fiscal
    year 2007 budget a request for $5.7 billion to carry out planning,
    MILCON, and environmental actions related to the decisions of the 2005
    BRAC round. Could you describe the challenges the DOD is experiencing
    in the review and approval of business plans and the subsequent release
    of funds?
        Mr. Grone. Business plans will serve as the foundation for the
    complex program management necessary to ensure BRAC 2005
    recommendations are implemented efficiently and effectively. Business
    plans are an expression of costs to implement the BRAC recommendation,
    savings that should accrue, and the phasing of actions and funding to
    meet the legal obligations of the recommendation. Because many of these
    recommendations involve complex actions to fully implement, there are
    naturally some special challenges to overcome during the business plan
    review and approval process to ensure the DOD is proceeding in the
    correct direction. Such challenges include ensuring the requirements of
    the recommendation are satisfied, that appropriate costs and savings
    are identified (and appropriately shared across components for joint
    recommendations), and the phasing of the implementation action does not
    compromise operational efficiency.

        39. Senator Ensign. Mr. Grone, based on the business plans
    received, what is the Department's revised estimate over the next 5
    years of the total amount of funds needed to carry out MILCON actions
    to support all the BRACs in order to meet the statutory goal of 2011
    for completion of all BRAC actions?
        Mr. Grone. At the present time, the DOD has only a few approved
    business plans, and this is an insufficient number to determine if the
    MILCON estimate to support BRAC implementation efforts needs to be
    revised. In the coming months, as more business plans are reviewed and
    approved, a revised MILCON estimate will become more apparent and the
    extent of any potential revision will be considered as the DOD conducts
    the 2008-2013 program and budget review. Results of that review will be
    incorporated into the fiscal year 2008 President's budget.

        40. Senator Ensign. Mr. Grone, how was the BRAC budget request for
    $5.7 billion in 2007 in any way fiscally constrained by other budget
    priorities?
        Mr. Grone. The fiscal year 2007 BRAC 2005 budget request was not
    constrained, but rather represents a defense wide funding wedge which
    the Department established to support implementation of all BRAC
    actions. That funding was allocated to all components with a BRAC
    implementation funding requirement in 2007.

                            utilities privatization
        41. Senator Ensign. Mr. Grone, on the subject of the DOD's program
    to privatize utilities infrastructure, the GAO issued a report in May
    2005 which questioned the ultimate savings to be achieved by the
    government. In response, Congress amended the law in order to ensure
    Congress received a comprehensive analysis of the economic benefits
    before completion of each transaction. In light of these changes by
    Congress, what is the current status of the utilities privatization
    program?
        Mr. Grone. The utilities privatization program is best
    characterized as transitioning back to active execution. Since the May
    2005 GAO report, the DOD focused its efforts on developing supplemental
    guidance that would implement the recommendations of that report.
    Supplemental guidance was issued by DOD on November 2, 2005. Shortly
    thereafter, Congress, through the NDAA for Fiscal Year 2006, added the
    new legislative requirements that you have referenced. Since then, the
    DOD has focused on developing a second round of supplemental guidance
    that would implement the provisions of that legislation. Additional
    guidance was issued by DOD on March 20, 2006. In both cases, the
    military departments and the Defense Logistics Agency had to suspend
    their ongoing system evaluations and solicitations as well as delay
    acting upon proposals received from the commercial sector until new
    guidance could be issued. The military departments and the Defense
    Logistics Agency are now in the process of incorporating the new
    requirements into their evaluation process and will resume evaluating
    all remaining utility systems eligible for privatization under this
    authority.

        42. Senator Ensign. Mr. Grone, this committee has heard from many
    interested parties that the utility privatization process has lagged
    over the past 5 years. Can you provide your assessment of the pace of
    the program and what can be done to expedite the utility privatization
    solicitation and transaction completion process?
        Mr. Grone. The DOD has dedicated resources, staff, and senior
    leadership attention to swiftly executing the utilities privatization
    program. Like any new initiative, through implementation and execution,
    experience and momentum is gained; however, issues and concerns may
    surface along the way as well. My office established a working group
    that meets twice a month to share information and lessons learned and
    continually improve the program. Initially, the interest in the
    industry sector was extremely limited. Our office convened several
    industry forums to generate interest and promote competition on the
    solicitations sent out. Industry reluctance to invest the significant
    amount of overhead required to evaluate our utility systems was
    eventually reduced through frequent communication and the subsequent
    adoption of several process improvements. The DOD is committed to
    seeing this program executed through to completion.

        43. Senator Ensign. Mr. Grone, in your opinion, what benefits are
    gained by the government by continuing this program?
        Mr. Grone. The DOD has recognized that ownership of utility systems
    is not a core mission area. The DOD has recognized that its utility
    systems have been historically underprogrammed and underfunded and, as
    a result of not being maintained to industry standards, are not as safe
    and reliable as required to support primary mission areas. Utility
    systems on military installations are very small relative to the
    typically larger utility system right outside the fence line. This led
    us to conclude that the Department can gain efficiencies through
    privatization of its utility systems and transfer of those systems to
    experts in the commercial sector that are in the utility business. By
    continuing to pursue the utility privatization program, the
    Department's utility infrastructure will be improved to and maintained
    at industry standards.

        44. Senator Ensign. Mr. Grone, two conditions which Congress added
    to the law last year, specifically a requirement to include in the
    economic analysis the margin of error in the anticipation of future
    costs, and a requirement to obtain a waiver in order to agree to terms
    of the transaction between 10 years and 50 years, have raised some
    concern from the private sector interested in partnering with the
    government to provide utility services. Can you provide this committee
    an assessment on the impact of these two conditions upon the program?
        Mr. Grone. Prior to the NDAA for Fiscal Year 2006, the DOD had
    existing guidance describing factors that must be accounted for in
    economic analyses conducted on utility systems. Additionally, each
    military department and the Defense Logistics Agency had existing
    processes in place to incorporate a margin of error in the preparation
    of economic analyses on utility systems. To address the legislative
    requirement, the DOD, in the supplemental guidance issued on March 20,
    2006, directed the military departments and the Defense Logistics
    Agency to include an explanation of how a margin of error is
    incorporated in each economic analysis submitted to Congress. The
    second provision was addressed by requiring each military department
    and the Defense Logistics Agency to determine the cost effectiveness of
    a contract term in excess of 10 years, not to exceed 50 years. The
    guidance recommended that this determination be made without requiring
    separate proposals from perspective offerors so as to not unnecessarily
    increase their administrative burden and expenditure of overhead. The
    DOD received similar expressions of concern from our industry partners
    and carefully considered the potential impact to all parties before
    publishing guidance. We respect the commitment that our private sector
    partners have made to this venture and recognize the importance of
    retaining that commitment on the success of our program objectives.

        45. Senator Ensign. Mr. Grone, in your opinion, do these two
    conditions curtail the ability of the government to enter into
    privatization transactions?
        Mr. Grone. No.

                 migration of operations and maintenance funds
        46. Senator Ensign. Secretary Eastin, Secretary Penn, and Secretary
    Anderson, I am concerned that, once again, the fiscal year 2007 budget
    request includes funding for both base operating support and Facility
    Sustainment, Restoration, and Modernization (FSRM) that falls far short
    of projected requirements for fiscal year 2007. These funds are crucial
    to maintain the safety, security, and adequate condition of military
    facilities, ranges, and infrastructure. Yet, each year, the Services
    take on a great deal of risk in the underfunding of these accounts in
    order to satisfy other priorities. Furthermore, we discover in our
    visits to military installations, that in the year of execution, only a
    fraction of funds in the FSRM accounts--already short-changed in the
    budget year--are being used for their budgeted and authorized purpose.
    In most cases, funds are diverted to cover budgeted shortfalls in base
    operations accounts. In your prepared statements for this hearing, you
    each mention the effort in fiscal year 2007 to meet the DOD budget
    goals to fund 95 percent of facility sustainment requirements. At the
    installation level, what percentage of the total installation
    sustainment requirement do you estimate has been funded annually over
    the last 3 years?
        Mr. Eastin. Over the last 3 years, the percentage of total
    installation FSRM requirements funded annually for fiscal years 2004,
    2005, and 2006 is 66 percent, 58 percent, and 90 percent, respectively.
        Mr. Penn. The Marine Corps has been very successful at making sure
    sustainment funds programmed are actually executed on sustainment in
    the field. Fiscal year 2003 and fiscal year 2004 met or exceeded 95
    percent of the OSD model, fiscal year 2005 was executed at 94 percent,
    fiscal year 2006 is currently projected at 92 percent, and fiscal year
    2007 is projected at 93 percent.
        Actual sustainment rates for the Navy are 84 percent in fiscal year
    2003; 69 percent in fiscal year 2004; 90 percent in fiscal year 2005;
    projected execution of 75 percent in fiscal year 2006; and 95 percent
    in fiscal year 2007.
        Mr. Anderson. The following table reflects the percentage of
    sustainment actually funded for the past 3 years, as well as the budget
    for the current year.

        47. Senator Ensign. Secretary Eastin, Secretary Penn, and Secretary
    Anderson, if the percentage is not close to 95 percent, what happens to
    the funding between the comptrollers of your respective Services and
    those installation sustainment projects?
        Mr. Eastin. Historically, during the year of execution, total
    installation funding falls below acceptable levels. As a result of
    under funding Base Operations Support (BOS) accounts funds are
    reprogrammed from other accounts including the facilities sustainment
    accounts to cover shortfalls. Many of the shortfalls in BOS are ``must
    fund'' programs such as payroll, utilities, real estate leases, food,
    fire and emergency, and fixed contracts. If, as a result of such
    reprogramming, sustainment funding falls below 95 percent, some of the
    installation sustainment projects and essential facilities maintenance
    will be delayed until funds can be made available.
        Mr. Penn. The Marine Corps executed fiscal year 2003 through fiscal
    year 2005, in line with the OSD guidance. In fiscal year 2006 and
    fiscal year 2007, the Marine Corps expects to execute a few percent
    below the OSD guidance of 95 percent. This adjustment was made during
    the budget formulation process and is not a year of execution issue.
        Over the last 2 years, the Navy has diverted sustainment funds to
    support emergent funding needs for installation operations including
    increased utility and labor costs.
        Mr. Anderson. Commanders at all levels of the Air Force require the
    flexibility to fund the highest priority operations and maintenance
    (O&M) requirements, and often elect to use sustainment funding to cover
    utility costs, increases in fuel bills, and other base support costs
    they deem as must-pay requirements. As such, the Air Force often
    assumes risk in the facility sustainment program by diverting funds for
    higher priority, more pressing O&M requirements.

                            recapitalization funding
        48. Senator Ensign. Secretary Eastin, Secretary Penn, and Secretary
    Anderson, the DOD's physical plant, which is the aggregate of all land,
    facilities, and infrastructure in the DOD inventory, continues to
    deteriorate as a result of years of chronic underfunding of critical
    MILCON and certain O&M accounts. For the past 3 years, the Department
    has been projecting a goal of 2008 to reach and sustain an annual level
    of funding for the modernization, restoration, and replacement of the
    Department's physical plant that equates to a complete recapitalization
    every 67 years. For the military departments in the fiscal year 2007
    budget request, the recapitalization rate ranges from 49 years for the
    Army, due mostly to a considerable BRAC MILCON request, to 124 years
    for the Air Force. Aside from funding for the sustainment of facilities
    and infrastructure, can you provide the committee the actual amount
    spent from FSRM accounts on facility restoration and modernization
    which contributed to recapitalization in fiscal years 2004 and 2005?
        Mr. Eastin. The actual amount spent by the Army from the FSRM
    accounts on facility restoration and modernization which contributed to
    recapitalization in fiscal year 2004 was $1.6 billion, and in fiscal
    year 2005 was $2.7 billion.
        Mr. Penn. In 2004 and 2005 the actual amounts spent on facility
    restoration and modernization that contributed to recapitalization are
    as follows:

    ------------------------------------------------------------------------
                      Marine Corps                       2004        2005
    ------------------------------------------------------------------------
    MCON/MCNR:......................................       160.9       209.4
    O&MMC/O&MMCR:...................................        48.8       113.7
    Other Sources:..................................         5.6         9.8
                                                     -----------------------
      Total R&M Investment:.........................       215.3       332.8
    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
                          Navy                           2004        2005
    ------------------------------------------------------------------------
    MCON/MCNR:......................................       692.4       778.1
    O&MM/O&MNR:.....................................       204.7       405.5
    DWCF:...........................................       102.5       125.8
    Other Sources:..................................         6.4         3.6
                                                     -----------------------
      Total R&M investment:.........................     1,006.0     1,313.0
    ------------------------------------------------------------------------

        Mr. Anderson. In fiscal year 2004, the Air Force obligated $789
    million from O&M accounts for restoration and modernization and in
    fiscal year 2005 the Air Force obligated $1,000 million from O&M
    accounts for restoration and modernization toward recapitalization for
    each year.

        49. Senator Ensign. Secretary Eastin, Secretary Penn, and Secretary
    Anderson, will each military department reach the DOD goal of funding
    at an annual rate of investment equal to a 67-year recapitalization in
    fiscal year 2008?
        Mr. Eastin. The Army will reach the DOD goal of funding at an
    annual rate investment equal to a 67-year recapitalization in fiscal
    year 2008.
        Mr. Penn. In 2008, the Marine Corps recapitalization rate is 73
    years and the Navy rate is 70 years.
        Mr. Anderson. The Air Force is accepting risk in facility
    recapitalization to modernize and transform the force and as a result
    will fall just short of OSD's directed 67-year facility recap rate
    metric in fiscal year 2008. The Air Force's fiscal year 2008
    recapitalization rate is currently 68 years.

        50. Senator Ensign. Secretary Eastin, Secretary Penn, and Secretary
    Anderson, will this rate be sustained through the FYDP for each
    Service?
        Mr. Eastin. The Army will be able to sustain the annual rate
    investment equal to a 67-year recapitalization across the FYDP except
    in fiscal year 2010, where an additional $115 million will be needed.
    The large amount of funding available from the Integrated Global
    Presence and Basing Strategy, Army Modular Force, and BRAC 2005 will
    not continue beyond fiscal year 2011.
        Mr. Penn. That is certainly the goal, but as an investment account,
    I would expect funding levels to fluctuate each year within a
    reasonable range. The recap metric is a relatively coarse metric, and
    the military components are working with OSD to develop a more refined
    recap model.
        Mr. Anderson. We project the facility recap rate for the upcoming
    years as follows: fiscal year 2008 = 68 years; fiscal year 2009 = 49
    years; fiscal year 2010 = 59 years; and fiscal year 2011 = 84 years.
    The average recap rate through the FYDP (fiscal years 2007-2011) is 77
    years.

                impact of army transformation on quality of life
        51. Senator Ensign. Secretary Eastin, I was reassured to read in
    your statement that ``The importance of providing quality housing for
    single soldiers is paramount to success on the battlefield. The Army is
    in the 14th year of its campaign to modernize barracks to provide
    136,000 single enlisted permanent party soldiers with quality living
    environments.'' The BRAC process, Integrated Global Presence and Basing
    Strategy, and the Army Modular Force initiatives have all resulted in
    the movement of thousands of Army personnel and their families and the
    requirement for new barracks at U.S. Army installations around the
    world. Given current levels of funding, in what year does the Army
    anticipate every soldier, who is required to be housed on post, will be
    permanently assigned a private sleeping room which meets Army standards
    for adequate unaccompanied housing?
        Mr. Eastin. With the President's fiscal year 2007 budget request,
    funding will be provided to adequately house 122,900 soldiers to the
    DOD 1+1 or equivalent barracks standard. With congressional support and
    the President's fiscal year 2008 budget request, the Army intends to
    fund the elimination of all remaining inadequate permanent party
    barracks that do not meet the 1+1 or equivalent standard and eliminate
    all barracks deficits by fiscal year 2011. This is a change from our
    previous goal of fiscal year 2008 because of additional BRAC, IGPBS,
    and Army Modular Force (AMF) requirements. We anticipate that every
    single soldier will be assigned a private sleeping room by fiscal year
    2013 with the transition of funding, construction, and occupancy of the
    new barracks.

        52. Senator Ensign. Secretary Eastin, given the current level of
    funding, in what year does the Army plan to ensure that soldiers are no
    longer housed in trailers?
        Mr. Eastin. The Army intends to fund permanent party barracks
    requirements by fiscal year 2011 to accommodate soldiers being
    restationed due to BRAC, IGPBS, and AMF. The Army will continue to
    utilize relocatable buildings until the new barracks are funded,
    constructed, and occupied in fiscal year 2013.

               impact of army transformation on local communities
        53. Senator Ensign. Secretary Eastin, many of my colleagues have
    been hearing from local community leaders surrounding Army
    installations that will experience considerable increases in the
    military base population over the next few years. These community
    leaders are extremely concerned that the quick shifts in personnel will
    lead to overcrowding in local schools, delayed impact aid, and
    challenges for local housing and rental markets. The impression we get
    is that the individual soldier and their families will have to
    sacrifice their quality-of-life in order to meet Army transformation
    goals. How is the Department of the Army working with local communities
    to address these issues?
        Mr. Eastin. The Army will not sacrifice quality-of-life to meet
    transformation goals. We are constantly evaluating situations that
    impact soldier and family quality-of-life and actively engage local
    communities, particularly those with significant military population
    increases. For example, a housing forum was held earlier this year in
    Watertown, New York, with approximately 300 persons in attendance
    including congressional representatives, State leadership, Senior Army
    leaders, developers, financiers, small businesses, and local community
    leaders. The purpose was to ensure that local housing and rental
    markets were stimulated and to assure community leaders that the Army
    is an active partner in resolving the tight housing market in the Fort
    Drum area. The Army is also engaged in addressing local housing
    situations at communities near Fort Bliss, Fort Riley, and Fort
    Wainwright. Community leaders in these areas are excited about the
    economic prospects of Army transfonnation and are partnering with us to
    ensure soldier and family quality-of-life will be enhanced in their
    communities.
        The Army is also working with DOD and Department of Education to
    address school issues. We have identified the need for an Army School
    Transition Plan to strategize for the successful transition of more
    than 50,000 military-connected students from within the U.S. and
    overseas to U.S. school systems. Local education agencies are concerned
    about adequate school facilities to accommodate the influx of
    transitioning students. Some communities have moved ahead with bond
    issues, while others have made contact with the Department of Education
    to explore new avenues for funding facilities, transportation,
    teachers, and textbooks.

        54. Senator Ensign. Secretary Eastin, if a local community cannot
    respond in enough time with new schools and local housing to meet the
    flow of military families into a community, what are the repercussions?
        Mr. Eastin. The Army will control the flow of forces to
    installations so we do not place unreasonable burdens on our soldiers
    and their families, or local communities. Housing markets are generally
    responding enthusiastically at locations where significant increases in
    military families are expected. In the few areas where the housing
    market has been sluggish in responding, the Army has partnered with
    local communities to stimulate development. The housing forum held
    earlier this year at Fort Drum is a prime example of this kind of
    effort. In two instances we expanded the housing market area beyond 20
    miles to garner additional towns with adequate and available housing.
    At some locations, we have deferred demolition of homes scheduled for
    replacement to provide additional inventory in the interim.
        The Army conducted an Education Summit in October 2005 to
    collaborate and develop plans with school district superintendents,
    board members, commanders, and Army officials to explore the effects of
    Army rebasing initiatives on local communities and schools. Outcomes of
    the Summit have provided the Army and local education agencies with the
    potential number of students arriving in communities between fiscal
    years 2006 and 2011.

        55. Senator Ensign. Secretary Eastin, is the Department of the Army
    considering alternative plans to delay the relocation of families until
    adequate housing and sufficiently sized schools are available within a
    reasonable distance to the military installation?
        Mr. Eastin. Simultaneous execution of BRAC, IGPBS, and modular
    stationing create extraordinary challenges to maintaining soldier and
    family quality-of-life. However, we will not sacrifice quality-of-life
    to accomplish these moves. Our plan is carefully synchronized, and we
    will control the flow of forces to installations so we do not place
    unreasonable burdens on either our soldiers and their families, or the
    local communities. If we have a unit scheduled to move and quality-of-
    life facilities are not in place, we can delay the move, disband the
    unit, or distribute the soldiers across the Army and stand up the flag
    when appropriate.
        Soldiers remain the centerpiece of our Army and providing full
    funding and support for The Army Plan will provide a quality-of-life
    for soldiers and families that is essential to maintaining the quality
    of the All-Volunteer Force.

                       overseas construction for the army
        56. Senator Ensign. Secretary Eastin, the proposed fiscal year 2007
    budget for the Army includes a request for over $223 million to
    construct facilities at a former Italian airfield in Vicenza, Italy
    called Dal Molin and another $35 million to start the construction of a
    base camp in Romania. There is also $146 million requested for the
    continued construction of new facilities in Grafenwoehr, Germany and
    $77 million for the continued consolidation of U.S. forces at Camp
    Humphreys, Korea. The Integrated Global Presence and Basing Strategy
    plans to return over 100,000 military personnel and their families back
    from Europe and Korea and will cost the Department of the Army billions
    just to construct facilities for the returning personnel, aside from
    the billions required for new facilities to support Army
    transformation. For each of these locations, does the Department of the
    Army have a comprehensive investment plan for all facilities required
    to support the military missions? If so, can you provide an brief
    overview of each plan with all cost estimates for the record?
        Mr. Eastin. The Department of the Army does have comprehensive
    investment plans for the locations in Europe and Korea.
        Initiatives in Europe provide the European Command with a
    strategically positioned, rapid response capability and presence that
    supports theater security cooperation in the southern and eastern
    portion of the European Command area of responsibility. We will
    consolidate transformed theater-enabling commands into modern
    facilities that meet DOD standards and place combat units at our
    premier European training area; provide enhanced force protection; and
    divest the U.S. of costly, inefficient, substandard, dispersed
    installations.
        The construction at Dal Molin, Italy, supports the establishment
    and consolidation of the 173rd Infantry Brigade Combat Team, Airborne,
    which is currently split based between Germany and Italy. This
    consolidation strategically positions the unit south of the Alps with
    ready access to international airspace for rapid deployment and forced
    entry/early entry operations. The fiscal year 2007 $223 million project
    constructs critical mission facilities including brigade and battalion
    headquarters, company operations, barracks, vehicle maintenance,
    dining, and organizational classroom facilities. It also includes a
    physical fitness center and child development center for $26 million.
    Also included in the fiscal year 2007 budget request are two Defense
    MILCON projects--a $52 million health clinic and a $31.5 million
    dependent elementary/middle school, both of which will improve soldier
    and family quality-of-life. An additional $186 million will be required
    in future budget requests to complete the construction.
        The construction at Grafenwoehr, Germany, supports the
    consolidation of combat units at Grafenwoehr promoting improved
    readiness, command and control, training, and soldier quality-of-life
    by providing renovated or new mission facilities, and improved force
    protection. The construction at Grafenwoehr is a multi-year, phased
    program. Fiscal year 2007 is the fifth of a six-phase initiative. The
    fiscal year 2007 construction request for $158 million includes
    barracks, company operations, and vehicle maintenance facilities. The
    final phase is programmed for fiscal year 2008 and includes brigade
    complex, maintenance, operations, and community support facilities.
        The construction in Eastern Europe supports establishing a forward
    operating site for rotating U.S. forces engaging in expeditionary
    training events across the European area of operations and provides a
    rapid-reaction contingency capability in the region. The $35 million
    project is the first phase consisting of battalion-sized operational
    facilities, task force headquarters, training and logistical support
    facilities, and utilities infrastructure. A second smaller phase in
    fiscal year 2008 will provide the remaining facilities needed for the
    second battalion-sized unit. A second Eastern European forward
    operating site in another country is also being planned.
        The Land Partnership Plan and Yongsan Relocation Plan relocate U.S.
    forces in Korea by consolidating 32 locations to 7 enduring
    installations including Camp Humphreys. This will improve soldier
    quality-of-life, training capabilities, command and control, force
    protection, and provide world-class power projection and force
    reception capabilities. Under the Land Partnership Plan, the Republic
    of Korea is sharing the relocation costs. The Yongsan Relocation Plan
    relocates U.S. forces from Seoul to Camp Humphreys and the construction
    is being funded by Korea. Under the Land Partnership Plan, the Korean
    funding contribution will come primarily from the sale of lands from
    closing U.S. installations. The $84 million fiscal year 2007 request
    includes two barracks complexes at Camp Humphreys and three range
    projects at Yongpyong.

        57. Senator Ensign. Secretary Eastin, for the facilities that may
    be used by our allies and coalition partners, has the Army pursued
    burden-sharing arrangements for these projects with host nations and
    the North Atlantic Treaty Organization?
        Mr. Eastin. No. All the projects proposed for Europe and Korea are
    intended for U.S. military use only and it is not expected that U.S.
    allies will use them.

        58. Senator Ensign. Secretary Eastin, for the MILCON requested for
    Italy and Korea, have basing arrangements with the host country been
    signed and all land made available for construction?
        Mr. Eastin. Yes. The basing arrangements in Italy are authorized
    under the NATO Status of Forces Agreement implementing agreements, and
    the Italian Minister of Defense committed all necessary land for the
    projects.
        Land transfer in Korea is ongoing. The Republic of Korea has
    purchased the required 2,328 acres of land at Camp Humphreys for the
    relocation of U.S. forces, and the acreage will be transferred in two
    large tracts to United States Forces, Korea. The land necessary to
    construct the fiscal year 2007 barracks projects is on hand.

                        lessons learned from brac round
        59. Senator Ensign. Mr. Grone, reference the 2005 BRAC round, now
    that the BRAC Commission has acted, and the DOD has transitioned into
    the implementation phase of the decisions, this committee is committed
    to ensuring we will capture any critical analysis of how the process
    can be improved. According to your written statement, the BRAC
    Commission changed 35 percent of the Department's recommendations, a
    significant increase as compared to the average of 15 percent in
    previous BRAC rounds. The Commission also suggested changes to the
    authorities for BRAC provided by Congress to the DOD. In your opinion,
    what could have been done better in the 2005 round to justify the
    Department's recommendations?
        Mr. Grone. As required by law, the DOD's BRAC process entailed
    comprehensive and comparable analyses of all installations in the
    United States and its territories, using military value as the primary
    consideration. The DOD believes the analyses, which serve as the
    foundation for the BRAC recommendations, and the organizational
    structure, which enhanced the decisionmaking process, to be the best
    tools available to justify the final BRAC recommendations. While every
    major undertaking such as the BRAC 2005 process always invites
    opportunities for improvement, the DOD did everything possible to make
    the best case in justifying the Secretary's recommendations for base
    closures and realignments. The DOD does not at this time believe that
    any changes to the BRAC authorities are necessary.

        60. Senator Ensign. Mr. Grone, have lessons learned for the
    internal DOD process been identified and analyzed? If so, could you
    summarize them?
        Mr. Grone. While the DOD has not developed lessons learned for the
    internal BRAC process, it agrees with the GAO's July 1, 2005,
    assessment (``Military Bases: Analysis of DOD's 2005 Selection Process
    and Recommendations for Base Closures and Realignments'') that the
    DOD's process for conducting its analysis was generally logical,
    reasoned, and well documented and that the DOD's process placed strong
    emphasis on data, tempered by military judgment, as appropriate.

        61. Senator Ensign. Mr. Grone, in your opinion, can the authorities
    provided to DOD by Congress for BRAC process be improved? If so, how?
        Mr. Grone. At the present time, the DOD believes the authorities
    provided by the Defense Base Closure and Realignment Act of 1990, as
    amended, are sufficient for making installation closure and realignment
    recommendations.

        62. Senator Ensign. Mr. Grone, in the initial report to Congress
    certifying the need for the 2005 round of BRAC, the DOD estimated that
    up to 24 percent of the total physical plant maintained by the
    Department was excess to military requirements. The DOD eventually
    submitted recommendations to the BRAC Commission that would have
    resulted in a 5-percent reduction in the physical plant. What is the
    DOD's final estimate of the reduction in the physical plant?
        Mr. Grone. After considering the impact of the BRAC Commission's
    actions to remove several large installations with significant plant
    replacement value (PRV) from the DOD's list of installation closure
    recommendations, the DOD's final estimate of the reduction in PRV is
    approximately 3.5 percent.

        63. Senator Ensign. Mr. Grone, what is the DOD's revised estimate
    of the savings to be achieved by 2011?
        Mr. Grone. The financial displays which accompany the DOD's BRAC
    justification material for the fiscal year 2007 President's budget
    reflect projected savings through 2011 of over $16 billion. However, in
    some cases, the military departments may underestimate the savings they
    expect to realize from implementing BRAC 2005 recommendations. This is
    due to the status of planning and/or uncertainties associated with the
    contingent recommendations made by the BRAC. The military departments
    have committed to identify a complete projection of BRAC 2005 savings
    over the implementation period in subsequent justification book
    submittals.

                        brac property disposal processes
        64. Senator Ensign. Mr. Grone and Secretary Penn, during floor
    deliberations of the NDAA for Fiscal Year 2006, we debated an amendment
    that would have required the military departments to convey to the
    local community, at no cost, all excess land resulting from the 2005
    BRAC process. While we ultimately voted down the amendment, there is
    still considerable concern that the DOD plans to seek maximum value for
    excess land during the BRAC disposal process at the expense of
    recognizing the needs of affected local communities to replace jobs and
    recover from the economic loss of the installation. What policies and
    guidance has the DOD implemented for the 2005 BRAC round that will
    protect the interests of local communities and will assist them in
    their economic recovery and revitalization?
        Mr. Grone. The military departments have the option to use a
    variety of property conveyance methods that we refer to as the ``mixed
    toolbox'' of options. This approach provides significant flexibility,
    and the discretion to use a common-sense approach to do the right thing
    based on each disposal parameter. It is the DOD's desire to work with
    communities throughout the process to provide a seamless transition and
    assist communities whether they are losing military bases or at the
    other end, experiencing growth. This flexibility will allow for more
    creativity in planning for redevelopment and enhance the opportunities
    for job creation.
        The Final Rule for 32 CFR Parts 174, 175, and 176 (published in the
    Federal Register on February 28, 2006) and The Base Redevelopment and
    Realignment Manual (BRRM), issued on March 1, 2006, provide policy and
    implementation guidance to the DOD and local communities regarding BRAC
    2005. The BRRM discusses the importance of the redevelopment plan
    devised by the Local Redevelopment Authority (LRA) because the military
    department will use it to conduct the property disposal environmental
    analysis required by the NEPA. The military department treats the
    redevelopment plan as part of the proposed Federal action for the
    installation. The plan also will serve as a basis for consideration of
    public benefit conveyances or an Economic Development Conveyance (EDC)
    (authority exists for both conveyance at fair market value and at no-
    cost EDC) if the LRA or other entities seek to obtain property by those
    property disposal methods.
        Mr. Penn. The Federal Regulations and the DOD BRRM discuss the
    procedures that will be followed in disposing of BRAC installations,
    including the roles local communities have in the disposal process.
    This process enables local communities to prepare a redevelopment plan
    that balances the needs of the homeless with economic development
    opportunities. The military Services do not decide what the future land
    use will be at the property. The local communities make those decisions
    in their local planning and zoning process. To help communities prepare
    local planning documents, DOD designated LRAs can apply for grants from
    the Office of Economic Adjustment. The policies and guidelines for
    designation of LRAs are stated in the Defense Base Closure and
    Realignment Act of 1990, as amended.
        From our experience, no-cost economic development conveyances have
    not ensured expeditious economic recovery for the community. Effective
    use of the many different conveyance methods has been more successful
    in yielding economic recovery. We will, however, continue to work with
    the local communities to dispose of property in any such manner that
    will meet their needs for redevelopment and ours for disposal within
    the context of Federal and DOD guidelines.

        65. Senator Ensign. Mr. Grone, what assurances can you provide to
    this committee about the policies of the DOD to encourage local
    redevelopment authorities to continue to seek no-cost economic
    development conveyances?
        Mr. Grone. The military departments may use a variety of property
    conveyance methods, a ``toolbox'' of options, and may convey the
    property in multiple parcels to multiple future owners. It may dispose
    of surplus real and personal property at the installation as one
    conveyance, or convey the property in multiple parcels using one or
    more property conveyance authorities. The toolbox includes the
    following types of conveyances:

             Public benefit conveyances.
             Homeless assistance conveyances.
             Negotiated sale.
             Advertised public sale.
             Environmental remediation conveyance.
             Economic development conveyance (EDC).
             Depository institution facility.
             Conservation conveyance.

        The DOD will not prescribe a reuse approach. The DOD will work very
    closely with local redevelopment authorities recognizing that ``one-
    size'' does not fit all. The military departments will be able to use
    flexibly all the disposal mechanisms in the toolbox, including economic
    development conveyances at cost and at no cost when it can be
    demonstrated that sufficient jobs will be generated to justify an EDC.

        66. Senator Ensign. Secretary Penn, I appreciate your opening
    comments on this matter. Representatives of the Department of the Navy
    have been reported in the press as particularly vocal about plans to
    seek maximum monetary value for property declared excess as a result of
    BRAC 2005 actions, given the recent success of disposal activities at
    the former Marine Corps Air Station El Toro and Oak Knoll, California.
    What are the Navy's priorities for the disposal of excess land
    resulting from BRAC 2005?
        Mr. Penn. The Department of Navy has portrayed a consistent message
    to the communities and media that we will use all disposal tools that
    are available under the existing Federal regulations. Public sales are
    only one of the property disposal techniques that the Navy has used in
    prior BRAC rounds and may use at BRAC 2005 installations. The Navy
    explores all conveyance methods with the local communities to develop
    the best disposal strategy to enable the communities to fulfill their
    redevelopment vision, while at the same time provide a return on
    investment for the Federal taxpayer either through a conveyance that
    benefits the public or a public sale. For example, at Naval Station
    Roosevelt Roads, the Navy and the local community worked together to
    develop a disposal strategy that has a combination of Federal agency
    transfers, public benefit conveyances, an economic development
    conveyance, and public sale. Only one third of the base is proposed to
    be disposed by public sale.

        67. Senator Ensign. Secretary Penn, will the Navy assess proposals
    by local redevelopment authorities to receive economic development
    conveyances at no cost with due consideration given to the potential
    for jobs generation?
        Mr. Penn. The Department of Navy will follow the Federal
    regulations and the DOD Base Realignment and Redevelopment Manual in
    determining if a no-cost economic development conveyance is applicable.
    We will work with the local redevelopment authorities on any request
    for a no-cost economic development conveyance in accordance with
    Federal guidelines.

                         status of realignment actions
        68. Senator Ensign. Mr. Grone, Secretary Eastin, and Secretary
    Anderson, there have been press reports recently that the Air Force
    plans to undo, or not adhere to, certain realignment decisions
    resulting from the 2005 BRAC process. While the BRAC statute provides
    the Department very clear direction on the time period to implement
    BRACs, the law does not address a specific time period for which
    realignment of units and function must remain in place at their new
    location. Regardless, the Air Force plans, if implemented, could have
    the effect of undercutting the integrity of the entire BRAC process.
    What is the DOD's policy and guidance on adherence by the military
    Services to the decisions of the BRAC process related to the
    realignment of units and functions?
        Mr. Grone. The DOD understands that it has a legal obligation to
    close and realign all installations recommended for closure and
    realignment by the Commission and approved by the President and
    Congress. The DOD will fully comply with all BRAC 2005 recommendations.
        Mr. Eastin. The Army plans to execute the 2005 BRAC recommendations
    in accordance with the BRAC law.
        Mr. Anderson. The Air Force intends to fully comply with closure
    and realignment actions as directed in the Commission's report, and in
    accordance with all implementation policy and legal guidance provided
    by the Office of the Secretary of Defense.

        69. Senator Ensign. Mr. Grone, in your opinion, should Congress
    implement a law to mandate a minimum period of time to maintain the
    realignment of units and functions carried out in adherence to a BRAC
    decision? Please justify your answer.
        Mr. Grone. The DOD does not believe that any changes to the BRAC
    authorities are necessary. There is no indication at this time that
    implementing the Commission recommendations requires more stringent
    oversight. Further, after all implementation actions are completed, the
    DOD should retain enough flexibility to restation missions to address
    emerging operational requirements. In those instances where an action
    may affect an implemented BRAC recommendation, that proposal will be
    reviewed on its operational merits.

        70. Senator Ensign. Secretary Eastin and Secretary Anderson, do
    your respective Services have any plans at this time to change, or not
    carry out, any of the 2005 BRAC recommendations? If so, please
    elaborate.
        Mr. Eastin. No. At this time, the Army plans to execute all 2005
    BRAC recommendations in accordance with the BRAC law.
        Mr. Anderson. No. Other ongoing transformational activities, such
    as the QDR decisions and Air Force Total Force Integration initiatives,
    are scheduled to occur in parallel with our BRAC implementation, and
    may impact our BRAC implementation activities. As we begin to assess
    these impacts, we will continue to adjust and refine the requirements
    needed to implement the BRAC recommendations as approved by the
    President. At this time, we have no plans to change, or not carry out,
    the 2005 BRAC recommendations.

        71. Senator Ensign. Mr. Grone, Secretary Eastin, Secretary Penn,
    and Secretary Anderson, if for any reason you consider a change to a
    realignment action contained in a 2005 BRAC decision, will you promptly
    inform this committee of the proposed change?
        Mr. Grone. The DOD has a legal obligation to close and realign all
    installations so recommended for closure and realignment by the
    Commission and approved by the President and Congress. Therefore, the
    DOD does not intend to promote actions which would contradict BRAC 2005
    closure or realignment recommendations.
        Mr. Eastin. Yes, if the Army decides, for whatever reason, to
    consider a change to a realignment action contained in a 2005 BRAC
    decision, the Army will promptly consult with the committee on the
    proposed change.
        Mr. Penn. The Navy does not intend to deviate from the 2005 BRAC
    decisions in implementing any of the realignment actions. If such a
    situation does arise, the Navy would inform the committee.
        Mr. Anderson. Yes, be assured the Air Force intends to fully comply
    with closure and realignment actions as directed in the Commission's
    report. There are numerous ongoing transformational initiatives within
    the Air Force, some of which we have yet to determine the impact on
    BRAC actions and requirements. The Air Force will continue to adjust
    its overall infrastructure footprint to best align its existing and
    planned infrastructure as efficiently for the future, but in full
    compliance with BRAC statutory obligations and timing.

                             barracks privatization
        72. Senator Ensign. Secretary Eastin, the Department of the Army is
    faced with billions of dollars worth of barracks construction
    requirements resulting from Army transformation and the relocation of
    over 50,000 military personnel from Germany and Korea. In addition to
    the use of MILCON funds to construct new barracks, Congress has
    provided the military departments with authorities to enter into
    transactions for privatized barracks, similar to the very successful
    program for the privatization of military family housing. What plan
    does the Department of the Army have to use existing privatization
    authorities to address the Army's barracks requirements?
        Mr. Eastin. The Army plans to use privatization authorities
    wherever barracks privatization is in the best interest of the Army.
    The Army is currently considering initiatives at Forts Drum, Riley,
    Hood, and Bliss. In addition, the Army is waiting for the Navy's
    barracks privatization pilot project to mature so additional data and
    lessons learned may be gathered for potential implementation at Army
    installations.

                   air force housing requirements in germany
        73. Senator Ensign. Secretary Anderson, the proposed fiscal year
    2007 budget for the Air Force includes a request for $73 million in
    MILCON funds to construct family housing units at Ramstein Air Base in
    Germany. At other U.S. installations in Europe, both the Air Force and
    the Army have entered into agreements to use ``build-to-lease''
    housing. The local government in Germany has indicated within the past
    year a strong desire to pursue a build-to-lease agreement with the Air
    Force for new housing in the Ramstein area. Based on the most recent
    housing market assessment, what is the total number of units required
    to be retained by the Air Force on Ramstein Air Base?
        Mr. Anderson. Our latest housing requirements and market analysis
    (2003), reports a requirement for 2,686 housing units on base. This
    includes a 725-unit minimum housing ``floor'' and an additional 1,961
    housing community shortfall. The local government officials in Germany
    are not interested in build-to-lease in the Ramstein area; rather,
    their efforts are toward working with developers in a speculative
    venture mode whereby if they build houses to suit our requirements, our
    members can individually lease those, reducing on-base construction
    requirements. In any case, the fiscal year 2007 request is a critical
    requirement for our families at Ramstein Air Base.

        74. Senator Ensign. Secretary Anderson, how many inadequate housing
    units remain at Ramstein Air Base, and what is the total estimate of
    the amount required to upgrade these units using MILCON funds?
        Mr. Anderson. Currently, there are 314 inadequate units remaining
    at Ramstein Air Base. These units will be replaced or improved in order
    to meet the fiscal year 2009 goal of eliminating all inadequate family
    housing overseas.
        The following three projects eliminate the inadequate housing at
    Ramstein Air Base:

        Fiscal Year 2007 - Replace 101 units - $73,488K - Improve 19 units
    - $5,448K
        Fiscal Year 2008 - Replace 101 units - $53,376K - Improve 20 units
    - $4,053K
        Fiscal Year 2009 - Replace 73 units - $46,094K
        Total - 314 units - $182,459K

        75. Senator Ensign. Secretary Anderson, has the Air Force assessed
    a proposal offered by the local government to enter into an agreement
    for build-to-lease housing at Ramstein Air Base? If so, can you provide
    a summary of the assessment and the rationale why the Air Force prefers
    to use MILCON funds?
        Mr. Anderson. At this time the Air Force has not solicited for, or
    assessed any proposal for build-to-lease housing at Ramstein AB,
    Germany. The following excerpts are from a March 3, 2006, letter from
    State Minister Herrn Karl-Peter Bruch to COMUSAFE:
        ``The State of Rheinland-Pfalz believes that despite our planned
    growth in the KMC housing market, the demands of our two communities
    are outpacing supply; therefore, making your planned MILCON projects at
    Ramstein necessary.''
        ``. . . there are already quite a few vacant apartments that go
    unwanted by both German and American families. . .'' In brief, with our
    support, much can be accomplished, but not without some limitations.''
        The housing program at Ramstein Air Base has focused primarily on
    MILCON investment. Executing our planned housing projects at Ramstein
    is a vital signal of U.S. economic commitment, and is necessary to spur
    local investment from the private market. While the German Government
    is not supportive of a build-to-lease initiative in the Ramstein area,
    we are working with them to spur private developers to build houses to
    suit our requirements that our members/families could individually
    lease.

                 purchases of land in accident potential zones
        76. Senator Ensign. Secretary Penn, one project in the fiscal year
    2007 budget request for the Marine Corps catches my attention due to
    the policy implications for the entire DOD. The project, as briefed to
    my staff, is to purchase titles to 310 acres of land surrounding Marine
    Corps Air Station Beaufort, South Carolina, known as the aircraft
    accident potential zone (APZ). This project is particularly important
    as a precedent for those of us who have residential encroachment
    problems around military bases. In Nevada, we've worked with the Air
    Force for years to protect APZs and ammunition loading areas around
    Nellis Air Force Base. We've used a combination of land and easement
    purchases, and the great cooperation of the local community to find
    compatible uses for certain parcels in the APZs. Up to this point I was
    under the impression that the DOD policy was to attempt to acquire land
    in areas known as clear zones, and to work with the local communities
    to use zoning as a way to protect APZs. The military departments did
    not want to get into the business of owning land outside their fence-
    lines, particularly in APZ 2, which is furthest away from the base. The
    project at Beaufort requests $7.2 million to buy 310 acres in APZ 2. I
    have no problem protecting the safe operation of aircraft at Beaufort,
    but I want to be clear on the current DOD policy for the management of
    APZs, and the potential repercussions on the budget if DOD starts
    buying land in APZ 2. Can you describe the Marine Corps's intent to
    satisfy this requirement?
        Mr. Penn. Department of the Navy policy is to work toward achieving
    compatibility between air installations and neighboring civilian
    communities by means of a compatible land use planning and control
    process conducted by the local community. In accordance with that
    policy, we use a variety of approaches to address encroachment issues
    that arise in APZs and noise zones near installations and ranges,
    including:

             Joint Land Use Studies (JLUS) and other local land use
            planning coordination
             State support and legislation
             Recent new authority for encroachment partnering
            agreements
             Acquire property interests using MILCON authority

        Using these methods, Marine Corps Air Station (MCAS) Beaufort
    administers a comprehensive land use program that includes outreach and
    coordination with local governing authorities as well as regional
    planning strategies to protect against loss of mission and operational
    flexibility. MCAS Beaufort actively coordinates with the local
    jurisdictions and community to work in a collaborative effort to
    establish compatible land use controls. When these efforts are not
    fully successful, consideration is given to the acquisition of real
    estate interests in the affected areas.
        The current zoning does not satisfy Beaufort's AICUZ noise
    abatement requirements; and based on past experience, there is risk
    that local governments may not attain an adequate zoning ordinance in
    the near future. The once vacant farmlands surrounding MCAS Beaufort
    are being converted to high density development without local
    government land use and zoning control oversight needed to plan for and
    permit development that is compatible with high performance aircraft
    operations. The county ``Airport Overlay Zoning District'' zoning
    ordinance did not prevent the recent incompatible development of
    Vivian's Island within the AICUZ. Zoning is not permanent and is
    subject to change from pressures of a growing community and economic
    factors. Acquisition of property interests using MILCON authority is an
    appropriate course of action to control incompatible growth within APZs
    and noise impacted areas when other measures are not likely to succeed.
        Pursuant to 10 U.S.C. 2684a (Encroachment Partnering), in 2004 and
    2005 the Air Station and Beaufort County partnership purchased land
    development rights and conservation easements on approximately 231.24
    acres surrounding the Air Station, and the partnership is currently
    collaborating on additional purchases under that authority in 2006. The
    MILCON project at Beaufort in the fiscal year 2007 budget acquires real
    estate interests, in the form of restrictive use easements, on parcels
    where we do not anticipate that encroachment partnering initiatives
    would be successful.

        77. Senator Ensign. Secretary Penn, can you describe what actions
    the Marine Corps undertook with the local community to satisfy this
    requirement?
        Mr. Penn. MCAS Beaufort's Community Plans and Liaison Office uses a
    variety of tools to administer a comprehensive land use program that
    includes outreach and coordination with local governing authorities, as
    well as regional planning strategies to protect against loss of mission
    and operational flexibility. Each municipality and the county have
    different Airport Overlay Zoning District ordinances, or no ordinance
    in the case of the Town of Port Royal. This has led developers to seek
    annexation into the jurisdiction with the least development
    restrictions. Incompatible development, and subsequent lawsuits due to
    noise impacts, has already taken place due to the lack of adequate
    local development controls.
        In 2005 the Air Station, county, and city collaborated on the
    development of a JLUS. The primary goal of the JLUS is to develop land
    use recommendations and a single zoning ordinance that will be adopted
    by all of the local municipalities and the county.
        The JLUS recommendations are under review by the JLUS
    Implementation Committee, but it may take 1-2 years before a proposed
    zoning ordinance is ready for consideration by all of the local
    government legislative bodies. Based on past experience, there remains
    significant risk that a single, effective zoning ordinance that is
    sufficiently protective of the Air Station mission may not be enacted
    in a timely fashion to preclude additional incompatible development.
        In the meantime, the Marine Corps and Beaufort County partnered on
    four projects in 2004-2005 using the authority of 10 U.S.C. 2684a and
    acquired easements to control incompatible development around the Air
    Station. The partnership acquisitions are a win-win for the Marine
    Corps and the county, which has a $40 million bond fund to provide open
    space. The MILCON project is focused on acquisition of real estate
    interests, in the form of restrictive use easements, on parcels where
    we do not anticipate that encroachment partnering initiatives would be
    successful.

        78. Senator Ensign. Secretary Penn, were all other options
    involving the local community exhausted before the decision was made to
    request MILCON funds for this requirement?
        Mr. Penn. Yes, the Marine Corps has cooperated with the local
    jurisdictions near MCAS Beaufort on land use compatibility matters. The
    MILCON project addresses certain parcels where we do not anticipate
    that other measures will be successful.

        79. Senator Ensign. Secretary Penn, can you provide the current
    Navy policy for the management of APZs?
        Mr. Penn. Navy policy for management of APZs is contained in OPNA
    VINST 11010.36B, ``AICUZ.''
        APZs describe the probable impact area if an accident were to
    occur. APZs are based on historical data that determines the size of
    the Clear Zone, APZ 1 and APZ 2, and are depicted in the final AICUZ.
    Additionally, there also tends to be high noise levels associated with
    flight operations in APZs.
        An air installation's AICUZ provides the local commander with
    suggested compatible land uses in APZs, and these recommendations are
    presented to community planners for consideration and implementation in
    the local land use planning and control process. This process includes
    zoning and subdivision ordinances and building codes.
        Installation commanders promote compatible land use through
    engagement with civilian neighbors. In addition, an installation
    commander and neighboring communities may collaborate in a joint
    planning process, resulting in a JLUS. The JLUS is a public process
    that provides land use planning recommendations, such as zoning for a
    military district/military influence area, sound attenuation
    mitigation, real estate disclosure, education, outreach, etc.
        Acquisition of real property interests may be considered to
    eliminate land use incompatibilities in critical situations where State
    and local governments are unwilling or unable to enact adequate land
    use controls to achieve land use compatibility within the AICUZ. When
    acquisitions are determined as the most appropriate tool, the
    Department of Navy can achieve this goal by partnering with a public or
    private eligible entity using the authority provided in 10 U.S.C.
    2684a. If such partnering efforts are not successful, then acquisition
    of real property interests using MILCON authority may be considered.

        80. Senator Ensign. Secretary Anderson, can you provide the current
    Air Force policy for the management of APZs?
        Mr. Anderson. The Air Force policy for controlling land use in the
    APZs is to work within local government land use planning processes to
    encourage compatible zoning and development. In those rare instances
    when an installation has exhausted all possibilities of achieving
    compatible use zoning, or similar protection, and the operational
    integrity of the installation is manifestly threatened, the Air Force,
    in accordance with DOD Instruction 4165.57, Air Installations
    Compatible Use Zones, may consider acquiring the minimum interest in
    land within an APZ necessary to protect the mission, but only after
    completing a complete analysis of costs, and impacts to current and
    future missions.

        81. Senator Ensign. Secretary Penn, is the Navy planning to
    purchase land or easements within APZs at any other Navy or Marine
    Corps installations?
        Mr. Penn. Future planned projects that acquire real property
    interests within Air Installation Compatible Use Zones, including APZs,
    are as follows:
    Navy
             Fiscal Year 2011; P-252 - NAS Whiting Field, FL - Clear Zone
            Acquisition and Runway Extension at NOLF Evergreen; acquires
            165 acres of land in clear zone of runway extension
             Fiscal Year 2008; P-691 - NOLF Washington County, NC -
            Outlying Landing Field Acquisition; acquires 16,000 acres of
            land in buffer area
             Fiscal Year 2009; P-691 - NOLF Washington County, NC -
            Outlying Landing Field Acquisition; acquires 11,000 acres of
            land in buffer area
    USMC
             Fiscal Year 2006; P-124 MCAS Cherry Point; acquires
            restrictive easements
             Fiscal Year 2009; P-433 MCAS Beaufort; acquires restrictive
            easements

        82. Senator Ensign. Mr. Grone, can you provide the Department's
    guidance on the management of APZs?
        Mr. Grone. DOD Instruction 4165.57, Air Installations Compatible
    Use Zones, provides policy on the extent of interest the Government
    should acquire in real property in APZs. DOD policy is to work toward
    achieving compatibility between air installations and neighboring
    civilian communities by means of compatible land use planning and
    control processes conducted by the local community. The method of
    control and regulation of land usage in APZs will vary according to
    local conditions. In all instances, we strive to work collaboratively
    with local communities to establish reasonable land use guidelines that
    will protect the operational integrity of the air installation. A
    primary aspect of this effort is the provision to the local planning
    agencies of measurements of installation produced noise. When efforts
    to achieve compatible use zoning, or similar protection, are
    unsuccessful there are a variety of tools available to acquire the
    necessary interests to achieve compatibility. The statutory authority
    granted DOD in 10 U.S.C.  2684a, enacted in the NDAA for Fiscal Year
    2003, is an example of one such additional tool. When considering
    acquisition of real property interests, the military departments are
    encouraged to acquire the minimum amount of property or property
    interest necessary to protect the military mission, and only from
    willing sellers. The property interest acquired will tend to vary
    depending on how close the property is to the military use and what the
    military use may be. For instance, the property interest sought to be
    acquired will generally differ between a clear zone, APZ 1, and APZ 2.
    This is reflective both of the potential for accidents and the
    compatible uses that each zone will allow.

        83. Senator Ensign. Mr. Grone, does the DOD currently maintain a
    moratorium on the purchase of property? If so, was a waiver granted by
    the Secretary of Defense to the Department of the Navy for the
    acquisition of land at Marine Corps Air Station Beaufort and what were
    the reasons?
        Mr. Grone. Yes, DOD maintains a moratorium on the purchase of
    property. If the proposed land or lease acquisition exceeds either
    1,000 acres, or $1 million in acquisition costs, then a waiver to the
    land acquisition moratorium must be obtained from either the Secretary
    or Deputy Secretary of Defense (within the Washington, DC area) or the
    Under Secretary of Defense (Aquisition, Technology, and Logistics)
    (USD(AT&L)) for acquisitions outside the Washington, DC area.
        In May 2003, the USD(AT&L) approved an exception to Land
    Acquisition Moratorium for the Department of the Navy to pursue
    partnering arrangements with local authorities that could ultimately
    result in the Navy acquiring 900 acres within the AICUZ of MCAS
    Beaufort, South Carolina. Section 2811 of the NDAA for Fiscal Year 2003
    provides the authority and stipulates that only O&M (or RDT&E for RDT&E
    funded activities) may be used for this purpose.
        The proposed Navy MILCON for fiscal year 2007, P424, seeks to
    acquire restrictive easements for 351 acres that could not be obtained
    by using the Section 2811 ``partnering legislation.'' This is Phase I
    of two phases, with a Phase II to be requested for fiscal year 2008.
    This MILCON funded request, to acquire 351 acres of restricted
    easements, has not as yet been submitted to Office of the Secretary of
    Defense for approval in accordance with the Land Acquisition
    Moratorium.

                       transparency in contract execution
        84. Senator Ensign. Mr. Grone, in your opinion, what more can be
    done to leverage the rapid advancement in technology towards the goal
    of efficient and effective construction contract management?
        Mr. Grone. The DOD's primary design and construction agents, the
    U.S. Army Corps of Engineers and the Naval Facilities Engineering
    Command, have been using commercially available project management and
    construction management tools to support effective and efficient
    contract administration. They continue to actively search out new
    tools, benchmark their performance against private industry, and
    leverage the Department's business transformation efforts to further
    enhance their construction agent capabilities. The Department always
    welcomes the introduction of new proven technology innovations.

                  adequate oversight in housing privatization
        85. Senator Ensign. Mr. Grone, the DOD's dedicated efforts to
    quickly improve the living conditions of our military personnel and
    their families has resulted in 56 privatization projects comprised of
    almost 118,000 housing units across all the Services. Adequate
    government oversight and quality assurance within privatized housing
    partnerships are essential to monitor and safeguard the Government's
    interests. What policies and processes are in place within the DOD to
    ensure the privatization projects are meeting expectations for
    construction progress, occupancy rates, and financial performance?
        Mr. Grone. In 2001, the OSD initiated the semi-annual Military
    Housing Privatization Initiative (MHPI) Program Evaluation Plan (PEP)
    report to monitor overall MHPI program performance. It has evolved over
    time to meet the needs of the accelerating MHPI program, as it has
    matured. In addition, OSD is also now required to report semi-annually
    to Congress on the status of its housing privatization program. This
    report (DOD, MHPI PEP Executive Report) was sent to the various defense
    authorizing and appropriation committees on March 31, 2006.
        While the PEP is intended to oversee broad program performance, the
    service portfolio management systems oversee the real time well-being
    of individual projects. The Services have quarterly and monthly
    monitoring mechanisms in place to track their construction progress,
    occupancy rates, and financial performance. The program's construction
    progress, including both new construction and renovations, is on
    schedule--as determined by each project's Initial Development Plan
    agreed to at project closing. To date, we have no project defaults and
    where we have occupancy issues the Services and their relevant
    developers are working aggressively to address this issue. The MHPI is
    designed to require the Services to perform their monitoring function
    through ``eyes on the ground'' asset management and through regular
    reviews of a project's status with the respective developers. In
    addition, the developers are under continual scrutiny by their lenders
    to ensure project performance and fiscal health.

        86. Senator Ensign. Mr. Grone, has the DOD identified any negative
    trends or problems within the housing privatization program? If so,
    please elaborate.
        Mr. Grone. Congress requested in the Report of the Committee of
    Conference accompanying the Military Construction Appropriations Act,
    2006 (Public Law 109-114) a semi-annual report on the status of our
    housing privatization program. The Military Housing Privatization
    Initiative PEP Executive Report (June 2005), which was sent to the
    various defense authorizing and appropriation committees on March 31,
    2006, outlines how the housing privatization program is doing. In
    short, as of April 2006, DOD has awarded 58 projects, privatizing over
    121,000 family housing units, and via these awards have put into place
    a budget and plan to eliminate over 91,000 inadequate units. To date,
    DOD is on schedule with new construction and renovation plans, and have
    had no financial project defaults. Where projects have experienced
    lower occupancy rates than expected, usually due to the poor condition
    of transferred units, the military Services and their development
    partners are working aggressively to address the problem.

        87. Senator Ensign. Secretary Eastin, the Army is relying on a
    contractor to develop privatization projects on its behalf. This
    contractor is responsible for soliciting investors, preparing
    proposals, and working with offerors to finalize transactions. What
    policies or processes are in place within the Army to provide oversight
    to the contractor's activities to ensure the best possible transactions
    are entered into by the Government?
        Mr. Eastin. Contractors do not develop projects on behalf of the
    Army. The Army employs contractors to provide professional real estate
    and financial analyses support to Government program and project
    managers. The role of the contractor is to provide advice and
    assistance to the Government in negotiating with nationally recognized
    real estate development and management firms that the Army has selected
    as family housing privatization partners. The contractor support
    includes analyses and recommendations on various aspects of development
    plans, evaluation of proposed fees and other terms and conditions,
    competition of lender debt, and collection and evaluation of data to
    support post-privatization oversight. Government personnel are
    responsible for soliciting and selecting the development partners, and
    finalizing transactions and business agreements that ensure the best
    value to the Government. The Army uses a variety of appropriate
    contract administration controls to review and evaluate contractor
    performance and costs in support of the program.

                business processes for real property management
        88. Senator Ensign. Secretary Eastin, Secretary Penn, and Secretary
    Anderson, I am very interested in the comments in Mr. Grone's written
    statement concerning the Business Process Reengineering (BPR) effort
    for managing the Department's real property inventory. He stated that
    ``the inventory reform effort will provide the DOD warfighter and
    business mission with relevant access to needed information on real
    property.'' Furthermore, he stated that ``The Services and Defense
    Agencies have begun to re-architect their business processes and
    systems to ensure that they will be able to provide the standard
    business processes and data elements identified during the BPR.'' Can
    you give me some examples of what do you hope to get done?
        Mr. Eastin. By re-architecting our business processes and systems,
    we will enhance the ability for DOD information technology (IT) systems
    to link individual people, personal property, real property assets, and
    environmental liabilities to geographic locations from authoritative
    sources for continuous, accurate, and secure location information with
    decreased operational cost and cycle times. Ultimately, this will
    reduce or eliminate duplicative data to improve accuracy and
    accountability of financial statements and environmental liability
    estimates as well as environment, safety, and occupational health
    requirements.
        Mr. Penn. The Chief Financial Officer Act requires Services to
    value their physical plant to meet generally acceptable accounting
    standards. Congress has deemed it important that the Services be able
    to provide an accurate and auditable value of all buildings, regardless
    of age, even though these buildings are not depreciated for tax
    purposes, nor can be used as collateral for loans. We have information
    in our real property data bases that reflect the cost to the
    Government. But in many cases, buildings do not have paper records that
    are required by the auditors to validate the cost. Changes to the data
    elements will allow us to capture the ``auditable cost to the
    Government'' once it has been validated in an acceptable manner.
        Another example is adding a readiness indicator to the property
    record that will aid in using facilities as in input to the Defense
    Readiness Reporting System.
        Mr. Anderson. During the course of fiscal year 2006 and fiscal year
    2007, the Air Force is implementing both operational and systems
    reforms. Within our enterprise civil engineer system, we are
    restructuring our real property inventory data (in line with the
    Business Enterprise Architecture), implementing new business rules
    associated with the BPR, consolidating the inventory databases into a
    single authoritative source, migrating inventory data to the new
    structure and rules, and exposing the data to the warfighter and
    business missions through the Air Force's data warehouse and management
    services. Operationally, we've trained our data stewards at the major
    commands and installations to use the reengineered processes and to
    enter the appropriate data into the upgraded system. Data population,
    in particular for fiscal year 2006 Federal Real Property Council and
    DOD Instruction 4165.14 requirements, has begun and will be completed
    by September 30, 2006. Additional data elements identified under the
    Real Property Inventory Requirements (RPIR) document (not including
    those related to linear assets, such as utilities and pavements) will
    be populated during fiscal year 2007.

        89. Senator Ensign. Secretary Eastin, Secretary Penn, and Secretary
    Anderson, what concrete initiatives are you looking at?
        Mr. Eastin. One concrete initiative is the development of the RPIR
    book, which will document the transformation of our processes to
    inventory real property. The RPIR will ensure real property information
    is compatible across all DOD components, accessible to all users, and
    accurate and complete.
        One of the key elements of the RPIR is the Real Property Unique
    Identifiers (RPUID), which will be assigned to each item of real
    property in the DOD inventory. The first step in implementing this
    initiative is establishment of a DOD real property site registry. This
    registry will standardize installations, sites, and assets across
    mission functions for analysis and reporting purposes. RPUIDs will be
    assigned to contiguous areas of land as well as individual real
    property assets. The registry will improve accountability by allowing
    all real property financial obligations and physical changes to be
    tracked over the life of the asset.
        Mr. Penn. We are implementing many new data elements to describe
    our property. They will fully cover the requirements of the Federal
    Real Property Council as well as provide more useful information. A
    specific example of a new data element is one to determine a quality
    rating of a building related to the amount of modernization required to
    make fully functional to perform its mission. This data element will
    aid in programming for restoration and modernization, and evaluating
    overall readiness of facilities.
        Mr. Anderson. The Air Force has short-term and long-term
    initiatives. Our short-term initiative (fiscal year 2006-fiscal year
    2007) increases our real property accountability by ensuring we better
    capture and link relevant data within the DOD Business Enterprise
    Architecture. Our long-term initiative (fiscal year 2008-fiscal year
    2010) builds on this by migrating to an enterprise asset-based approach
    that builds improved business practices and standards into our systems,
    improving our flexibility, and adaptability in responding to warfighter
    needs.

        90. Senator Ensign. Secretary Eastin, Secretary Penn, and Secretary
    Anderson, what types of investment do you need?
        Mr. Eastin. The Army has begun identifying and evaluating current
    IT investments that support real property initiatives to ensure
    consistency with strategic imperatives and operational requirements.
    The Army's current investment strategy to re-architect real property
    inventory business processes and systems involves O&M funding for
    enterprise architecture, software development, systems testing, and
    implementation.
        Mr. Penn. We need investments in upgrading our IT system, and
    manpower to collect the additional standard data, which requires
    extensively more on-site facilities inspection than is currently
    performed. For example, current facilities inspections look at code
    violations, or things that are in need of repair. To populate the
    quality rating, an engineering evaluation is required to look at ways
    the building could be modernized to provide best support of its
    mission. This is a significant change in process, and will require more
    highly skilled evaluators.
        Mr. Anderson. The Air Force requires both operational and systems
    investments to implement these reforms. First, we must invest in our
    legacy enterprise systems to enable them to capture and manage the
    right data in support of information requirements. This investment is a
    sustainment of existing technology. Second, we must invest in our next
    generation system, which we envision will allow us to increase
    productivity, effectiveness, flexibility, and accessibility; increase
    data accuracy, consistency, and availability; and reduce system
    development and sustainment costs. This investment is new development.
    Third, we must invest in the accurate and timely collection of data to
    support the BPR, real property accountability, and clean audit
    requirements. This is the most substantial of the investments: it is
    labor-intensive and covers more than 400,000 installation assets. This
    investment is an O&M requirement.

        91. Senator Ensign. Secretary Eastin, Secretary Penn, and Secretary
    Anderson, how much will it cost?
        Mr. Eastin. The cost to implement RPIR across the Army is
    approximately $2.3 million, while the cost to implement a Common Data
    Repository to centrally house key program, installation, site, and
    environmental data is approximately $938,000.
        Mr. Penn. The first phase of this modernization is to implement the
    new/updated data elements in the DOD Instruction 4165.64. Our cost to
    implement the majority of the data elements in this instruction is
    estimated at $2.6 million.
        Future phases of real property inventory data improvements may be
    more costly, but we are required to balance the cost to implement in
    relation to the value of the data provided.
        Mr. Anderson. The Air Force's investment in its legacy real
    property inventory system is approximately $20 million over 2 years.
    Our investment for the next generation system is not yet fully
    quantified; however, our team is currently in the planning phase of
    this effort and will have an initial estimate by June 2006. Finally,
    the data population is probably our most significant cost. To fully
    implement data population for the DOD Instruction 4165.14 and the RPIR,
    including linear assets, will require approximately $64 million.

                  amputee center at walter reed medical center
        92. Senator Ensign. Mr. Grone, this committee received a
    notification from the Assistant Secretary of Defense for Health
    Affairs, Dr. William Winkenwerder, on June 24, 2004 of the intent to
    use emergency construction authorities to construct an Advanced Amputee
    Training Center for $10 million at Walter Reed Medical Center, in
    Washington, DC. This committee recognized the extreme urgency of this
    MILCON project and approved the rare use of emergency authorities to
    enable the DOD to complete construction by September 2005. As of the
    date of this hearing, neither a design nor a construction contract has
    yet to be awarded. Walter Reed is now on the list of installations to
    be closed under the 2005 BRAC process. All medical care will be
    consolidated at Bethesda Naval Medical Center. Why has the DOD delayed
    over 18 months in the completion of this facility?
        Mr. Grone. While notification was made on June 24, 2004, approval
    of the request for reprogramming of funds to the Advanced Amputee
    Center was received September 30, 2004. This facility was envisioned
    from conception as a design-build structure. The Request for Proposal
    (RFP) was developed and, when the project was advertised in April 2005,
    the project bids exceeded the programmed amount. This required
    revisions to the RFP and a resolicitation for bids in August 2005. As
    architects and engineers pursued options to reduce cost, the BRAC of
    Walter Reed Army Medical Center was announced. In light of the closure,
    the proposed construction was changed from a permanent facility to a
    medical transitional structure with a maximum life of 7 years. Before
    award of construction could proceed, however, as required by section
    128 of the Military Quality of Life and Veterans Affairs Appropriations
    Act, 2006, the Secretary of Defense must certify ``that the cost to the
    United States of carrying out such project would be less than the cost
    to the United States of canceling such project.'' Based upon
    justification material provided by the Army, the Deputy Secretary of
    Defense made the required certification on April 13, 2006. The Army
    awarded the project on May 4, 2006.

        93. Senator Ensign. Mr. Grone, considering new construction at
    Walter Reed at the same time we are closing this installation may not
    be the best use of taxpayer funds, what is the Department's plan to
    carry out this urgent requirement?
        Mr. Grone. The DOD has shifted gears slightly with this facility in
    responding to the BRAC direction to close Walter Reed Army Medical
    Center (WRAMC). When WRAMC finally closes, amputee care will be
    consolidated on the campus of the existing National Naval Medical
    Center, Bethesda. Meanwhile, there is insufficient space or staff to
    ``split'' this function between the two installations. We strongly
    believe it is our obligation to provide the required care to our
    warriors who have suffered the loss of limbs in the ongoing war on
    terror. We cannot wait 5 or 6 years to provide the best possible care
    and support available to those who have given so much in the defense of
    our Nation. A transitional facility rapidly constructed on the WRAMC
    campus will permit provision of this vital support until the closure of
    WRAMC and the transfer of this function to Bethesda. The Deputy
    Secretary of Defense has certified that the cost to the United States
    of carrying out this project will be less than the cost to the United
    States of canceling this project.

        94. Senator Ensign. Mr. Grone, when will this facility be
    completed?
        Mr. Grone. The project was awarded to Turner Construction Company
    on May 4, 2006 and the scheduled completion date is November 2007.

        95. Senator Ensign. Mr. Grone, how much does the Department now
    estimate this facility will cost?
        Mr. Grone. The project is estimated to cost $10 million.

                         facilities for the f-22 raptor
        96. Senator Ensign. Secretary Anderson, the Air Force recently
    announced plans to station the F-22 Raptor at Holloman Air Force Base,
    New Mexico, and Hickam Air Force Base, Hawaii. Does the Air Force have
    an estimate of the cost of new facilities required to support F-22
    operations and training at each new location? If so, can you provide a
    list of the facilities and projects as well as the expected costs for
    each facility and project?
        Mr. Anderson. The Air Force is still conducting initial site
    surveys of our preferred alternative F-22A bed down locations, Holloman
    and Hickam AFBs, to determine their facility requirements. We expect to
    finalize facility requirements and estimates during the fiscal year
    2008 POM cycle.

        97. Senator Ensign. Secretary Anderson, in press reports covering
    the decision to station F-22s at Holloman Air Force Base, the Air Force
    was reported to be planning to complete an EIS by the summer 2006.
    Normally, the EIS process, as required by the NEPA, takes about 18
    months to complete. What is the Air Force's plan to complete
    environmental actions related to the stationing of a new weapon system
    at these two installations?
        Mr. Anderson. The Air Force is planning to complete an
    Environmental Assessment (EA) at Holloman Air Force Base to determine
    if an EIS is necessary. HQ Air Combat Command has streamlined the NEPA
    process taking advantage of existing environmental information,
    expedited EA review periods and a dedicated EA interdisciplinary team.
    If the EA results in a finding of no significant impact (FONSI), the
    environmental impact analyses process is scheduled to be complete by
    July 2006. If the EA leads to a decision to complete an EIS (i.e.,
    potential for significant impacts), approximately 9 months would be
    added to the process. Even if an EIS becomes necessary, the NEPA
    process would be complete and would not interfere with the proposed
    beddown timeline.

        98. Senator Ensign. Secretary Anderson, is the Air Force planning
    to accelerate the NEPA process? If so, why?
        Mr. Anderson. The Air Force is working hard to reduce the cycle
    time required for environmental analysis, while still meeting the legal
    and substantive requirements of the NEPA. By leveraging the knowledge
    obtained in other recent F-22A analyses, and by dedicating a team to
    this endeavor, we will have better information available sooner to
    inform our next basing decisions. This effort will deliver more
    flexibility to the F-22A program, and is one of many Air Force
    initiatives to lean our processes. In the future, as we better
    integrate our information systems, we believe improved data
    availability will help us continue to deliver more responsive and
    relevant NEPA analyses.

                  oversight of military construction projects
        99. Senator Ensign. Mr. Grone, each year Congress specifically
    authorizes each MILCON and housing construction project after
    thoroughly reviewing the military requirement associated with each
    project and the construction project data provided by the Department as
    part of the President's budget request. By listing each project
    authorized for appropriation by location and project title, Congress
    intends for the DOD to carry out the projects as authorized, and
    provides specific exceptions in law when warranted and justified. What
    processes and oversight are employed by the DOD to ensure that each
    MILCON project is carried out in accordance with the authorization
    provided by Congress?
        Mr. Grone. With respect to the compliance with the authorization
    provided by Congress, there are three mechanisms that the DOD uses in
    its management and oversight of the MILCON program execution. First,
    each of the design/construction agents has a comprehensive set of
    program/project management procedures that are focused on executing the
    MILCON projects as authorized and appropriated, and steps to take when
    deviations occur. Second, the military departments' audit agencies
    annually review the execution of the MILCON program and specifically
    highlight any scope issues that may be found. Finally, in implementing
    the provisions of 10 U.S.C. 2853, ``Authorized cost variations,'' the
    DOD has a comprehensive process to review and approve any significant
    project changes, and to provide such notification to Congress.

        100. Senator Ensign. Mr. Grone, who has responsibility within the
    DOD to ensure compliance with congressional intent and authorization?
        Mr. Grone. The responsibility for compliance rests with the
    Secretary of Defense, the secretaries of the military departments, and
    the heads of the DOD agencies. They have created detailed and elaborate
    procedures to ensure that authorized programs and activities are
    performed in accordance with congressional intent. In addition, they
    have established organizations and assigned officials, including
    auditors, financial managers, and inspectors general, to provide
    oversight of the programs authorized by Congress.
                                     ______

                 Questions Submitted by Senator Daniel K. Akaka
                           cost of relocating forces
        101. Senator Akaka. Mr. Grone, what is the DOD's best estimate of
    the cost of relocating and stationing the forces that are being
    relocated from Germany, Korea, and Japan to bases in the United States?
        Mr. Grone. The estimated net cost for relocating forces from
    Germany to bases in the United States is about $2.36 billion over the
    period fiscal years 2006-2011. The estimated cost for relocating forces
    from Korea is still under review, but will be considerably less then
    the relocation costs from Germany. The U.S. and the Government of Japan
    are not discussing any moves of U.S. forces from Japan to facilities in
    the continental United States. The U.S. and the Government of Japan
    continue to discuss cost sharing related to the proposed move of III
    Marine Expeditionary Force personnel and their families from Okinawa to
    Guam.

        102. Senator Akaka. Mr. Grone, how many years of funding will be
    required to implement these moves?
        Mr. Grone. Funding to relocate the 2nd Brigade of the 2nd Infantry
    Division from Korea to Fort Carson--after deployment in Iraq--was
    completed in fiscal year 2005 when the relocation occurred.
    (Miscellaneous units will be returned from Korea to Schofield Barracks,
    HI; Fort Lewis, WA; and Fort Wainwright, AL in fiscal years 2006 and
    2007.) The move of the 1st ID and 1st AD is expected to be completed in
    fiscal year 2010, at which point funding for those moves will be
    completed and related operating cost savings will begin to accrue.

        103. Senator Akaka. Mr. Grone, is it the DOD's intention to build
    permanent facilities for our personnel before moving them, as Congress
    recommended in section 2836 of last year's National Defense
    Authorization Act?
        Mr. Grone. The DOD has already begun the process of building
    additional facilities at receiving bases such as Fort Bliss, Fort
    Riley, and Fort Hood. Funds appropriated in the fiscal year 2006 budget
    have allowed the Department to initiate planning and design, and begin
    execution of construction projects, at both Ft. Bliss and Ft. Riley.
    Additional construction projects are planned from fiscal year 2007
    through fiscal year 2010 at receiving bases to ensure infrastructure at
    these bases can support the influx of forces from Germany and Korea.

        104. Senator Akaka. Mr. Grone, what are the DOD's current estimates
    of the total cost of implementing the global posture review, including
    the cost of restationing these forces back in the United States as well
    as new facilities in Eastern Europe or other locations?
        Mr. Grone. The current cost estimate for implementing global
    defense posture remains $9-$12 billion. This estimate not only includes
    global defense posture changes reflected in the fiscal year 2007
    President's budget, but also covers consolidation in Korea, Japan/
    Okinawa realignments, and other changes. As negotiations with host
    nations progress and as global defense posture plans evolve further,
    this estimate remains subject to change.

                       relocation of marines from okinawa
        105. Senator Akaka. Secretary Penn, what is the Navy's plan for
    relocating several thousand marines from Okinawa to Guam?
        Mr. Penn. The Office of Secretary of Defense, with the
    participation of the Marine Corps, and the U.S. Department of State,
    and the Government of Japan are negotiating terms for relocating
    approximately 8,000 marines and 9,000 dependents from Okinawa to Guam
    under the Defense Policy Review Initiative (DPRI). The Navy has been in
    a supporting role as OSD has the lead on these negotiations.

        106. Senator Akaka. Secretary Penn, when do you expect to have a
    schedule and a cost sharing agreement with the government of Japan in
    place?
        Mr. Penn. The OSD, with the participation of the Marine Corps, the
    U.S. Department of State, and the Government of Japan are engaged in
    discussions under the DPRI. A series of Agreed Implementation Plans
    (AIPs) are being negotiated, to include the plans to move 8,000 marines
    to Guam, the MCAS Futenma replacement facility, consolidation of
    marines north on Okinawa, and relocation of a Carrier Wing Group from
    NAS Atsugi to MCAS Iwakuni. These AlPs are negotiated concurrently with
    the goal of signing agreements by mid-April 2006. Because many of the
    plans are interrelated, the terms must be coordinated during these
    negotiations and failure to complete key points of one plan could
    jeopardize agreement on other dependent AIPs.
        While OSD has the lead on these negotiations, we hope to have a
    schedule and cost sharing agreement before summer 2006.

        107. Senator Akaka. Secretary Penn, does the Navy intend to build
    out the facilities on Guam properly before moving the marines?
        Mr. Penn. One of the guiding principles in the negotiations between
    the OSD and the Government of Japan has been that until replacement
    facilities are in place we will not move marines. OSD has made the
    replacement of MCAS Futenma a key component so that not only must there
    be replacement facilities on Guam but also substantial progress on the
    Futenma Replacement Facility before marines will relocate from Okinawa
    to Guam.

        108. Senator Akaka. Secretary Penn, are we under any pressure from
    the Japanese government to remove our forces before we are ready to
    house them on Guam?
        Mr. Penn. Under DPRI, negotiations between the Office of Secretary
    of Defense and the Government of Japan to relocate forces to Guam are
    linked to having adequate replacement facilities in place. OSD has made
    it clear that we will not move marines until suitable replacement
    facilities are in place. While the Japanese Government may feel
    pressure locally to move marines as soon as possible, the OSD policy
    has not changed to only relocate marines when replacement facilities
    are in place.

                             chemical sea disposal
        109. Senator Akaka. Mr. Grone and Secretary Eastin, as you both are
    aware, in November 2005 I was briefed by the Department of the Army
    regarding actions it will be taking to address concerns raised about
    the off-shore disposal of chemical munitions in the waters off the
    State of Hawaii by our military between the 1940s and 1970s. Since this
    briefing, it is my understanding that the Army, with the other
    Services, appropriate Federal agencies, and local authorities, is
    verifying the locations and types of material disposed of within these
    areas. First, what is the current status of the surveys?
        Mr. Grone and Mr. Eastin. The Army and its sister Services are
    continuing the archive search of historical records on the disposal of
    military materials at sea. This review includes records at the National
    Archives and studies and survey reports on sea disposal sites. The
    Services are also working with the National Oceanic and Atmospheric
    Administration to review the historical information for the explosives
    disposal sites on that agency's nautical charts.
        A 2001 U.S. Army Research, Development and Engineering Command
    report provides information previously collected on sea-disposals of
    chemical munitions and bulk chemical agent. This report was a
    historical compilation of notes that addressed reported disposal
    actions. The Department expects to issue an updated report in June
    2006. The updated report will be supported by the documents uncovered
    in our current archive search. We anticipate that further archive
    research will be necessary after this report is issued in order to
    fully document all of the disposals.

        110. Senator Akaka. Mr. Grone and Secretary Eastin, is the DOD
    looking at technologies that will monitor these sites?
        Mr. Grone and Mr. Eastin. The DOD is currently reviewing past
    scientific studies, both U.S. and international, on the effects of
    seawater on chemical munitions and the potential impacts of sea
    disposal on marine environments. This research will enable us to gain a
    better understanding of the current condition of materiel disposed of
    at sea, and support informed decisions on next steps to be taken to
    address these sites.
        In the early 1970s, the Navy collected data from three deep water
    disposal sites in the Atlantic and one in the northern Pacific. The
    Department had used two of the Atlantic Ocean sites for disposal of
    chemical warfare material. Subsequent monitoring was performed annually
    from 1971 through 1975 at one site that was used for disposal of
    chemical weapons. The Navy found no evidence of any environmental
    impacts at any of these sites.
        Our review of previous studies indicates that chemical agents
    degrade over time into less toxic materials. The rate of degradation
    varies from minutes to years based on the chemical agent, the amount of
    chemical agent, and the environmental conditions. Technology already
    exists to monitor these sites, although we hope and expect that
    additional research into the rate and means of degradation will better
    inform us as to more effective, efficient, and accurate monitoring
    technologies. The development of those better monitoring technologies
    will be better served with our first conducting additional research
    into the effects, if any, of these munitions on human health and the
    environment.

        111. Senator Akaka. Mr. Grone and Secretary Eastin, will the DOD be
    creating a remediation plan that addresses the feasibility, cost
    estimates, and environmental and health risks of implementing multiple
    remediation measures at these sites?
        Mr. Grone  and Mr. Eastin. The information from the DOD's review of
    previous studies, both U.S. and international, suggests that these sea
    disposal sites do not pose an imminent or substantial threat to public
    health, safety, or the environment. Most chemical agents normally
    degrade over time into less toxic materials. Studies reviewed to date
    indicate that the rate of degradation or decay can vary from minutes to
    years depending on the chemical agent, the amount of chemical agent,
    and the environmental conditions.
        The DOD's ongoing research will allow DOD to determine the best
    approach to address these disposal sites. Specifically, DOD will
    evaluate the potential risks presented by leaving the material in
    place; the risks presented to public health, safety, and the
    environment by any attempt to recover the material; and the DOD's
    ability to safely and without adverse impact recover and dispose of
    this material. As the committee is aware, it would be contrary to the
    intent and purposes of our environmental laws if we were to engage in a
    remediation action that had the effect of substantially endangering
    human health and safety and damaging the environment if the alternative
    of leaving the munitions in place would not have those effects.
    Conducting additional research is the key to allowing the formulation
    of an informed decision on this matter.
        The DOD will keep the committee apprised of progress in this
    research.

                     aircraft carrier basing in the pacific
        112. Senator Akaka. Mr. Grone and Secretary Penn, the QDR released
    last month stated the Department's intention to increase the Navy's
    presence in the Pacific. According to the QDR, the Navy will ``adjust
    its force posture to provide at least six operationally available and
    sustainable carriers and 60 percent of its submarines in the Pacific.''
    I believe basing an aircraft carrier in Hawaii, colocated with our
    nuclear capable shipyard, will prove to be the best option from an
    economic and quality-of-life standpoint, in addition to its strategic
    benefits. When will the Navy plan to move forward on implementing the
    QDR's decisions, and when will the specifics on the forward basing of
    an additional aircraft carrier in the Pacific be determined?
        Mr. Grone. The Navy, like other military departments, is working
    through its plan for implementing the QDR's many recommendations. The
    recommendation concerning the carrier is one of the more complex set of
    changes. The DOD will consult with Congress when the plan has been
    completed.
        Mr. Penn. The decision to homeport a 6th Pacific carrier is a
    complex issue involving ships, aircraft, maintenance, facilities,
    family support, MILCON, and environmental impact issues. The Navy is
    studying the options and will include the need for any additional
    resources in future budget submissions.

                      unaccompanied housing privatization
        113. Senator Akaka. Secretary Eastin, Secretary Penn, and Secretary
    Anderson, I understand that each of the military departments has a
    slightly different view on unaccompanied housing privatization, so I
    will ask each of you for your views. The potential to acquire quality
    housing for our military at a more expedited pace is there. But, in
    order to receive the favorable scoring that allows you to avoid fully
    funding the project upfront, it is necessary to do a number of things
    that are acceptable for family housing that are much less desirable for
    barracks. It is my understanding that you cannot assign personnel to a
    barracks, so you cannot preserve unit integrity; you have to build them
    off base or near the perimeter of the base, which is not where you
    usually want them to be; and you have to allow the developer to rent
    them with non-DOD personnel if you cannot fill them with military
    personnel. As you weigh all the considerations, is this a tool that
    makes sense for your Service?
        Mr. Eastin. My view with barracks privatization is that it offers
    some opportunities. The Army is still assessing the business case for
    privatization and the associated impacts to our ethos and culture. The
    Army is also waiting for the Navy's barracks privatization pilot
    projects to mature so additional data and lessons learned may be
    gathered for potential use at Army installations.
        Mr. Penn. Yes. Similar to family housing, we believe privatization
    authorities can be used to address some of our unaccompanied housing
    requirements. Accordingly, we are pursuing projects at San Diego and
    Norfolk and considering other candidates. The inability to assign
    personnel does create a challenge for potential Marine Corps housing
    privatization projects, but we are working on that as well. We consider
    the unique challenges associated with unaccompanied housing, such as
    operational requirements and extended deployments, when determining the
    feasibility of specific projects.
        Mr. Anderson. Combat capability begins and ends with healthy,
    motivated, trained, and equipped airmen. We must remain committed to
    providing our entire Air Force team with world-class training through
    close supervision and oversight, plus facilities and morale enhancing
    activities. Housing our junior enlisted personnel on-base ensures they
    acclimate to the Air Force with members of their own unit; builds
    esprit de corps; facilitates access to base services such as medical,
    fitness, recreation, commissary, and exchange facilities; and typically
    reduces travel distance to their place of work. Several issues
    currently preclude us from pursuing unaccompanied enlisted dorm
    privatization. These include determining jurisdiction of the military
    and its right of entry; how to resolve disciplinary matters; how to
    keep the dorms filled for the developer to have sufficient income
    without implementing rental guarantees; and how to sever dorms from the
    installation if force drawdowns occur. Along with these concerns is the
    necessity of providing access to dining facilities, recreational
    centers, and work locations for junior enlisted members who do not have
    their own transportation. Similar circumstances may exist for
    unaccompanied officers. With your help, we will complete our ``buyout''
    of dormitory deficits in this fiscal year 2007 request--a huge success
    story, and we will complete the ``buyout'' of our student ``pipeline''
    dormitory requirements by fiscal year 2009.

        114. Senator Akaka. Secretary Eastin, Secretary Penn, and Secretary
    Anderson, would it be desirable to create mixed developments of single
    and family military housing, and is that feasible, given how far along
    family housing privatization is?
        Mr. Eastin. Currently, the Army does not mix single soldier and
    family housing neighborhoods. However, if single soldier housing
    privatization is determined feasible, we would evaluate whether to
    combine single and family housing neighborhoods and at what locations.
        Mr. Penn. Military members should enjoy the same standard of living
    as that enjoyed by their civilian counterparts. Sailors and marines,
    who reside off-base, do not live in communities where there is
    segregation by marital status.
        With respect to family housing privatization, our private partners
    may rent housing to unaccompanied personnel in addition to others when
    they are unable to rent to military families. We expect the same will
    be true with privatized housing targeted for unaccompanied personnel.
        While it may be generally feasible to pursue combined unaccompanied
    and family housing privatization projects, the separate appropriations
    that fund the construction of military unaccompanied and family
    housing, and the separate funds established by 10 U.S.C. 2883 for the
    privatization of unaccompanied and family housing, make such joint
    projects difficult.
        Mr. Anderson. In accordance with OSD policy, the Air Force looks to
    the community first to provide housing for our military members and
    their families. Military members have the choice of living on or off
    base in a variety of community types, which might include both single
    and family residences.
        The Air Force's privatization program provides quality housing
    primarily for military families. Single members, depending on their
    rank, can reside off base or in on-base dormitories. However, when the
    demand from families is low in privatized housing, the project owners
    can garner rent from other tenants which includes single military
    members. Currently, single military members are taking advantage of
    living in privatized housing and there are 756 residents, which equates
    to 5.8 percent of the overall Air Force privatized housing occupied
    homes, residing in privatized housing. While this ``waterfall'' is
    essential for developers' cashflow in privatized housing, our strong
    preference is for our most junior enlisted members to reside in
    dormitories where we can better provide oversight, mentoring, and full
    support.
                                     ______

                   Questions Submitted by Senator Bill Nelson
                           naval air station key west
        115. Senator Bill Nelson. Secretary Penn, I understand that the DOD
    approved but that OMB subsequently disapproved funds in the current
    fiscal year 2006 supplemental appropriations request related to storm
    damage at NAS Key West. Without this repair important training at Key
    West may suffer. What is the dollar value of the necessary repairs and/
    or recovery?
        Mr. Penn. A total of $35.6 million for facilities in Key West, FL,
    was not included in the Emergency Supplemental Appropriation request.
    This includes $18.5 million for the Base Operations Facility, $10.3
    million for the Aircraft Crash and Rescue Station and Fire
    Headquarters, $5.4 million for Trumbo Fire Station, and $1.4 million
    for planning and design. The President has proposed language in the
    supplemental request that would allow reprogramming of available funds
    to accomplish storm damage recovery. This approach would allow the
    Department of the Navy to ensure mission is supported.

        116. Senator Bill Nelson. Secretary Penn, what is your plan to
    accomplish the required work if the funds are not provided in the
    current supplemental appropriation?
        Mr. Penn. The President has proposed language in the supplemental
    request that would allow reprogramming of available hurricane recovery
    supplemental funds to accomplish storm damage recovery. This approach
    would allow the Department of the Navy to ensure mission is supported.
        With respect to recovery plans for specific buildings, the Base
    Operations Consolidated facility would be renovated. The existing
    facilities are circa 1940 barracks that have been converted to
    administration buildings. Due to age, the facilities were highly
    susceptible to, and significantly damaged by, storm surge and high
    winds. While new construction is a preferred option to minimize future
    susceptibility to storms, the existing facility could be renovated to
    continue mission support.
        New construction is planned for the Boca Chica Aircraft Crash/
    Rescue and Fire Headquarters. Repair is not an option since the
    existing site violates the Federal Aviation Administration Airfield
    Safety Criteria as it is within the primary surface of the runway. The
    existing facility was a modified WWII aircraft hangar and lacked the
    capability to withstand high winds or storm surge. The building is a
    health hazard due to excessive post storm mold growth. The existing
    site issues when coupled with the significant storm damage renders the
    facility beyond economical repair.

        117. Senator Bill Nelson. Secretary Penn, what are the operational
    consequences or mission risks if this work is not done?
        Mr. Penn. NAS Key West's critical role of supporting warfighter
    readiness would be degraded for both air and port operations. Numerous
    DOD and other Federal agencies depend on NAS Key West's direct support:
    Joint Interagency Task Force-South, U.S. Coast Guard Sector Key West,
    U.S. Army Special Forces Dive School, VFA-106 Detachment Key West, and
    VFC-13 Detachment Key West.
        NAS Key West has civilian vacancies directly attributed to the
    lower quality-of-life/quality-of-service provided through continued
    reliance on temporary and deteriorated facilities. This civilian
    shortage results in degraded ability to support mission.
        Use of temporary structures such as trailers leaves NAS Key West
    extremely susceptible to major damage from tropical storm winds and
    total destruction from hurricanes. Loss of these facilities is directly
    proportional to loss of key mission capability.

                       nuclear aircraft carrier homeport
        118. Senator Bill Nelson. Secretary Penn, in the Senate Budget
    Committee's hearing on March 2, 2006, Deputy Secretary of Defense
    Gordon England reaffirmed his judgment as former Secretary of the Navy
    that it is in the security interests of the United States to establish
    a second nuclear aircraft carrier homeport on the Atlantic coast in
    Florida. Vice Chairman of the Joint Chiefs, Admiral Edmund
    Giambastiani, echoed the importance of reducing risk to our carrier
    fleet by dispersing out carriers and their necessary support facilities
    across two ports. An EIS relative to homeporting a nuclear aircraft
    carrier at Naval Station Mayport, Florida was completed in 1997. That
    analysis concluded that homeporting a nuclear carrier at Mayport is
    feasible. I recently received notification of the Navy's intent to
    start another EIS with the same analytical objective. When do you plan
    to begin this study and what is your time estimate for its completion?
        Mr. Penn. The EIS process has already begun. Commander Fleet Forces
    Command (CFFC) is developing an outline of alternatives to be submitted
    to the Chief of Naval Operations (CNO) by 31 March. Once alternatives
    are approved, CFFC will complete the development of the scope of work
    and issue the contract for the preparation of a draft EIS that will
    analyze the potential environmental impacts of this homeporting action.

        119. Senator Bill Nelson. Secretary Penn, do you agree that the
    current study should be completed more quickly based on the
    availability of the analysis already completed in 1997?
        Mr. Penn. Yes to a limited degree. Preparation of environmental
    planning documentation for actions of this magnitude typically takes
    approximately 39 months. Our notional timeline indicates 29 months from
    notice of intent in the Federal Register to ROD. The Programmatic
    Environmental Impact Statement (PEIS) that was prepared in 1997
    evaluated the environmental impacts of upgrading and operating NAVSTA
    Mayport as a homeport for a CVN. The programmatic nature of the
    document requires that follow-on NEPA documentation be prepared before
    initiating any action. Additionally, the ROD for the PElS committed
    Navy to preparing additional NEPA analysis. This new ElS will look at a
    much broader range of surface ship positioning alternatives than just
    making NAVSTA Mayport a CVN homeport. Portions of the 1997 PEIS may be
    useful in developing the analysis for the both the CVN homeporting and
    CVN capable alternatives. However, the other alternatives will need to
    be evaluated in the same level of detail.

        120. Senator Bill Nelson. Secretary Penn, what specific steps are
    you taking to ensure that this analysis is finished in the fastest
    possible time?
        Mr. Penn. As noted above, I have already requested and have been
    provided an accelerated notional timeline with the significant steps in
    the EIS process identified. The time from publication of the Notice of
    Intent (NOI) in the Federal Register, which announces to the public
    that an EIS is being prepared, to the ROD has been accelerated to 29
    months vice the typical 39 months for actions of this magnitude. I
    expect to publish the NOI in the Federal Register this summer. The NOI
    will describe the Navy's proposed action, outline anticipated
    alternatives, and identify the main environmental issues.

                                  storm damage
        121. Senator Bill Nelson. Secretary Anderson, I understand that the
    DOD approved but that OMB subsequently disapproved funds in the current
    fiscal year 2006 supplemental appropriations request related to storm
    damage at Eglin Air Force Base that would repair and strengthen Santa
    Rosa Island. I am told that without this repair, Santa Rosa Island,
    essential to the mission of Eglin Air Force Base and the Joint Gulf
    Range as a test and evaluation sensor site, may not survive another
    storm. What is the dollar value of the necessary repairs and/or
    recovery?
        Mr. Anderson The total amount to fully fund the repairs at Santa
    Rosa Island is $169.8 million (this number includes MILCON, RDT&E, and
    O&M Funded Requirements). These funds will repair roadways and
    facilities damaged during the recent hurricane season.

        122. Senator Bill Nelson. Secretary Anderson, what is your plan to
    accomplish the required work if the funds are not provided in the
    current supplemental appropriation?
        Mr. Anderson. The damage caused by hurricanes in fiscal year 2005
    goes well beyond what the Air Force MILCON budget can absorb in the
    near term. The MILCON budget is tightly developed based on known
    requirements, and unique events such as Hurricane Dennis are difficult
    to fund in subsequent fiscal years without tremendous impact to other
    missions. If supplemental funding is not provided to rebuild the land
    mass and infrastructure that protect and support this national asset,
    we will only be able to make piecemeal repairs over the next several
    years using limited O&M funds while we work toward longer term
    solutions. Without funding for repairs, the degraded conditions will
    only get worse by the event of future storms; greatly increasing the
    risk of shutting down the Nation's ability to use the range for testing
    and limiting our support to the warfighter.

        123. Senator Bill Nelson. Secretary Anderson, what are the
    operational consequences or mission risks if this work is not done?
        Mr. Anderson. Santa Rosa Island is the only DOD range with
    unobstructed continuous land-to-sea access. It allows for testing and
    training from sea level to high altitude. It is also currently the only
    operating DOD range with unrestricted testing/training for large safety
    footprint weapons. Last year, test and evaluation facilities on this
    island were essential to completing 24 quick reaction tests for
    munitions in support of Operations Iraqi Freedom and Enduring Freedom.
        Losing Santa Rosa Island would require reliance on other heavily
    tasked and less capable test facilities, or a significant investment in
    land purchase, airspace access, and infrastructure to duplicate the
    Santa Rosa Island test and evaluation capabilities. The exact mission
    impacts are not quantifiable, but history has shown that reduced
    testing results in fielding of weapons with poorer operational
    performance.

        [Whereupon, at 3:13 p.m., the subcommittee adjourned.]

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                      2007

                                  ----------

                           WEDNESDAY, MARCH 15, 2006

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

                            GROUND FORCES READINESS

        The subcommittee met pursuant to notice at 9:31 a.m., in
    room SR-222, Russell Senate Office Building, Senator John
    Ensign (chairman of the subcommittee) presiding.
        Committee members present: Senators Inhofe, Ensign, Thune,
    Akaka, and Clinton.
        Majority staff members present: Ambrose R. Hock,
    professional staff member; Derek J. Maurer, professional staff
    member; and Sean G. Stackley, professional staff member.
        Minority staff members present: Daniel J. Cox, Jr.,
    professional staff member; and Michael J. McCord, professional
    staff member.
        Staff assistants present: Benjamin L. Rubin and Pendred K.
    Wilson.
        Committee members' assistants present: Paul C. Hutton IV,
    assistant to Senator McCain; John A. Bonsell, assistant to
    Senator Inhofe; Arch Galloway II, assistant to Senator
    Sessions; Alexis Bayer, assistant to Senator Ensign; Stuart C.
    Mallory, assistant to Senator Thune; Darcie Tokioka, assistant
    to Senator Akaka; William K. Sutey, assistant to Senator Bill
    Nelson; and Andrew Shapiro, assistant to Senator Clinton.

           OPENING STATEMENT OF SENATOR JOHN ENSIGN, CHAIRMAN

        Senator Ensign. Good morning everyone. We'll get this
    subcommittee hearing underway. Senator Akaka should be here
    shortly. We are here to receive testimony on ground forces
    readiness for the Department of Defense (DOD). We are honored
    to have with us today Deputy Commandant of the Marine Corps for
    Plans, Policies, and Operations, Lieutenant General Jan Huly;
    Army Deputy Chief of Staff for Operations and Plans, Lieutenant
    General James Lovelace; Commander of Marine Forces, Central
    Command, Lieutenant General John Sattler; and Commanding
    General of the 18th Airborne Corps, Lieutenant General John
    Vines.
        Welcome all of you, and I would like to take this
    opportunity to thank you all for continuing service that you do
    for this Nation. Both General Magnus, the Assistant Commandant
    of Marine Corps, and General Cody, the Vice Chief of Staff of
    the Army, were supposed to be here today. General Magus is not
    here because he is testifying right now before the full
    committee, but I understand General Cody has an even better
    excuse. He is not here today because his son is coming back
    from Iraq today for 2 weeks of leave before returning. As a
    father, I can understand why he's not here, and that's why we
    excused him for the day. General Lovelace, please pass on to
    General Cody that we wish him and his family all of our best.
        Our focus this morning is to discuss key military readiness
    issues affecting our ground forces. We will be interested to
    learn from the witnesses today their assessment of how the
    President's budget request for fiscal year 2007 will support
    ground forces readiness. I'm looking forward to a candid
    assessment from each of our witnesses on the current status of
    ground forces readiness, and the challenges that we face.
        Since shortly after the attacks of September 11, the United
    States military has been engaged in combat operations in
    Afghanistan and then Iraq. The high operations tempo from these
    conflicts has caused significant strains on our forces. Some of
    our equipment has been destroyed or damaged. The rest is being
    used so heavily that it is wearing out at a much faster rate
    than was ever planned. The Army and the Marine Corps both have
    estimates on how much it would cost to replace or repair their
    destroyed, damaged, or worn out equipment.
        Unfortunately, because operations are ongoing, equipment
    will continue to be destroyed and worn out. So, we cannot know
    what the final bill will be. We must do what is necessary to
    ensure that our forces in combat have the equipment they need
    to continue the fight. Our National Guard and Reserves have
    been heavily used during these conflicts. At the current level
    of approximately 130,000 troops in Iraq, we must continue to
    rely on the Guard and Reserves to carry on part of the mission.
    We all hope that the circumstances in Iraq will improve enough
    to allow our forces there to drawdown. But, we do not know
    exactly when that will be.
        This is the first extended war that we have fought using an
    All-Volunteer Force. We must ensure that we do not overuse the
    Guard and Reserve to the point that they are broken. The Army
    is currently in the process of restructuring itself. This will
    provide more combat forces available for deployment. Those
    extra units will eventually take some of the pressure off of
    the Reserves. This restructuring is an important part of the
    Army transforming itself to be more relevant to the wars of the
    future. As with the creation of any new unit, these units will
    need equipment and training. This is a process we will watch
    closely, to ensure that enough resources are available for a
    smooth transition.
        We also must be sure that while we are fighting the global
    war on terror, we maintain enough capability in the National
    Guard to respond to any and all emergencies here at home. We
    cannot know when these emergencies will occur, or if they will
    occur one at a time. The National Guard has to have the
    equipment and trained personnel necessary to respond to
    multiple emergencies here at home, whenever they arise.
        We look forward to your assessment of current ground forces
    readiness, and any suggestions you may have to mitigate the
    many challenges that we face. Thank you again for taking time
    to prepare written testimony and to appear before the
    subcommittee today. Your prepared statements will be made part
    of the record. Therefore I urge you, if possible, to keep your
    oral statements as short as possible, so we can have as much
    time as possible for questions.
        [The prepared statement of Senator Ensign follows:]

                   Prepared Statement by Senator John Ensign

        Good morning. The Readiness and Management Support Subcommittee
    meets today to receive testimony on ground forces readiness for the
    Department of Defense (DOD).
        We are honored to have with us today the Deputy Commandant of the
    Marine Corps for Plans, Policies, and Operations, Lieutenant General
    Jan Huly; the Army Deputy Chief of Staff for Operations and Plans,
    Lieutenant General James Lovelace; the Commander of Marine Forces,
    Central Command, Lieutenant General John Sattler; and the Commanding
    General of the 18th Airborne Corps, Lieutenant General John Vines.
        I welcome you all, and I would like to take this opportunity to
    thank all of you for your continuing service to this Nation. Both
    General Magnus, the Assistant Commandant of the Marine Corps, and
    General Cody, the Vice Chief of Staff of the Army, were supposed to be
    here today.
        General Magnus is not here because he is testifying right now
    before the full committee, but I understand that General Cody has an
    even better excuse. He cannot be here because his son is coming back
    from Iraq today for 2 weeks of leave before returning.
        General Lovelace, please pass on to General Cody that we wish him
    and his family the best.
        Our focus this morning is to discuss key military readiness issues
    affecting our ground forces.
        We will be interested to learn from the witnesses today their
    assessment of how the President's budget request for fiscal year 2007
    will support ground forces readiness.
        I'm looking forward to a candid assessment from each of our
    witnesses on the current status of ground forces readiness and the
    challenges we face.
        Since shortly after the attacks on September 11, the United States
    military has been engaged in combat operations in Afghanistan, and then
    Iraq. The high operations tempo from these conflicts has caused
    significant strain on our forces.
        Some of our equipment has been destroyed or damaged, and the rest
    is being used so heavily that it is wearing out at a much faster rate
    than was ever planned.
        The Army and the Marine Corps both have estimates on how much it
    will cost to replace or repair their destroyed, damaged, and worn out
    equipment.
        Unfortunately, because operations are ongoing, equipment will
    continue to be destroyed and worn out, so we cannot know what the final
    bill will be.
        We must do what is necessary to ensure that our forces in combat
    have the equipment they need to continue the fight.
        Our National Guard and Reserves have been heavily used during these
    conflicts.
        At the current level of approximately 130,000 troops in Iraq, we
    must continue to rely on our Guard and Reserves to carry on part of the
    mission.
        We all hope that the circumstances in Iraq will improve enough to
    allow our forces there to drawdown, but we do not know exactly when
    that will be.
        This is the first extended war that we have fought using an All-
    Volunteer Force.
        We must ensure that we do not overuse the Guard and Reserves to the
    point that they are broken. The Army is currently in the process of
    restructuring itself. This process will provide more combat forces
    available for deployment. Those extra units will eventually take some
    of the pressure off of the Reserves.
        This restructuring is an important part of the Army transforming
    itself to be more relevant for wars of the future.
        As with the creation of any new unit, these units will need
    equipment and training. This is a process that we will watch closely,
    to ensure that enough resources are available for a smooth transition.
        We also must be sure that, while we are fighting the global war on
    terror, we maintain enough capability in the National Guard to respond
    to any and all emergencies here at home. We cannot know when these
    emergencies will occur, or if they will only occur one at a time. The
    National Guard has to have the equipment and trained personnel
    necessary to respond to multiple emergencies here at home, whenever
    they arise.
        We look forward to your assessment of current ground forces
    readiness and any suggestions you may have to mitigate the many
    challenges we face.
        Thank you again for taking the time to prepare written testimony
    and to appear before the subcommittee today. Your prepared statement
    will be made part of the record.
        Therefore, I urge you to keep your oral statements short in order
    to allow sufficient time for questions.

        Senator Ensign. First, I want to allow Senator Akaka to
    make any opening remarks that he has.

                  STATEMENT OF SENATOR DANIEL K. AKAKA

        Senator Akaka. Thank you very much, Mr. Chairman. I want to
    say good morning and good working with you. Also, to join you
    in welcoming our witnesses, General Huly, and General Sattler,
    you've been here before. General Lovelace and General Vines, I
    believe this is you first appearance. I look forward to your
    testimony, and look forward to talking with you. I look
    forward, Mr. Chairman, to today's hearing on the readiness of
    the United States Army and Marine Corps, both those deployed to
    Iraq and Afghanistan, and those back home who have just
    returned or are training for their next deployment. It is my
    understanding that our ground forces are bearing the brunt of
    an extremely high operating tempo caused by repeated large
    scale deployments of forces to Iraq and Afghanistan. I've felt
    for some time that it was important for this committee to hold
    a hearing on the impact of those operations and the readiness
    of our forces.
        I want our witnesses to know how much we appreciate what
    you and the brave men and women of the Army and the Marine
    Corps are doing for our country. We're proud of what they're
    doing. I hope you will convey to your troops that they have the
    full support of Congress. They do all that is asked of them
    with great skill and dedication. Their morale remains high.
    However, these ongoing operations are having a considerable
    impact on our ground forces for both people and equipment. In
    the near-term and in the long-run, the readiness of the Army
    and the Marine Corps has declined during the course of our
    operations in Iraq over the past 3 years. The wear and tear on
    our equipment and the size of the bill to repair or replace
    that equipment continues to grow. These are near-term
    challenges that may have long-term implications.
        For example, operations in Iraq have provided the impetus
    for the Army to convert its entire combat structure to a new
    modular format in order to better sustain this pace of
    operations. But, the impact of this conversion will definitely
    have a lasting impact on our military. Additionally, we have an
    experienced, battle hardened force. Some of our men and women
    in uniform have suffered physical and mental wounds that we as
    a Nation must do our part to heal in the years to come. It is
    also important for us to know that we may not yet fully
    understand some of the impacts of these operations.
        So today as we discuss the current status of our forces and
    the challenges posed by these ongoing operations, I wish for
    our witnesses here today to provide the subcommittee with
    suggestions on how and what we can do to help make sure we do
    not over extend our troops. Recently, former Secretary of
    Defense William Perry and others released their report
    highlighting some of these stresses on our force. Secretary
    Rumsfeld responded to this report in a press conference saying,
    ``the force is not broken.'' I agree, our force in not broken,
    but this report did not say it was. The report said, ``the
    strains on the Nation's grounds forces are serious and growing.
    One that we must act to make sure we do not break the force,
    that we cannot allow that to happen.'' This is an important
    distinction to make, because if we neglect this problem then we
    risk the opportunity to solve it or even prevent it from
    happening.
        We are talking about people's lives. We cannot afford to be
    looking down the wrong path. Mr. Chairman, I know you have
    heard me talk about the corrosion issue on many occasions. The
    same principle applies here. Our people and equipment have
    already suffered extensive wear and tear. We need to repair the
    damage that has been done.
        I also hope to work with you and our witnesses to discover
    where we can act now to prevent these and other potential
    problems from occurring. One of the ways we can deal with the
    implications of the operations is how we budget for them. To
    date the cost of these operations has been financed by
    supplementals. We may be able to do better. By following this
    approach we have waited until extensive wear and tear on our
    ground equipment has already occurred, before we start to
    repair or replace it. If we start budgeting for these
    operations we can take a longer-term approach to what is likely
    to be a long-term problem.
        Last month, the Quadrennial Defense Review (QDR) used the
    term ``long war,'' to describe the use of the military to fight
    terrorism. General Huly's statement today calls it a
    generational war. Surely we cannot continue to fund this effort
    for a generation with short-term supplementals. We need to
    adapt our fiscal policy to reality, just as much as we need to
    adapt our national security policies to reality.
        Mr. Chairman, I look forward to today's hearing on the
    readiness to our forces and how we can best accomplish our
    shared goal of keeping these forces trained and ready. Thank
    you very much.
        [The prepared statement of Senator Akaka follows:]

                 Prepared Statement by Senator Daniel K. Akaka

        Thank you, Mr. Chairman. It is good working with you. I join you in
    welcoming our witnesses. General Huly and General Sattler are old-
    timers who have appeared before this subcommittee before, and we are
    glad to have you back with us today. General Lovelace and General
    Vines, I believe this is your first appearance, and we look forward to
    hearing from you, and talking with you, this morning.
        I look forward to today's hearing on the readiness of the United
    States Army and Marine Corps, both those deployed to Iraq or
    Afghanistan and those back home who have just returned or are training
    for their next deployment. Our ground combat forces are bearing the
    brunt of the extremely high operating tempo caused by repeated large-
    scale deployments of forces to Iraq and Afghanistan. I have felt for
    some time that it was important for this committee to hold a hearing on
    the impact of these operations on the readiness of our forces.
        I want our witnesses to know how much we appreciate what you and
    the brave men and women of the Army and the Marine Corps are doing for
    our country. We are proud of what they are doing, and I hope you will
    convey to your troops that they have the full support of Congress. They
    do all that is asked of them will great skill and dedication, and their
    morale remains high.
        However, these ongoing operations are having a considerable impact
    on our ground forces, both people and equipment, in both the near-term
    and in the long run. The readiness of both the Army and the Marine
    Corps have declined during the course of our operations in Iraq over
    the past 3 years. The wear and tear on our equipment, and the size of
    the bill to repair or replace that equipment, continues to grow. These
    are near-term challenges that may have long-term implications.
        For example, operations in Iraq provided the impetus for the Army
    to convert its entire combat structure to a new ``modular'' format in
    order to better sustain this pace of operations. This conversion will
    definitely have a lasting impact on our military. Additionally, we now
    have an experienced, battle-hardened force, but some of our men and
    women in uniform have suffered physical and mental wounds that we as a
    Nation must do our part to heal in the years to come. It is also
    important for us to know that we may not yet fully understand some of
    the impact of these operations.
        Today, as we discuss the current status of our forces and the
    challenges posed by these ongoing operations, I wish for our witnesses
    here today to provide the subcommittee with suggestions on how and what
    we can do to help make sure we do not overextend our troops.
        Recently, former Secretary of Defense William Perry and others
    released a report highlighting some of these stresses on our force.
    Secretary Rumsfeld responded to this report in a press conference
    saying ``The force is not broken.'' I agree, our force is not broken.
    But this report did not say that it was. The report said ``The strains
    on the Nation's ground forces are serious and growing'' and warned that
    we must act to make sure we do not break the force, that we cannot
    allow that to happen. This is an important distinction to make because
    if we neglect this problem, then we risk missing the opportunity to
    solve it or even prevent it from happening. We are talking about people
    and their lives and we cannot afford to be looking down the wrong path.
        Mr. Chairman, I know you have heard me talk about the corrosion
    issue on many occasions. The same principle applies here. Our people
    and equipment have already suffered extensive wear and tear, and we
    need to repair the damage that has been done. I also hope to work with
    you and our witnesses to discover where we can act now to prevent these
    and other potential problems from occurring.
        One of the ways we can deal with the implications of these
    operations is how we budget for them. To date, the cost of these
    operations has been financed by supplementals. We may be able to do
    better. By following this approach, we have waited until extensive wear
    and tear on our ground equipment has already occurred before we start
    to repair or replace it.
        If we start budgeting for these operations, we can take a longer-
    term approach to what is likely to be a long-term problem. The
    Quadrennial Defense Review released last month used the term ``long
    war'' to describe the use of the military to fight terrorism. General
    Huly's statement today calls it a ``generational war.'' Surely we
    cannot continue to fund this effort for a generation with short-term
    supplementals. We need to adapt our fiscal policy to reality just as
    much as we need to adapt our national security policies to reality.
        Mr. Chairman, I look forward to today's hearing on the readiness of
    our forces and how we can best accomplish our shared goal of keeping
    those forces trained and ready.

        Senator Ensign. Thank you.
        Senator Inhofe, you mentioned that you would like to make a
    statement.
        Senator Inhofe. Yes, Mr. Chairman. Let me make a different
    type of statement than we'd normally say here. But, maybe our
    panel does not know. We at the same time are having a full
    committee hearing on the Joint Strike Fighter (JSF), the engine
    controversy. I've already been over there, and I'm going to go
    back there. But, to me this is so significant, I'd just like to
    get a statement in the record and maybe a couple questions for
    our witnesses.
        First of all, I thank you for having this hearing. I used
    to be the chairman of the Readiness and Management Support
    Subcommittee and Senator Akaka was the ranking member. In fact,
    during part of that time, you were the chairman and I was the
    ranking member. But at that time, we saw that we have the
    problem that we're facing, we saw it coming. At least I saw it
    coming. It was quite obvious that we're going to be faced with
    this thing that many of the people during the 1990s were
    saying, well the Cold War's over, we don't need a military
    anymore. So the drawdown started. We went down to about 60
    percent of where we were in previous years, or at least in
    1990. My feeling was that the problem is more serious.
        I often look back at the Cold War, and think at least
    things then were predictable. We knew who the enemy was, it was
    a country. We knew what their mentality was, we knew what their
    culture was, we knew what their capabilities were. This is a
    different thing all together. So, there's no way of knowing in
    advance how serious things are going to be. So, during the
    1990s, during the Clinton administration, if you take just the
    amount of money going in for defense spending, and put the
    inflation rate to it, we, at the end of that period of time,
    were $412 billion under that. So, that was a huge drawdown.
        Now, Congress came home and added some money. But even
    after Congress added the money it was still $313 billion less
    over an 8-year period to where we were--where we would have
    been if it had just been a static amount of money spent on
    defense. According to the testimony of General Schoomaker the
    other day, he said the Army entered this new century with a
    deficit in its investment accounts to the tune of $56 billion.
    I'm going to quote him: ``we started September 11 with $56
    billion shortfall in equipment across the Army, Active, Guard,
    and Reserve.'' That was $56 billion, if you replace it in kind.
    If you modernize it and replace it, it's $68 billion, roughly.
    So, those are the best of his estimates, and I believe that's
    true. I can remember during the 1990s the desperation of what
    to do to come up with just ammunition. You guys know this
    because you were there.
        At Fort Bragg they were taking money out of what was called
    the Real Property Maintenance (RPM) account. But they're taking
    money out of that, which is a required spending. So, you stand
    in a barracks at Fort Bragg and it would be raining on you,
    inside. That money was being spent on ammunition, otherwise
    they wouldn't have had the ammunition. That's how really
    serious it got. Now, I am going to repeat something that I've
    said several times, because our systems are wrong. We talk
    about the Future Years Defense Program (FYDP), we talk about
    what's going to happen in 6 years, in the next 10 years. I know
    you guys are really smart. But you're going to be wrong if you
    try to guess where we're going to be 10 years from now.
        I remember my last year in the House. I was on the House
    Armed Services Committee, we had someone testify before us.
    They said in 10 more years we won't need ground troops. Now,
    that's how wrong we were. So, no matter what we try to put
    together, my feeling is, and this was verified to me 6 years
    ago during the first confirmation hearing of Secretary
    Rumsfeld, when I asked him the question, and I said, ``it seems
    like we're at the risk of one piece of equipment or one branch
    of Service, we're enhancing another, because we're trying to
    guess where we're going to be 10 years now.'' He said, ``that's
    right.'' I said, ``well, what is the overall problem. What
    would we have to do to get back so that we couldn't guess
    wrong. So, we'd spend the money, and put ourselves in the right
    position no matter what happens.'' He said, ``well,
    historically you go back for the 100-year period of the 20th
    century. We spent 5.7 percent of Gross Domestic Product (GDP)
    on defending America. We are down now, this was of course 6
    years ago, to 2.8 percent. Now with this budget and with these
    enhancements, we're only up to 3.8 percent.''
        Now--how does it work out, for each 1 percent it's $11
    billion--one-tenth of 1 percent of GDP, it's $11 billion. So,
    it's a huge thing. I applaud the amendment that was
    successfully passed by Senator Talent yesterday to increase our
    military spending by $3 billion. But we're still not getting
    there. So, it would seem to me that we wanted to be in a
    position where we could really accurately take care of
    defending America 10 years down the road, we're going to have
    to get back to where we were, back during the 20th century, in
    terms of percentage of GDP. That's where I want to be, Mr.
    Chairman. I see the problems that are there, and I had a long
    visit with General Blum yesterday on the condition of our
    equipment of the Guard, and it's a very serious problem.
        So, it would seem to me that we need to be looking down the
    road and planning in advance to bring America back to where it
    has historically been in terms of the priorities given to our
    defense system. Thank you, Mr. Chairman.
        Senator Ensign. Thank you. We'll start with General
    Lovelace.

     STATEMENT OF LTG JAMES J. LOVELACE, JR., USA, DEPUTY CHIEF OF
           STAFF FOR OPERATIONS AND PLANS, UNITED STATES ARMY

        General Lovelace. Mr. Chairman, Senator Akaka, Senator
    Inhofe, good to see you all again. Sir, I stand today
    representing the United States Army, both components, Army and
    Reserve. I do appreciate the opportunity to talk about your
    Army. We do appreciate the support. Because this Army is as
    good as it is, because of the support that we get here by you
    all.
        Again, my written statement will be placed in the record,
    sir. You all have it in request. Bottom line, upfront, is the
    Army ready? The answer is, yes. Is the Army better than it was
    2 years ago? The answer to that is, yes. But is the Army as
    good as it needs to be? The answer to that, sir, is, no. But,
    we're getting better, 243,000 men and women serving in 120
    countries today, 126,000 are serving in Iraq and Afghanistan.
    That is a good percentage of the joint team, that is part of
    which is represented today. Over 255,000 have served a tour in
    Iraq or Afghanistan. The Active component, another 63,000 have
    served a second or third tour, multiple tours in theater. Of
    the 264,000 Reserve component soldiers that have been mobilized
    since September 11, 205,000 have served in theater.
        Talk about health of the force, the retention rates, for
    example, in the 3rd Infantry Division, which has served two
    tours, Rock of the Marne Division has been there twice. In a
    road to Baghdad the first time, in 1003 Victor. Then again, the
    most recent rotation with General Vines, when he was Commanding
    General of Multi-National Corps-Iraq (MNC-I). Retention rate at
    136 percent in 2005. Then this year so far it's 169 percent.
    That represents what is the health of this force. That's a
    representative sample of across the force.
        General Vines will be able to give you first hand about the
    proud soldiers that are serving our country. I end with, one
    more time, sir, the bottom line upfront. Is the Army ready? You
    bet it is. Are we better than were 3 years ago? The answer to
    that's, yes. But there's still things that we need to do with
    your support. Thank you. I look forward to your questions.
        [The prepared statement of General Lovelace follows:]

                Prepared Statement by LTG James J. Lovelace, USA

        Mr. Chairman and distinguished members of the Subcommittee on
    Readiness and Management Support, on behalf of our Secretary, Dr.
    Francis Harvey, our Chief of Staff, General Peter Schoomaker, and the
    Active and Reserve component (RC) soldiers that comprise our Army,
    thank you for the opportunity to report to you on the readiness of your
    Army, America's All-Volunteer Force. The bipartisan support of Congress
    has enabled us to meet the needs of current global operations and to
    continue to develop the capabilities and capacities required to prevail
    in the complex 21st century security environment. Every day our
    soldiers answer the call to duty, serving the Nation in this time of
    war along with our joint and coalition partners.
        Our Army is engaged at unprecedented levels at home and abroad.
    Today, nearly 243,000 soldiers are serving in over 120 overseas
    countries. Approximately 126,000 of these soldiers are serving in Iraq
    and Afghanistan, representing nearly 94 percent of the Joint Team. Over
    255,000 (52 percent) of our currently serving Active component soldiers
    are combat veterans and over 63,000 (13 percent) have deployed more
    than once to Operation Iraqi Freedom (OIF) or Operation Enduring
    Freedom (OEF). Since September 11, our Nation has mobilized 264,000 RC
    soldiers, with the majority (205,000) serving in Iraq and Afghanistan.
    Despite this significant operational pace, soldier retention rates are
    at record levels. The 3rd Infantry Division, recently returned from
    Iraq after a second combat tour, achieved a 136 percent retention rate
    in fiscal year 2005 and has a 169 percent retention rate so far in
    fiscal year 2006. Our Reserve component is also doing well. During
    first quarter fiscal year 2006, the The Army National Guard and Army
    Reserve had a combined 110 percent retention rate and achieved 96
    percent of recruiting projections; a net growth of over 1,100 soldiers.
    Overwhelmingly, soldiers take pride in their service to the Nation and
    the support of Congress. Many of you have seen these soldiers and their
    formations and have experienced firsthand how well they perform in
    tough and challenging conditions. Your Army is relevant, ready, and
    capable of meeting the Nation's needs.
        As we began OEF almost 5 years ago, the Army had critical readiness
    challenges. Prior to September 11, to the Army experienced years of
    underfunding resulting in a $56 billion ``hole'' in readiness. This
    ``hole'' was caused by insufficient modernization during the 1990s,
    including $41.7 billion in existing shortfalls and an additional $14.5
    billion for global war on terrorism operational needs. We also began
    the war with a force structure built on a Cold War paradigm. Our Active
    and Reserve component units were organized, manned, and equipped
    differently . . . no two Army divisions looked alike and our combat
    support and combat service support structure was equally as diverse.
    Support commands based in Europe were different than those in Korea or
    continental United States (CONUS) and were not easily interchangeable,
    making force packaging for deployments difficult. The Reserve component
    was a strategic Reserve and had force structure greater than their
    congressionally-authorized end strength. As a result of Army
    Transformation efforts, today we measure the Army--active, guard, and
    Reserve against our new more robust modular formations. As we grow our
    current manning and equipping levels and report against the increased
    requirements of these new organizations, the portion of the force
    undergoing change will report at lower readiness levels . . . though
    they are more capable than they were under the old structure.
        After years of insufficient modernization investments, many of our
    Reserve component units were under-equipped and not immediately ready
    for deployment, especially in our Reserve units. The National Military
    Strategy during the Cold War period envisioned a mobilization timeline
    that allowed time for training and equipping our Reserve component
    forces over an extended period of time. We no longer use the Reserve
    component as a ``strategic Reserve''; they have become an integral part
    of the operational force. This approach demands that we man and equip
    our Reserve component units exactly like we do our Active component
    units, allowing us to seamlessly integrate them into the force mix . .
    . ``plug and play.'' We have concurrently adjusted the training,
    equipping, and manning strategy for these units. The Army is committed
    to fund this effort in our FYDP, but it will take time to complete.
        In order to provide ready and relevant forces to the combatant
    commander, the Army continues to equip and sustain our deployed and
    next to deploy troops at the highest levels. This approach meets the
    demands in theater but consequently impacts the resource levels of
    returning and resetting units. To achieve this high state of readiness,
    we maneuver resources (dollars, equipment, and personnel) to deployed
    and next to deploy forces which results in lower resource levels among
    those units resetting and starting their initial train-up for future
    operations. Our success in maneuvering resources to the fight is
    substantial. In 2003, we had approximately 350 Level I Uparmored HMMWVs
    worldwide. Today less than 3 years later, we have over 11,000 Level I
    HMMWVs. Interceptor Body Armor (IBA) is another example. When our
    forces crossed the berm from Kuwait into Iraq in 2003 all soldiers had
    some form of body armor but only 10 percent had Interceptor Body Armor
    (IBA). Today we have fielded over 750,000 sets of body armor and
    173,000 Deltoid Axillary Protectors.
        The Army has also made significant changes in how we train the
    force. The complexity of the 21st century security environment requires
    multi-skilled, innovative, agile, and versatile leaders. As we have
    seen in recent operations, the actions of individual soldiers and
    leaders can have strategic consequences. To be effective today and
    tomorrow, we are growing a new breed of leader--one who is able to
    rapidly transition between complex tasks with relative ease. The Army
    continues to develop, update, and expand its offering of cultural
    awareness training and foreign language education at all levels. To
    meet the increased demands of today's challenges, our Training and
    Doctrine Command (TRADOC) has become significantly more agile, adding
    capacity and capability to our training base by rapidly maneuvering
    assets to train theater specific training requirements. Additionally,
    the Army is conducting a comprehensive review of education, training
    and assignments for leaders (RETAL) at the direction of the Secretary
    of the Army (SA).
        We continue to innovate at our Combat Training Centers (CTCs) by
    incorporating lessons learned from the Iraq and Afghanistan into the
    CTC Contemporary Operational Environment. The training conducted at
    these premier training facilities is specifically tailored to prepare
    units for the conditions in the current combat zone. Over the past 2
    years, the CTCs have reconfigured the training areas to replicate the
    current operational threat environments to include building tunnel and
    cave complexes, walled compounds, additional buildings and shanty-
    towns. The CTCs have created the conditions that stress the force
    protection requirements and measures that units will have to execute in
    theater. The training centers are now full-spectrum training
    facilities, from high intensity operations to counterinsurgency
    operations, and they constantly incorporate lessons from combat in Iraq
    and Afghanistan. The CTCs are fundamental to Army unit readiness and
    leader development.
        Key to the ability to sustain our long-term commitments is the
    maintenance of our equipment both abroad and at home. The operational
    tempo (OPTEMPO) and consequent wear on the Army's deployed equipment in
    an extremely harsh environment, greatly exceeds that experienced in a
    peacetime training environment. As an example, in 2003, the average age
    of the Abrams tank fleet was over 14 years. These tanks have a design
    life of 20 years, with the expectation of operating slightly over 800
    miles a year. In OIF, crews are driving these tanks in excess of 4,000
    miles per year or five times expected usage, often on hard surfaces, as
    opposed to cross country for which they were designed. Army helicopters
    are experiencing usage rates roughly two to three times the peacetime
    rates. The Army's aging truck fleet, in particular, is experiencing
    some of the most pronounced problems of excessive wear as a result of
    OPTEMPO five to six times the peacetime rate. This OPTEMPO has
    shortened the military useful life of our equipment and demands a much
    earlier and larger investment in depot maintenance than expected or
    programmed. The increased OPTEMPO combined with our combat losses,
    challenges the Army's ability to sustain operational availability.
        For the past 6 months, the Army has maintained an equipment
    operational readiness rate of over 90 percent, which meets or exceeds
    current Army standards. For standard Army equipment, logistical
    sustainment in theater continues to be supported through normal
    resupply with no mission degradation. Additionally, Defense Logistics
    Agency and the Army Materiel Command have pre-positioned stocks forward
    to allow rapid delivery of critical, low density parts in order to
    maximize available combat power and minimize transportation costs.
        Fundamental to the Army's ability to meet future threats is our
    effort to rapidly return our operational units to an effective level of
    readiness upon their return from operational deployment. We are meeting
    this challenge through the procurement of new equipment and the reset
    of existing equipment. The Army has adapted a structured, formal
    program to reset our equipment when it returns from the operational
    area, complemented by a long-term Recapitalization (RECAP) program to
    ensure that we can sustain the readiness of our systems over their life
    span. Reset requires both time and funding. We have not completed the
    reset of some of our equipment from units in OIF I that returned in
    fiscal year 2004. Reset requirements are costs over and above those
    that we normally need to sustain the Army. In accordance with DOD
    policy and intent, we rely on supplemental funds to pay for our reset
    program. For fiscal year 2006, we expect the total reset bill to be
    nearly $13.5 billion. The following is the cost break-out:

             $5.2 billion for the repair of equipment at our depots
            and field units.
             $1.5 billion for purchasing new equipment to replace
            battle losses.
             $5.2 billion for equipment recapitalization.
             $1.6 billion to repair and replace equipment at our
            pre-postioned equipment sites.

        As the requirements of reset have increased, so have the costs. As
    mentioned earlier, we have incorporated lessons learned into our reset
    program, which demand more repairs to equipment and in some cases, an
    upgrade of capabilities. The HMMWV RECAP is a prime example. Older
    version HMMWVs returning from combat operations are being upgraded to
    accept the additional weight of armor and to enhance soldier safety; we
    do not want to reset equipment returning from combat to a lower
    standard.
        The number of items in reset has grown. In fiscal year 2006, over
    19 Brigade Combat Teams will return to home station from combat
    operations. We anticipate having to reset 6,000 combat vehicles, 30,000
    wheeled vehicles, 615 aircraft, and 85,000 ground support items. This
    represents 24 million direct labor hours needed in our depots alone per
    fiscal quarter. Reset is a wise investment of our resources. It has
    provided our soldiers with the equipment they need to get the job done
    and has allowed the Army to accelerate its transformation to modular
    units. We have reset 37 Brigade Combat Teams to the new configuration
    in the last 2 years. Many of these units have already returned to
    theaters of war in their new configurations representing increased
    capability and capacity.
        In order to provide rapid replacement for combat losses, the Army
    established an equipment sustainment pool of high usage combat
    equipment in the theater of operation. The Theater Sustainment Stock,
    maintained by Army Materiel Command, ensures a unit receives
    replacements for losses of critical combat weaponry without degradation
    of mission. Additionally, the Army established a Stryker maintenance
    facility in Qatar to limit the repair time and resupply on these
    critical assets.
        While the Army continues to invest heavily in its equipment, the
    Army has not overlooked the needs of our soldiers, our most valuable
    asset. The Army has a broad spectrum of services, programs, and
    initiatives that provide for the well-being of our people while
    supporting senior leaders in sustaining their joint warfighting human
    capabilities requirements. Our well-being efforts are focused on
    strengthening the mental, physical, spiritual, and material condition
    of our soldiers, civilians, and their families while balancing
    demanding institutional needs of today's expeditionary Army. Several of
    our more prominent programs are: pre and post deployment health
    screening, the U.S. Army Wounded Warrior Program (AW2); the United
    States Central Command (USCENTCOM) Rest and Recuperation Leave Program;
    and Deployment Cycle Support.
        The Army has significantly increased its capability to screen for
    and treat mental health problems resulting from combat operations and
    stress associated with the pace of operations. There are over 200
    mental healthcare providers in theater and all soldiers receive pre and
    post deployment screening. Additional mental health assistance is
    available through Military OneSource and augmentation to medical
    treatment facilities in CONUS. The Office of the Surgeon General is
    also implementing a Post Deployment Health Risk Assessment 90 to 180
    days after returning from deployment. Coupled with the quality of life
    investments made for our deployed soldiers, these programs have made a
    positive impact on soldier well-being.
        Soldiers from OEF and OIF deserve the highest priority from the
    Army for support services, healing and recuperation, rehabilitation,
    evaluation for return to duty and successful transition from Active-
    Duty if required. To date the Army has assisted nearly 1,000 soldiers
    under the Army Wounded Warrior (AW2) program. AW2 takes to heart the
    Warrior Ethos, ``Never leave a fallen comrade''. The severely injured
    soldier can be assured the Army will be with him or her and do whatever
    it takes to assist a soldier during and after the recovery process.
        As soldiers progress through their care and rehab, AW2 stands by
    them to ensure all their immediate non clinical needs are met (securing
    financial assistance in the form of grants from a network of providers,
    resolving travel claims, and finding a place for family members to
    live). AW2 has resolved numerous wounded soldier pay issues and
    benefits to ensure all soldiers' pay is properly protected and
    monitored while they recover. AW2 is now staffed with a Veteran's
    Affairs Benefits Specialist, a Military Benefits Specialist and an
    Employment Assistance Specialist to help expeditiously resolve problems
    as they arise and to proactively identify potential issues before they
    become problems.
        A fit, mission-focused soldier is the irreducible foundation of our
    readiness. For soldiers fighting the global war on terror in the
    USCENTCOM area of responsibility, the Rest and Recuperation (R&R) Leave
    Program is a vital component of their well-being and readiness.
    Everyday, flights depart Kuwait City International Airport carrying
    hundreds of soldiers and DOD civilians to scores of leave destinations
    in the continental United States and throughout the world. Such R&R
    opportunities are essential to maintaining combat readiness and
    capability when units are deployed and engaged in such intense and
    sustained operations. Since 25 September 2003, nearly 320,000 soldiers
    and DOD civilians have participated in this highly successful program.
    They have benefited through a break from the tensions of the combat
    environment and from the opportunity to reconnect with family and loved
    ones. Additionally, this program also generates substantial, positive
    public reaction and increased political support for U.S. objectives in
    the global war on terror.
        Another initiative to assist our Army in taking car of soldiers is
    Deployment Cycle Support (DCS). DCS is a comprehensive process focused
    on preparing soldiers, their families, and deployed Department of the
    Army civilians for their return and reintegration into their families,
    communities, and jobs. As of 6 March 2006, approximately 400,000
    soldiers have completed the in-theater Redeployment Phase DCS tasks
    prior to returning home to their pre-deployment environment. The DCSP
    is expanding to include all phases of the deployment cycle (Train up/
    preparation, mobilization, deployment, employment phases).
        While the efforts described above address our current programs, the
    Army Campaign Plan and Army Transformation effort is our long-term
    strategy to achieve our transformation endstate of a fully-manned,
    equipped, trained, and modernized force across the Active and Reserve
    component. Fiscal year 2007 will be a pivotal year for the Army. Your
    Army will continue to provide ready and relevant forces to all
    combatant commanders, for joint operations, and is ready to meet all
    challenges at home. By protecting our investment accounts (including
    over $21 billion for National Guard and $3.6 billion procurement over
    the Program) and adjusting our force structure, the Army will provide
    units that are better manned, trained, and equipped for full spectrum
    operations abroad and for support to the homeland.
        In order to meet the needs of the National Military Strategy and
    synchronize the myriad of tasks associated with our transformation and
    global repositioning efforts, the Army has adopted and is transitioning
    to a cyclic approach to training and equipping our units called the
    Army Force Generation (ARFORGEN) model. ARFORGEN is the structured
    progression of increased unit readiness over time, resulting in
    recurring periods of availability of trained, ready and cohesive units
    prepared for operational deployment in support of civil authorities and
    combatant commander requirements. Army units will progress through the
    Reset/Train, Ready, and Available Force Pools in an operational
    readiness cycle. The Army will focus units against future missions as
    early as possible in the ARFORGEN process and task organize modular
    expeditionary forces tailored to joint mission requirements. Through
    the ARFORGEN model, the Army can supply 18-19 fully-manned, trained,
    and ready brigade combat teams with associated support to the warfight,
    with another 18-19 ready to follow if necessary to meet global
    requirements. This innovative approach will sustain our ability to meet
    our global commitments while balancing the requirements associated with
    transforming, modernizing, and implementing a new global stationing
    plan and other mission demands.
                                    closing
        In closing, the Army remains committed to growing and balancing its
    capabilities within and across the Active and Reserve components in
    order to support the Nation's global operations; to prevail in the
    global war on terrorism; and to conduct expanded state and homeland
    security missions. Conversion of all components to a modular,
    interchangeable force, which will be employed according to a new force
    generation model, is proceeding apace.
        Is your Army ready? The answer is yes. Is your Army better than it
    was 2 years aqo? The answer again is yes, but are we as good as we need
    to be? That answer is no. But with the help of this Congress, we can
    get there . . .
        I look forward to this hearing and answering whatever questions you
    may have.

        Senator Ensign. General Huly.

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

        General Huly. Mr. Chairman, Senator Akaka, Senator Inhofe.
    Thank you, I too am honored to be able to appear before you
    today. The Commandant of the Marine Corps has stated that
    readiness is the coin of the realm for the Marine Corps, and
    our readiness in the Marine Corps depends on two things: our
    ability to be able to recruit and retain the quality of young
    men and women to help preserve our freedom, and our ability to
    properly train and equip them.
        Thanks to your support and the support of the American
    people, we've been able to recruit and retain in these numbers
    and the quality of the young men and women that we need to
    sustain our force. Our fiscal year 2006 supplemental request
    and our fiscal year 2007 budget are going to go a long way in
    helping us to reset our force, to recock if necessary, and to
    continue to modernize in the future, and to reset our readiness
    where we need to be in the future. We look forward to your
    continued support for our fiscal requests to help bring these
    things to reality.
        Once again, I'm honored to be here to represent the Marine
    Corps. Lieutenant General Sattler and I look forward to your
    questions.
        [The joint prepared statement of General Huly and General
    Sattler follows:]

     Joint Prepared Statement by Lt. Gen. Jan C. Huly, USMC, and Lt. Gen.
                             John F. Sattler, USMC

                                  introduction

        Chairman Ensign, Senator Akaka, distinguished members of the
    Readiness and Management Support Subcommittee; it is my privilege to
    report to you on the actions taken to date to maintain essential
    readiness, and address future requirements to reset the Marine Corps.
    Today, we are at war and your marines are performing well due to their
    extraordinary courage, dedication, and commitment and our Nation's
    ability to continue to properly train and equip the force. Marines
    realize the danger to the Nation, their vital role, and the magnitude
    of their responsibilities.
        Marines continue to demonstrate that we are an expeditionary force
    in readiness--Most Ready When the Nation is Least Ready. Your continued
    support makes this possible. The global war on terror is a generational
    war; therefore, maintaining our readiness, while modernizing and
    transforming to meet future challenges, is critical to ensuring that
    the Marine Corps continues to provide the Nation with the critical
    capabilities needed to prosecute this war and any future conflict that
    follows. On behalf of all marines and their families, I thank this
    committee for your sustained and indispensable support during these
    challenging times.
                     manning the force and quality of life
        Though we embrace the advances of technology, we believe that the
    most important asset on any battlefield is a well-equipped, well-
    trained, and well-led United States marine--our people make the
    difference. We hold that today's marines are unique and special
    individuals, and the character of their service throughout the global
    war on terror has rivaled that of any preceding generation. Recruiting
    and retaining a force of this quality requires the dedicated efforts of
    our recruiters, career retention specialists, manpower experts, and
    leaders throughout the Corps. Ours is a force of Active-Duty, Reserve,
    and civilian marines, as well as thousands of Marine families who share
    in the sacrifices to our Nation. Though the mission must always come
    first, we continue to search for opportunities to improve the
    experience of serving as a marine both during and after their Active
    service--once a marine, always a marine.
    Retention
        Retaining the best and the brightest marines is a top manpower
    priority. Our future officer and staff noncommissioned officer ranks
    are dependant on our successful accomplishment of this mission.
        We have two enlisted retention measures to ensure healthy service
    continuation rates. The First Term Alignment Plan (FTAP) involves the
    first reenlistment of marines and we have consistently achieved our
    goals over the past 13 years. The Subsequent Term Alignment Plan (STAP)
    involves the subsequent reenlistments of marines, those who likely
    remain in the Corps for a career, and we have consistently attained our
    goals since creating the STAP in 2002. In fiscal year 2005, we exceeded
    the FTAP requirement by achieving 103 percent of this retention
    mission, with notable success in the infantry community; we also
    exceeded the STAP retention mission. The substantial increase in the
    infantry reenlistment rate during fiscal year 2005 was influenced by
    higher Selective Reenlistment Bonuses (SRBs).
        Certain Military Occupational Specialties (MOSs) perennially suffer
    high attrition, such as those involving highly technical skills or
    extensive security clearances. Contributing factors include lucrative
    civilian employment opportunities for those marines who attain these
    specialized skills and qualifications. We address this challenge by
    targeting these military specialties with higher SRBs. Retaining high
    quality and the proper skills in our ranks necessitates military
    compensation that is competitive with the private sector. Sustainment
    of SRB funding remains a crucial element to our ongoing efforts to
    retain these valuable skills.
        The retention forecast for the officer corps in the near-term is
    positive and consistent with our historic average of 90.8 percent. The
    close of fiscal year 2005 saw officer retention at 91.3 percent. The
    Marine Corps has active programs in place, both monetary and non-
    monetary, to ensure that officer retention remains high. All of these
    programs provide incentives to officers for continued service even in
    the face of significant operational tempo, while allowing flexibility
    for manpower planners to meet requirements across the Marine Corps
    Total Force.
        Selected Reserve enlisted retention for fiscal year 2005 continued
    to be strong at 79.5 percent, well above our historical norm. Reserve
    officer retention of 80.1 percent was also above the historical norm of
    75.3 percent.
    Recruiting
        An equally important factor in sustaining a viable force is
    continuing to recruit tremendous young men and women with the right
    character, commitment and drive to become marines. In fiscal year 2005,
    the Marine Corps overcame unprecedented recruiting challenges and
    achieved over 100 percent of our Active component accession goal with
    no degradation in quality.
        The Marine Corps Reserve achieved 101 percent of its enlisted
    recruiting goals. We achieved our officer accessions goals as well, but
    Reserve officer numbers remain challenging, as our primary accession
    source is from officers that are leaving Active-Duty. We appreciate the
    continued authorization for a Selected Reserve Officer Affiliation
    Bonus in the National Defense Authorization Act for Fiscal Year 2006.
    It continues to make a significant contribution in this critical area.
        We anticipate that both Active and Reserve recruiting will remain
    challenging in fiscal year 2006, and we welcome the continued support
    of Congress for a strong enlistment bonus and other recruiting
    programs, such as recruiting advertising, which will be essential to us
    in meeting these challenges.
    Reserve Marines
        To date, more than 39,393 Reserve marines have served, or are
    currently serving, on Active-Duty in the global war on terror. As part
    of an integrated Total Force, our Reserve marines and units receive the
    same pre-deployment training and serve alongside their Active component
    counterparts. Currently, over 6,000 Reserve marines are on Active-Duty,
    and the Marine Corps Reserve expects to provide approximately 4,250
    marines in support of operations in Iraq in 2006. Overall, our Reserves
    provide personnel for a wide-variety of operations and activities,
    including Iraq military transition, Afghan National Army embedded
    training, civil affairs, and personnel recovery and processing. They
    also perform anti-terrorist and humanitarian duties in the Horn of
    Africa, Afghanistan, Central America, and the Caribbean. The strength
    of integrating our Active and Reserve components into a Total Marine
    Corps Force epitomizes the warrior concept of ``one team, one fight.''
    Civilian Marines
        Civilian marines (18,386) continue to provide an invaluable service
    to the Corps as an integral component of our Total Force. Working in
    true partnership with marines, civilian marines will continue to play
    in important role in supporting the mission of the Marine Corps and the
    global war on terror. Our commitment is to define for them what the
    Marine Corps will offer its civilian marines, and what the Corps
    expects from this select group who support our marines.
    Military-to-Civilian Conversions
        The Marine Corps continues to pursue sensible military-to-civilian
    conversions in support of Marine Corps Warfighting initiatives. These
    conversions are important because they increase the number of marines
    in the operating force and help reduce stress on the force. Funding
    remains a critical issue to the success of this initiative.
    Congressional cuts in both the Fiscal Year 2005 Appropriations Bill
    ($35 million) and Fiscal Year 2006 Appropriations Bill ($20 million)
    have impacted our ability to execute our planned fiscal year 2005
    program and will reduce our planned fiscal year 2006 conversions.
    National Security Personnel System
        The Marine Corps is committed to successful implementation of the
    National Security Personnel System and creating and maintaining an
    innovative and distinctive civilian marine workforce capable of meeting
    the ever-changing requirements of today and the challenges of tomorrow.
    The Marine Corps is actively participating with the Department of
    Defense (DOD) in the development and implementation of this new
    personnel system. Following an intensive training program for
    supervisors, managers, human resources specialists, employees,
    commanders and senior management, we will begin implementation.
               quality of life for our marines and their families
        For marines, success has always been measured first on the
    battlefield, but part and parcel to this is the health and welfare of
    marines and the families who support them. As an expeditionary force,
    marines are accustomed to frequent deployments, yet the current
    environment contains increased elements of personal danger and family
    risk that must be addressed with appropriate and timely support. We
    have been careful to monitor our programs to ensure our marines and
    their families receive the necessary care to sustain them throughout
    the deployment cycle. In this regard, our Marine Corps Community
    Services (MCCS) organizations' combined structure of Family Services,
    Morale, Welfare and Recreation Programs, Voluntary Off Duty Education,
    and Exchange operations has positioned us to efficiently and
    effectively leverage and direct community services assets to help
    marines and their families meet the challenges associated with the
    Marine Corps lifestyle and current operational tempo.
        For marines in theater, few things are more important than staying
    in touch with their loved ones at home. To keep communication open
    between deployed marines and their families, we provide phone service,
    mail service, and our Internet-based mail service, ``MotoMail,'' which
    has created more than half a million letters since its inception in
    December 2004.
    Combat and Operational Stress Control
        While our marines and their families have proven to be resilient
    ``warriors,'' combat and operational stress is not an uncommon
    reaction. We closely interact with marines and their families to
    reassure them; we provide many services and programs for help and urge
    servicemembers and their families to seek the help they require.
        To integrate our combat and operational stress control (COSC)
    programs and capabilities properly, we have established a COSC Section
    within our Manpower and Reserve Affairs department. To gain clarity of
    mission, we instituted a tracking system that allows commanders to
    monitor COSC training and decompression requirements. As a component of
    COSC, we created a Web-based information and referral tool that leaders
    at all levels can readily access. The ``Leader's Guide for Managing
    Marines in Distress'' provides specific guidance on 40 distress areas.
        The Marine Reserves, through their Chaplain Corps, have developed
    Marine and Family Workshops (MFW), which are a post-deployment program
    designed to assist marines and their family members with return and
    reunion stressors and adjustment difficulties. The goals and objectives
    of the workshop are to: 1) provide an opportunity for marines and their
    family members to strengthen their coping skills; 2) mitigate the
    impact of traumatic events and war zone stressors; 3) accelerate the
    normal recovery process; and 4) identify those who might need
    additional help and provide resources.
    Casualty Support
        Our support and dedication to the families of our fallen marines
    and their survivors is especially strong. Casualty support is a duty
    and honor. It is also a human process requiring a measured and
    thoughtful engagement by our Casualty Assistance Calls Officers
    (CACOs). As with our other deployment-related programs, our casualty
    process has evolved and improved significantly. Our CACOs monitor the
    survivor's transition through the grief process--from casualty
    notification, to burial, to ensuring survivors receive the appropriate
    benefits. CACOs connect families needing extended support to a Long-
    Term Survivor Case Manager who personally monitors and communicates
    with them to ensure they receive the support they need for as long as
    it is required.
    Critical Incident Stress Management Teams
        In cases of mass casualties experienced by a command or unit,
    whether combat, natural disasters, training, or missions, we use a DOD-
    sponsored Managed Health Network capability where trained Critical
    Incident Stress Management teams provide crisis management briefings to
    family members and friends of the unit. During the briefings, Marine
    Corps personnel, Chaplains, and Managed Health Network counselors
    provide information and answer questions concerning the casualties.
    These crisis response teams provide support at remote sites throughout
    the country, making them highly useful in situations where Reserves are
    involved. In particular, after Lima Company, 3rd Battalion, 25th
    Marines experienced mass casualties in Iraq last summer, crisis
    management briefings were conducted at various cities in Ohio where
    questions about the unit were answered, briefs were provided on helping
    children cope, individual counseling was offered to family members, and
    materials on support services were distributed.
    Marine for Life--Injured Support
        Built on the philosophy ``Once a Marine, Always a Marine'' and
    fulfilling our obligation to ``take care of our own,'' the Marine For
    Life program offers support to approximately 27,000 honorably
    discharged marines transitioning from Active service back to civilian
    life each year.
        Leveraging the organizational network and strengths of the Marine
    for Life program, we implemented an Injured Support program during
    January 2005 to assist combat injured marines, sailors serving with
    marines, and their families. The program essentially seeks to bridge
    the gap that can exist between military medical care and the Department
    of Veterans Affairs, providing continuity of support through transition
    and assistance for several years afterwards.
        The program recently assigned two full-time Marine Corps liaison
    officers to the Seamless Transition Office at the Veterans Affairs.
    These liaison officers interface between the Veterans Health
    Administration, the Veterans Benefits Administration, and the Marine
    Corps on individual cases to facilitate cooperative solutions to
    transition issues.
        Additionally, the Injured Support program conducts direct outreach
    to injured marines and sailors via phone and site visits to the
    National Naval Medical Center, Walter Reed, and Brooke Army Medical
    Centers. On average, 30 percent of our seriously injured marines
    requested and received some type of assistance.
        Lastly, the program continues to work closely with Office of the
    Secretary of Defense (OSD) on Marine Corps-related injury cases.
    Information sharing between the program and OSD contributes to
    developing capabilities for the Military Severely Injured Center
    (formerly known as The Military Severely Injured Joint Support
    Operations Call Center).
    Healthcare
        Marines receive high quality, state of the art care from a
    worldwide Military Health System. We enjoy the lowest disease, non-
    battle injury rates in history and our marines know that if they are
    injured or wounded in action they have an unprecedented better than 97
    percent survival rate once they arrive at one of our Forward
    Resuscitative Surgical units. The Military Health System provides a
    superb care and health benefit program for our marines, their families,
    and our retired population--services we must sustain. Unfortunately, at
    its current rate of cost growth, the program is unsustainable. We fully
    support changes in legislation that would allow the DOD to ``renorm''
    the cost of health care.
                        current operational requirements
        Today, your marines are fully engaged across the spectrum of
    military capabilities in prosecuting the global war on terror. Since
    the watershed events of September 11, 2001, the core competencies,
    capabilities, and emphasis on readiness that the Marine Corps has
    structured itself around have repeatedly proven their value in the
    numerous and varied operations this conflict demands. Currently, we
    have over 40,000 Active and Reserve marines forward deployed in support
    of Regional Combatant Commanders.
        I recently had the opportunity to visit our marines in Afghanistan
    and Iraq. I can assure you that they are well trained, well equipped,
    and well led. The 26,000 marines and sailors under the command of I
    Marine Expeditionary Force (MEF) in the Al Anbar province Iraq and the
    more than 500 marines assigned to transition teams assigned with Iraqi
    forces have made significant progress in their efforts to develop
    credible Iraqi capabilities and defeat those who cannot envision a free
    and democratic Iraq. In setting the conditions for the historic
    constitutional referendum and national elections, they have
    distinguished themselves in places like Fallujah, Ramadi, and the
    Euphrates River Valley. Another 5,000 marines support Commander, U.S.
    CENTCOM in the form of the Marine Expeditionary Unit Special Operations
    Capable (MEU) (SOC) that serves as the Theater Strategic Reserve, the
    VMAQ-4 squadron providing Electronic attack capability, security forces
    at the U.S. Embassy in Baghdad and in Camps outside of the Al Anbar
    province, coordination elements in Kuwait, and Individual Augmentation
    to the MNF-I, MNC-I, and CFLCC staffs. In all, the Marine Corps
    represents over 21 percent of the current force with nearly 28,000
    marines deployed in support of Operation Iraqi Freedom/Operation
    Enduring Freedom (OIF/OEF).
        In Afghanistan we have 1,200 marines and sailors providing support
    to an increasingly capable Afghan National Army. As part of Combined
    Joint Task Force (CJTF)-76 , the 1st Battalion, 3rd Marines, is
    conducting operations in northeastern Afghanistan against remnants of
    the Taliban, al Qaeda, and Anti-Coalition Militia. More than 50 Marine
    officers and senior enlisted leaders continue to train, mentor and
    operate embedded with their Afghan National Army counterparts as part
    of Task Force Phoenix and nearly 100 marines augment the staffs of
    Combined Forces Command-Afghanistan (CFC-A), the Office of Security
    Cooperation-Afghanistan (OSC-A), and CJTF-76.
        With your assistance we have been able to provide our marines with
    the capabilities to adapt to change on a dynamic battlefield. Unable to
    match our conventional force capabilities in like fashion, our enemies
    have resorted to asymmetric tactics such as the Improvised Explosive
    Device (IED). Marines in the Al Anbar province of Iraq leave their
    bases in vehicles fully equipped with the most advanced armoring
    available. The High Mobility Multi-Purpose Wheeled Vehicle (HMMWV)
    Marine Armor Kit installations (2,545 required/2,698 completed) were
    complete in November 2005, and our Medium Tactical Vehicle Replacement
    (MTVR) Armor System will be completed in May 2006. In Afghanistan all
    of our HMMWVs are equipped with Marine Armor Kits. Fielding of the Up-
    Armored HMMWV, the M1114 (2,814) to the Marine Forces Central Command
    Theater (OIF, OEF, and the Combined Joint Task Force-Horn of Africa
    (CJTF-HOA)) will be completed in November 2006. We have augmented the
    protection of our marines with remote control improvised explosive
    device (RCIED) jammers. We have also procured two new engineer
    vehicles--the Cougar (27) and the Buffalo (4)--to protect marines in
    theater from IEDs and mines. These vehicles provide Explosive Ordnance
    Disposal Combat Engineers the ability to safely carry out their
    missions in the current IED environment.
        The highest priority individual capability gaps of our deploying
    forces have also been addressed. Examples of new or soon to be fielded
    equipment includes the Lightweight Helmet (179,888), Enhanced Small
    Arms Protective Insert (E-SAPI) (146,075), QuadGuard (arm and leg
    fragmentation protection) (4,500), and Individual Load Bearing
    Equipment. The Lightweight Helmet provides increased ballistic
    protection capability over the existing helmet while reducing weight by
    one-half pound and introduces an improved suspension system for
    enhanced comfort. The E-SAPI provides increased ballistic protection
    over the existing SAPI plate. The QuadGuard system is designed to
    provide ballistic protection for arms and legs in response to blast
    weapon threats and other combat casualty trends in OIF. This system is
    an additive capability that integrates with existing armor systems.
        Your marines have proven to be flexible across the full range of
    military operations demonstrating their capabilities to respond in
    support of humanitarian operations. In the aftermath of Hurricane
    Katrina and Rita, and following the earthquake in Pakistan and mudslide
    in the Philippines, marines were quickly on the scene. In response to
    Katrina and Rita, 2,650 marines and sailors from our Active and Reserve
    components deployed to conduct Search and Rescue, Humanitarian Relief,
    and Disaster Recovery Operations in Louisiana and Mississippi.
    Survivors were rescued, streets were cleared, food and water was
    distributed, transportation provided, and medical care administered in
    six separate locations. Our contribution totaled 815 helicopter
    sorties, which transported 1.1 million tons of cargo and 5,248
    survivors. A total of 446 rescue missions were conducted resulting in
    the rescue of 1,467 people. After the devastating earthquake in
    Pakistan, your marines deployed to the cities of Shinkiari and
    Muzaffarabad providing a hospital, Helicopter Support Teams, and Air
    Traffic Control in support of the Combined Joint Task Force. The
    marines and sailors treated more than 11,600 Pakistani patients. Most
    recently, over 500 marines and sailors from 31st Marine Expeditionary
    Unit (MEU) responded to the Mudslide on Leyte Island, Republic of the
    Philippines, in order to provide support to their government's rescue
    and recovery operations. From 18--27 Feb 2006, 415 civilians were
    rescued and provided medical treatment. More than 1,000 meals and 3,500
    gallons of potable water per day were provided to those in need. With
    the thanks of the Government of the Philippines, 31st MEU re-embarked
    aboard Amphibious Shipping and immediately returned to their Training/
    Exercise schedule.
                   impact of current operations on readiness
        Extended operations in Iraq and Afghanistan have placed
    extraordinary demands on our marines and their equipment. Your support
    ensured our near-term readiness remains strong, even while current
    demand on the force is high. The entire Marine Corps is supporting the
    global war on terror, and no forces have been fenced. In the past 3
    years, we have gone from a pre-global war on terror deployment rotation
    of just over a one-to-three (6 months deployed /18 months home) to
    our current ratio of just above a one-to-one (7 months deployed/7
    months home), primarily in our infantry battalions, rotary-wing
    aviation squadrons, and other, high demand capabilities. This means
    that many marine units in the operating forces are either deployed,
    recently returned from a deployment or are training to relieve deployed
    units. Today the Marine Corps has units that have completed or are
    preparing for their third combat deployment. Thirty-four percent of the
    available Marine operating forces and 23 percent of the total Active
    Force is currently deployed.
        In an effort to sustain and regenerate Marine Forces for service in
    Iraq, and in response to lessons learned, the Marine Corps has trained
    and deployed a sizable number of provisional units. These provisional
    units have generally fallen into 2 categories: those units that have
    cross-trained to enhance capabilities inherent, but secondary, within
    their mission sets and those units that have trained to a completely
    new mission set. Cross-training, where clearly the majority of Marine
    Corps actions have focused, include training artillery, tank and
    engineer units in security, military police and transportation
    missions. Complete new missions for units/marines, while limited but
    required, have included training engineer units in civil affairs,
    creating small detachments of foreign military trainers and training a
    small number of marines in personnel retrieval from the Personnel
    Retrieval Company in the 4th Marine Logistics Group. Our Reserve
    component has not been insulated from these efforts; they too have
    created provisional civil affairs units, trained to the military police
    and transportation missions while also creating provisional security
    units for use in Iraq and Horn of Africa. While these innovative
    solutions have helped reduce operational tempo for high demand/low
    density units in the near-term, they have also caused the Marine Corps
    to evaluate our entire Active and Reserve Force structure in the
    context of not only the global war on terror, but other enduring
    requirements in as yet unforeseen conflicts.
        To mitigate our unit and personnel challenges, we also have relied
    heavily on Selected Marine Corps Reserve (SMCR) units and marines from
    the Individual Ready Reserve (IRR). For example, we have involuntarily
    activated all nine of our Reserve infantry battalions over the last 4
    years. Those infantry battalions deployed to the CENTCOM Theater in
    support of OIF/OEF mission requirements and filled other Marine Corps
    global commitments. Currently over 1,900 Marine reservists are serving
    in Iraq. We simply could not meet our global war on terror
    responsibilities and maintain acceptable levels of operating and
    personnel tempo without the significant contribution of our citizen-
    marines. The total number of number reservists deployed in support of
    global war on terrorism since the inception of OIF/OEF is 32,148 or 80
    percent. Of that number, 5,920 or 15 percent of our reservists have
    deployed twice, and 220 have a third deployment.
        The global war on terror ground equipment usage rate averages range
    from four to nine time normal peacetime usage depending on the end
    item, hours/miles, and operational conditions over normal peacetime
    usage due to continuous combat operations (see page 17 for additional
    details). Our readiness priority is the support and sustainment of our
    forward deployed forces. High usage rates in a harsh operating
    environment, coupled with the added weight of armor and unavoidable
    delays of scheduled maintenance due to operational tempo, are degrading
    our equipment at an accelerated rate. More than 3,434 principal end
    items valued at $196.2 million, have been destroyed. Those figures do
    not reflect our aircraft losses but are for ground systems alone.
    Repairs on 3,590 damaged end items will require additional depot
    maintenance at a cost to repair of $157.1 million.
        Ground Equipment
        The ground equipment readiness (mission capable) rates of our
    deployed forces average above 95 percent. Our pre-positioned stocks,
    within both the Marine Corps Preposition Program-Norway and Maritime
    Prepositioned Shipping--ensured the sustained readiness of our deployed
    ground units. We continue to sustain our readiness in theater through
    organic maintenance capabilities, contractor support, coordination with
    the Army leveraging their ground depot maintenance capability, an
    established principle end item rotation plan, and the established pool
    of ground equipment (Forward In-Stores) which expedites the replacement
    of damaged major end items. The corresponding ground equipment
    readiness (mission capable) rates for non-deployed units average 85
    percent. The continued improvement of the ground equipment readiness
    (mission capable) rates relies on the procurement of replacement
    equipment identified in our reset the force estimate.
        Aviation Equipment
        The aviation equipment readiness (mission capable) rates of our
    deployed forces averaged 82 percent over the past 12 months. In order
    to improve our readiness rate in theater, we are creating a limited
    aircraft depot maintenance capability. The corresponding aviation
    equipment readiness (mission capable) rates for units remaining in
    garrison average 74 percent over the past 12 months. Our legacy
    aircraft are performing their assigned missions and our maintenance
    folks are providing constant perpetual care required to sustain them
    despite the higher utilization rates. The CH-46 assault support
    helicopter has been flown and utilized in support of OIF at 200 percent
    of its peacetime usage rate. At such rates, maintaining the readiness
    of our aviation assets presents a considerable challenge and constant
    demand for maintenance.
        We have also experienced a number of aircraft losses that we have
    not been able to immediately replace because we are in the midst of a
    transition from the legacy systems to their more capable successor
    platforms. Due to the lack of an active production line for our CH-46,
    H-1, CH-53 platforms, we are managing these assets on the backs of our
    marines, until the next generation of replacement aircraft becomes
    available. There are risks associated with this strategy, and we are
    managing those risks through a variety of approaches, including
    sustainment and individual component upgrade programs. We are also
    requesting funding in the FY06 Supplemental to take an additional two
    CH-53E aircraft out of desert storage and refurbish them to replace
    aircraft destroyed during operations in support of the global war on
    terror. As the next generation of replacement aircraft complete their
    operational evaluations and move from low rate to full rate production,
    there may be additional opportunities to reduce operational risk.
                            prepositioning programs
        While we have placed the highest priority on sustaining the
    readiness of our forward deployed forces, the equipment readiness of
    our strategic prepositioning programs has been degraded. Equipment from
    the Marine Corps' two prepositioning programs (the Maritime
    Prepositioning Force and Marine Cope Prepositioning Program-Norway) has
    been employed in support of the global war on terror.
        Maritime Prepositioning Ships Squadrons 1 and 3 remain fenced as a
    strategic response capability and are fully mission capable with over
    98 percent of all capabilities and supplies attained. However, the
    majority of Maritime Prepositioning Ships Squadron 2's equipment was
    downloaded in support of OIF II. This squadron will complete its
    initial reconstitution in April 2006, but will only be partially
    mission capable due to reduced attainment of USMC ground equipment.
    Within Maritime Prepositioning Ships Squadron 2 the average attainment
    for Principal End Items is 60 percent, and all other capabilities and
    classes of supply are being reconstituted to 98 percent or higher. We
    intend to complete reconstitution of Maritime Prepositioning Ships
    Squadron 2 during its scheduled maintenance period of February 2008
    through February 2009.
        We utilized our Marine Prepositioning Program-Norway to
    reconstitute Maritime Prepositioning Ships Squadron 1 and round out the
    capability of Maritime Prepositioning Ships Squadron 2 prior to its
    download in support of OIF II. As a result, our Norway program has been
    reduced to approximately 32 percent of its readiness reportable ground
    equipment. Funding to fully restore those stocks is reflected in our
    fiscal year 2006 Supplemental funding request before Congress. We
    believe we can reconstitute this program by fiscal year 2010, depending
    upon equipment delivery schedules and operational commitments.
                            other strategic material
        Our in-stores equipment stocks managed by Marine Corps Logistics
    Command have also been depleted due to continuing use in support of
    OIF/OEF rotations. In-stores material is critical to the readiness of
    our operating forces and particularly important to ensure the readiness
    of our Reserve component.
                           resetting the total force
        OIF and OEF have placed severe demands on the ground and aviation
    equipment supporting Marine Air Ground Task Force (MAGTF) operations.
    Specific factors leading to the high demands placed on our equipment
    include the following:

        -- Approximately 40 percent of all Marine Corps ground equipment,
    50-55 percent of communications equipment, and 20 percent of aircraft
    assets are being used in OIF/OEF/Horn of Africa (compared to
    approximately 21 percent of Active Marine forces deployed in support of
    those combat operations). Much of this equipment is not rotating out of
    theater with each force rotation; hence it is being used on a near
    continuous basis at operating tempos that far exceed normal peacetime
    use. To source this warfighting requirement, the Marine Corps forces
    deployed with equipment that was retained in theater upon force
    rotation, the Maritime Prepositioning Ships Squadron-2 (MPSRON-2), the
    Marine Corps Prepositioning Program-Norway (NCPP-N), and Marine Corps
    Logistics Command In-Stores Ready-for-Issue equipment was employed.
    This was first reported last year when I MEF returned from Iraq to a
    degraded readiness level due primarily to leaving so much of its
    equipment (particularly communications gear) behind for II MEF to fall
    in on.
        -- The Marine Corps is executing a number of operational missions,
    including Stability and Support Operations (SASO), Counter-Insurgency
    (COIN), Area and Point Defense, Civil Military Operations, and Foreign
    Military Training, which require additional equipment over the levels
    programmed for expeditionary warfare requirements.
        -- The Marine Corps is operating in western Iraq's (Al Anbar
    province), which constitutes over 28,000 square miles (roughly
    equivalent to the area of the State of Utah). Operations across such a
    wide area necessitates additional convoys/vehicles, communications
    connectivity and crew served weapons over the standard unit equipment
    density list.
        -- The Inspector General of the Marine Corps conducted an in-
    theater review of the material condition of equipment in Iraq in early
    2005, which identified the much higher than forecast use of equipment
    and the attendant consequences for which replacement procurement/repair
    needs to be addressed. The levels of useful life expenditure for both
    ground and aviation equipment exceeded those forecast in our original
    fiscal year 2004 Demand on Equipment evaluation, and the primary
    impacts are displayed on chart A-1 on the next page.

        -- Recent operations in support of global war on terror have
    highlighted the limitations of Marine Aviation legacy platforms
    operating in the harsh environments of OIF and OEF. CH-46E performance
    has reduced the number of available aircraft to the point where
    available aircraft deployed to global war on terror aircraft are flying
    at 200 percent of their planned utilization rate to successfully
    accomplish the mission. Resetting the Marine Aviation force means not
    merely replacing damaged/destroyed aircraft but getting better aircraft
    in the field sooner. The operational capability enhancements afforded
    by the MV-22, AH-1Y/Z, KC-130J, and Heavy Lift Replacement (HLR) (CH-
    53K replacement for the CH-53E) would enhance our effectiveness in the
    current fight and serve as the cornerstone of our future operational
    assault support capabilities.
        -- Higher aircraft utilization rates in extreme temperatures, high
    altitudes, and the corrosive desert environment have created
    maintenance challenges for Marine Aviation. We have mitigated our
    aircraft reset requirements as much as possible through specific
    aircraft modifications, proactive inspections and corrective
    maintenance. While these efforts have successfully increased aircraft
    reliability, sustainability, and survivability, significant reset
    efforts exist. Additional requirements for depot level maintenance on
    airframes, engines, weapons, and support equipment will continue well
    after hostilities end and our aircraft have returned to their home
    stations. With no active production lines for our existing rotary-wing
    aircraft, addressing near-term inventory shortfalls requires revisiting
    the production ramp-up rates for the procurement of the replacement MV-
    22 and H1Y/Z aircraft. To accomplish this and in view of inventory
    shortfalls we are examining the H-1Y/Z program for expansion from a
    remanufacture-only program to include new procurement as well.
        In spring 2004 the Marine Corps initiated an effort to assess the
    magnitude of the requirement to repair or replace equipment being used
    at high operating tempos under the harsh environmental conditions of
    Iraq and Afghanistan. At the direction of the Secretary of Defense, the
    Marine Corps prepared a Demand on Equipment (DOE) analysis. That
    analysis was performed for a select number of large dollar value ground
    and aviation systems, and it revealed that the additional wear on this
    equipment in theater was rapidly accelerating platform/equipment aging.
        After completing the DOE analysis of all aircraft and 96 major
    ground systems, the Marine Corps identified $2.2 billion in executable
    repair and replacement costs to begin resetting the force, which was
    reflected in the Marine Corps Fiscal Year 2005 Supplemental request.
        The Marine Corps also expanded its evaluation of reset requirements
    and reviewed the top 300 high cost/high interest items for proper
    quantities, costs, executability and resourcing strategy (these 300
    items equate to approximately 96 percent of the total reset cost
    estimate). For the remaining 2,100 items (approximately 6 percent in
    terms of cost), a common sense review was undertaken. Appropriate,
    approved modernization items (i.e., later type, model, series or
    enhanced capability) were included in the reset estimate.
        Marine Corps reset costs do not reflect all global war on terror
    equipment-related costs, some of which are categorized as costs of war.
    Such items as future attrition losses, spares replenishment and other
    ongoing sustainment, which are dependent upon force levels in theater
    and operating tempo, are inherently difficult to forecast with any
    accuracy beyond one year and those costs have been categorized as costs
    of war that will continue to be incurred as long as marines are
    deployed in support of OIF/OEF.
                             the reset requirement
        Supplemental funding is absolutely essential to continue to address
    resetting the force. The reset requirement is in addition to the
    ongoing cost of war requirement, which addresses annual equipment
    attrition, intermediate and organizational maintenance, second
    destination transportation, replenishment spares and other sustainment
    costs. As an example, our annual Procurement, Marine Corps (PMC)
    baseline budget averages approximately $1.3-$1.5 billion. If PMC were
    required to absorb this cost to reset within the current annual
    resource profile, it would effectively create a pause to all
    modernization and replacement programs for approximately 5 years (see
    figure A-3).

        Industrial capacity constraints added to the anticipated decline in
    readiness rates make it prudent to begin the reduction of the bow wave
    of resetting the force requirements as soon as possible. Changes to the
    defense industrial base have sharply limited the ability to surge
    requirements without additional facilitization costs. For these reasons
    the Marine Corps has phased its reset requirements over a period of
    several years and believes that Supplemental funding will be necessary
    after the completion of OIF/OEF in order to address all reset costs
    resulting from those operations. Accurately forecasting the total cost
    to reset the force is dependent upon calculations as to what percentage
    of the current inventory in theater will be repairable or will need to
    be replaced, how much equipment may be left behind for Iraqi forces,
    and other such determinations which are highly dependent upon
    circumstances and conditions that cannot be easily predicted years in
    advance.
                                    training
        While we adjust to the current operational environment, we also
    keep our eye on the future. We are undertaking initiatives to
    strengthen the training and education of our marines. In the joint
    arena, we are supporting DOD efforts to create a flexible and dynamic
    Joint National Training Capability, and we are making large
    infrastructure investments at our Combat Training Center at Twentynine
    Palms, California. With recent large-scale joint urban operations added
    to our extensive history of urban combat experience, the U.S. Marine
    Corps has a vested interest in the preparation of our forces to fight
    in this challenging environment. Experience shows the need for large-
    scale, purpose-built, urban training facilities capable of training
    Marine Expeditionary Brigade (MEB) sized units. This is required in
    order to conduct joint live-fire combined-arms combat training,
    concurrent with live stability, security, transition and reconstruction
    operations in a complex, dynamic, multicultural urban environment.
        In CMC's Revised Guidance issued in mid April 2005, the endstate is
    stated in part as ``a Marine Corps that is a learning organization:
    Embracing innovation and improvement in order to increase its
    effectiveness as part of the joint force.'' Over the past 3 plus years
    the Marine Corps Center for Lessons Learned (MCCLL) has provided
    briefings, information papers and reports on observations and lessons
    from ongoing operations to decision makers and resource managers, Joint
    and Joint Forces Command ``lessons learned'' organizations, coalition
    partners and others. MCCLL routinely has a total of three to five MCCLL
    team members embedded in the MEF units in Iraq, and a team just
    returned from Afghanistan. MCCLL members continue active collection of
    lessons and observations from current operations, and are training
    units on the MCCLL Lessons Management System. Concurrent collection,
    dissemination, archiving, and integrating into our Expeditionary Force
    Development System (EFDS) continues in CONUS.
        To focus our training efforts, all deploying Marine units continue
    to rotate through a standardized training package. Building on home
    station training in mission essential skills, ground units deploy to
    the Marine Air Ground Task Force Training Center at Twentynine Palms,
    California, for in-depth training in current operating environment
    skills to include urban and convoy operations, fire support, rules of
    engagement and escalation of force, detainee handling and counter-IED
    operations, culminating in a 3-day full profile mission rehearsal
    exercise utilizing interaction with Iraqi-Americans serving as key role
    players. Our Marine Corps aviation units participate in a standardized
    training package, Desert Talon, in Yuma, Arizona. All of these training
    events are founded on lessons learned from our operating forces. With
    your continued support, all of these efforts will ensure your Marine
    Corps retains the ability to respond and contribute whenever and
    wherever the Nation calls.
                        modernization and transformation
        As we look into the future, the requirements for naval forces to
    maintain presence, engage allies and potential coalition partners,
    build understanding and operational relationships, relentlessly pursue
    terrorist organizations, and project sustainable forces ashore for a
    wide variety of operations will increase. While we continue to focus
    our efforts on sustaining the current requirements for global war on
    terror, we must not sacrifice our modernization and transformation
    initiatives in the process. Our modernization and transformation
    accounts cannot bear the unfunded costs associated with sustaining the
    global war on terror, which is why the administration is requesting
    funds in the fiscal year 2006 supplemental to continue addressing the
    resetting of our forces. Our modernization and transformation
    initiatives must plan for the procurement of replacement equipment that
    will enable our Corps to be ready for future conflicts and
    contingencies.
                               resource strategy
        While more work and analysis needs to be done, the Marine Corps has
    established a consistent pattern of identifying and acquiring the
    material solutions necessary to sustain the global war on terror while
    continuing to modernize and transform. First, we have embraced the fact
    that the global war on terror has, and continues to have, an impact on
    our ability to restore our warfighting capability. Second, we have
    implemented procedures to allow for the identification of all global
    war on terror-related funding requirements, including both the ongoing
    costs of war and our requirements to reset the force. Finally, we have
    adjusted acquisition strategies to maximize procurement efficiencies.
    As a part of this process we have worked within the constraints of
    several planning factors. Most notable amongst these factors is the
    consistent, sustained deployment of approximately 40 percent of our
    ground assets and 18 percent of our aviation assets in support of the
    global war on terror. Exacerbating the reality of that fact is the
    quantifiable assumption that all the equipment in theater eventually
    will be attrited or beyond economical repair--specifically, it will
    need to be replaced. In some cases, both ground and aviation assets
    will be replaced through normal, yet accelerated, procurement methods
    making maximum use of both the Bridge and full supplementals to
    maintain the cash flow necessary to maintain uninterrupted equipment
    deliveries from our vendors. The continuing use of supplemental funding
    requests to address our global war on terror and reset requirements is
    obvious in the context of the magnitude of those requirements in
    comparison with our annual allocated baseline budget, and based on the
    very real difficulties in projecting out future costs of war when
    conditions such as operating tempo, the speed with which Iraqi security
    forces can transition to full mission capability, insurgent activity
    and sectarian violence cannot be accurately predicted. Our supplemental
    requests are based on our best assessment of what is required to
    address essential wartime readiness tasks, with consideration for what
    is already in our peacetime operating budget to maintain readiness.
        In all instances we have rigorously assessed our ability to
    contract for and obligate our supplemental funding requested to
    expedite the delivery of this equipment; however, due to industrial
    base and other execution issues, a portion of our requirements must be
    deferred until fiscal year 2007 and subsequent fiscal years. To date we
    have obligated over 94 percent of the fiscal year 2005 bridge and 85
    percent of the fiscal year 2005 supplemental funds received, and have
    obligated or committed over 40 percent of the fiscal year 2006 bridge
    supplemental funds we received on 27 December 2005, with 85-90 percent
    obligations anticipated by May 2006. This prudent yet expedited
    execution approach will allow us to mitigate some of the readiness
    issues associated with the heavy utilization of Marine Corps equipment
    in OIF/OEF; however, continuing congressional support for our future
    supplemental funding requests will be necessary to address the totality
    of the requirement. The Marine Corps, while continuing to meet global
    war on terror mission requirements, is operating with increasing risk
    in equipment readiness to support deployed forces. Resetting the force
    requires timely resourcing if the Marine Corps is to remain the
    Nation's premier force in readiness.
                                   conclusion
        The readiness of our Corps remains dependent on our ability to
    continue to attract and enlist young men and women dedicated to the
    preservation of freedom and to service to our great Nation. We must not
    take them or their families for granted. With the support of the
    American people, we continue to access and retain the highest quality
    and proper numbers of marines for our Corps during war. We must
    continue to inspire, train, and equip them for success. Our fiscal year
    2007 budget and our fiscal year 2006 supplemental request work together
    to address our essential operational and maintenance requirements to
    sustain our readiness, while providing opportunity for investment in
    the resetting and continued modernization of our Corps. On behalf of
    all marines and their families we greatly appreciate the unwavering
    support of Congress in the readiness and resetting of the Marine Corps.

        Senator Ensign. General Vines.

    STATEMENT OF LTG JOHN R. VINES, USA, COMMANDING GENERAL, XVIII
                             AIRBORNE CORPS

        General Vines. Good morning, Mr. Chairman, Senator Akaka,
    Senator Inhofe. I'm grateful for this opportunity to appear
    before you today. I've submitted a written statement for the
    record. But, I'd like to make two points.
        I most recently served as the MNC-I Commander in 2005. I
    also served a tour of 14 months in Afghanistan. 2005 was a
    historic year in Iraq, because during that period of time three
    national elections were held, a constitution was drafted and
    ratified, an assembly was seated, and the capability of Iraqi
    security forces increased dramatically.
        That was able to be accomplished because of the magnificent
    efforts of the men and women in uniform, and because of your
    tremendous support to that force. There's a vastly increased
    capacity of Iraqi security forces in country today, because of
    that. Iraq today stands ready, and has the opportunity to move
    forward as a democratic country, because of those efforts. The
    decision they make, of course is theirs to make. But, they have
    that capability because of the efforts of the men and women in
    uniform.
        I'm thankful for the opportunity to appear here before you
    and I stand ready to take any questions.
        [The prepared statement of General Vines follows:]

                  Prepared Statement by LTG John R. Vines, USA

        Mr. Chairman, distinguished members of the subcommittee, I am
    grateful for this opportunity to appear before you today. Over the past
    year, from January 2005 until January 2006, it was my honor and
    privilege to serve as the Joint Forces Commander of Multi-National
    Corps-Iraq (MNC-I) in Operation Iraqi Freedom (OIF). You should be
    pleased to know that the support the members of this committee give to
    all of our soldiers, marines, airmen, and sailors involved in this
    conflict is invaluable, and on behalf of all who've served in MNC-I
    this past year, I want to extend my sincerest appreciation for all that
    you have done and continue to do in support of this great undertaking.
        Over the past year the Iraqi theater of operations has seen
    historic and positive change. Three successful elections transpired
    resulting in the drafting of an Iraqi constitution and the selection of
    a democratically elected and representative government. Our strategy
    for winning the counterinsurgency fight in Iraq is working. In the
    preceding year, the Iraqi security forces have increased dramatically
    in numbers and capability. By January of this year more than 227,000
    Iraqi security forces were trained and equipped representing 10 Iraqi
    army divisions and Ministry of Interior forces. This is nearly double
    the January 2005 total of 130,000. One division, 8 brigades, and 37
    battalions assumed battlespace during XVIII Airborne Corps' watch as
    MNC-I. Fifty percent of Baghdad, Iraq's geographic center of gravity is
    under Iraqi control and on December 30, 2005, the first Iraqi battalion
    assumed battlespace in the formerly embattled city of Mosul.
        As Iraqi security forces increase in strength and capability, the
    area of operations has also seen an adjustment in the coalition.
    Thirty-one forward operating bases were turned over to the government
    of Iraq and the United States footprint has reduced by a division
    equivalent headquarters and two brigades.
                                 transformation
        The headway made in the security line of operation is a direct
    result of the magnificent performance of the uniformed members of the
    coalition of which the service men and women of the United States armed
    forces are such an integral part. In regard to the United States Army's
    contribution in particular, I can tell you that the benefits of Army
    transformation are readily apparent. During our assignment, MNC-I
    employed the Army's first transformed units, the 3rd Infantry Division
    (Mechanized) and the 101st Airborne Division (Air Assault), to
    participate in OIF. Modularity transformation, as it continues
    throughout the Army, will reduce the friction associated with the
    rotation of units into the area of operations by standardizing
    equipment and organization. This will have a positive impact on unit
    readiness for combat that will be felt in training efficiency and
    effectiveness and will ultimately result in formations better prepared
    to prosecute the fight in the combat zone.
                                    funding
        One of the critical enablers for readiness of the Corps has been
    adequate funding to train and maintain our units and their systems. In
    addition to an adequate base level of funding, we could not have
    prepared the corps to deploy nor reset our units upon return without
    the supplemental funds provided by Congress. For example, at Fort
    Bragg, the Corps expended $99.1 million in fiscal year 2004 and $41.9
    million in fiscal year 2005 to train and equip units to deploy. To
    reset our systems returning from the fight, we expended $100.6 million
    in fiscal year 2004 and $149.8 million in fiscal year 2005. Without
    supplemental funds, we will not be able to maintain the rotational pace
    necessary to continue operations overseas.
        Regarding programs in the area of operation, MNC-I, in this time
    period, executed the expenditure of $11.2 billion. Of that, $872
    million was for the Commander's Emergency Response Program (CERP). This
    program was the most visible program that we managed and there was
    never enough funding in this program to satisfy the needs of the
    commanders in the field. As reconstruction funding diminishes, demand
    for this program will likely rise. We also executed $2.1 million in
    rewards payouts. This program must continue as a way to acquire
    information 'off the street' and as a way to conduct operations. The
    Coalition Munitions Clearance Program, a government supervised,
    contractor operated, Iraqi-manned program that is integrated with local
    military commanders and units resulted in inspection, disposition,
    storage, and destruction of over 150,000 tons of ordnance and
    establishment of two depots supporting ISF operations. Funding for this
    program is critical for without it, we could not be making the progress
    we are in the area.
                              interagency support
        Progress in the security line of operation out-strips the headway
    we are making in the governance and economic lines. Security, as you
    all are well aware, is only one part of the answer. Standing up a
    coherent and viable government takes much more. In my view, the lack of
    ministerial capacity is the single greatest hindrance to long-term
    success in Iraq. The term ``ministerial capacity'' is used to cover
    those essential services and responsibilities that must be provided by
    a functioning government. For example, the capability to man, train,
    equip, and pay an army in the field is an essential responsibility for
    the Ministry of Defense. Likewise, the capability to find, drill,
    refine, distribute oil, and generate revenue is an essential
    responsibility for the Ministry of Oil.
        An increased effort to develop the capacity of the fledgling nation
    of Iraq along governmental and economic lines will have a lasting
    positive effect on the ability of the Iraqi people to achieve self-
    governance. The Department of Defense (DOD) is currently taking the
    lead in managing and implementing the contracts for reconstructing
    Iraq's economic infrastructure, including electricity, water/
    sanitation, telecommunications, roads, health care, and public safety,
    such as prisons. These activities are not DOD's primary mission and it
    may be better for other agencies and/or corporations, rather than DOD,
    to build up their capabilities to address these requirements. To be
    truly effective, our mission requires continued funding and a
    significant increase in expertise. Exploring ways to create and
    integrate a national capability for these types of tasks would be
    welcome and beneficial.
                joint nature of the iraqi theater of operations
        The Multi-National Corps-Iraq is a truly joint headquarters
    operating in a joint environment. Service interoperability, is a
    requisite in this fight and occurs as a matter of course. The
    cooperation and integration that exists between conventional and
    Special Operations Forces is a major success story that illustrates how
    far the military has come in creating a joint force. The requirements
    of the Goldwater-Nichols Act of 1986 have helped us move to our present
    point. In light of our recent advancement and the progress made since
    1986, a review of the requirements, specifically those stipulated for
    joint qualification, may be worth reviewing and updating.
        In terms of truly joint support for the warfighter forward, I would
    ask for your continued support for Joint Forces Command and that
    Command's efforts to resource, train, and equip a truly joint military.
    The advantage that the Nation gains by this capability is immeasurable.
                                 battle command
        The art and science of applying leadership and decision making to
    achieve the mission is the essence of battle command. In this age of
    advanced technology, the Joint Force Commander must be able to leverage
    and integrate all tools at his disposal to prosecute the fight. With
    all the resources available to the United States military, our
    technological advancement creates an asymmetric advantage for us over
    our adversaries. We have made great advances, but we can and must do
    more to leverage this technology. The major challenges in this area
    revolve around data and bandwidth management, compartmented and
    proprietary systems, and doctrine and proponent responsibility. The
    effort to integrate existing but disparate systems and continue to
    develop future systems is of paramount importance as we grow and
    balance capabilities and modernize our force.
                                   conclusion
        The Iraqi theater of operations is a fast-paced and dynamic
    environment. Some critics have commented that our strategy for Iraq
    lacks focus and that it is too slow to react to be effective in this
    environment. I can tell you that the opposite is true. After preparing
    the corps for deployment, serving as a joint force commander, and
    returning to prepare and provide forces for employment in theater, I am
    a first-hand witness to the flexible and adaptive nature of our
    Nation's fighting force. A notable point from the preceding year is the
    degree of integration of the Reserve component into the fight. Reserve
    and National Guard formations made up 60 percent of the force during
    XVIII Airborne Corps' tenure as MNC-I. Their participation and
    competency were essential in allowing the Active army to continue
    transformation and reset redeploying units for the fight.
        The current warfight has outpaced doctrine. The fight that General
    Casey and those with him continue to prosecute will inform our future
    policies and service manuals. However, at the present we are doing all
    in our power to prepare units and individuals for this counter-
    insurgency. In the past year the strategy has evolved to meet the
    demands of the environment. That strategy is understood, supported, and
    is being implemented at all levels by leaders of the highest quality.
    Prime examples of the adaptive nature of the force are the development
    and implementation of transition teams as a way to build capable Iraqi
    security forces; the shift from high-intensity combat operations to
    partnership with Iraqi formations at every level; and the creation of a
    Counter-Insurgency Academy to disseminate knowledge and provide
    incoming leadership the most up-to-date tactics techniques and
    procedures.
        These examples are but a few, there are many more that highlight
    the United States military's contribution to the coalition that is
    protecting our way of life and bringing freedom to a people that have
    been without it for so long. You should be very proud of your military
    and the men and women of all the services for the exemplary manner in
    which they are serving in OIF. I know I am.

        Senator Ensign. General Sattler.

    STATEMENT OF LT. GEN. JOHN F. SATTLER, USMC, COMMANDER, UNITED
      STATES MARINE CORPS FORCES CENTRAL COMMAND, AND COMMANDING
                 GENERAL, I MARINE EXPEDITIONARY FORCE

        General Sattler. Mr. Chairman, Senator Akaka, Senator
    Inhofe, just one point, sir, that the forces forward as General
    Vines has just articulated, the men and women forward are well-
    trained, they're well-equipped thanks to the efforts of the
    U.S. Congress, and they're prepared to continue and stay the
    course until the missions accomplished. I look forward to your
    questions.
        Senator Ensign. I said be brief, but this is maybe the
    shortest opening statements that we've ever heard from a panel.
        General Vines and General Sattler, what are your personal
    assessments, based on your time in Iraq, as to how much of our
    equipment we should leave for the Iraqis, either because they
    need the assistance or because that equipment will be so run
    down that it will not worth bringing back?
        General Vines. The bulk of the equipment the Iraqi security
    forces currently use has been procured and it is primarily
    Warsaw Pact in origin, although there are some other origins.
    When I left country about 45 days ago was to leave selected
    elements--for example, uparmored Humvees for the paramilitary
    forces. Where that stands I can't tell you today, but in
    general I don't advocate leaving large amounts of that
    equipment, because it's not compatible with their current force
    structure.
        Sir, their force structure is primarily being developed to
    deal with an internal threat. Now they have a capability of
    dealing with a threat, external. Such as with Iran, but that is
    not how it is currently organized. They do not have artillery,
    they do not have large armor formations. They do have some.
    Those are very expensive.
        One of the risks that we run is if we develop a capability
    that they cannot maintain--that it bankrupts them, or in some
    cases we create forces that can't be paid. So, consequently
    armed men will develop a way of sustaining themselves. That
    could be to prey on their citizens. So, we should only develop
    the force that they need. Over resourcing that with equipment
    drains their treasury too large an extent.
        Senator Ensign. To follow up, and maybe these first couple
    of questions I had all relate to the same things. You mention
    the maintenance. From what I understand part of the problem
    with a lot of the Warsaw Pact equipment was that they didn't
    have the training to maintain a lot of that equipment as well.
    If any of you have a difference of opinion about leaving
    certain amounts of equipment--there's $500 million the
    administration has the authority to transfer to the Iraqis as
    far as amount of equipment. One is, are we transferring any of
    that equipment now? If any of you have a difference of opinion
    from what General Vines just said, about leaving more of the
    equipment, or certain types of equipment, I'd like your
    comments. Are we going to train them? In other words, to
    address what General Vines just said, if we were going to leave
    some equipment, are we going to train them?
        General Sattler. I'll echo what General Vines said, Mr.
    Chairman, that, at least in the west in the Al Anbar Province,
    there is a disparity of the equipment that some of the Iraqi
    forces are using, concerning armor, et cetera, versus our
    forces. As we approach--whenever we are prepared to come out,
    depending of the wear and tear on--we'll just say Humvees--
    because some principle items we don't want to leave. They will
    be rotated back, rehabbed, and put back in the hands of U.S.
    forces.
        But, I believe--and again, you have to look at that
    interoperability piece that General Vines alluded to, to make
    sure they don't have 10 different types of vehicles trying to
    teach maintenance and spare parts, so you could actually
    exacerbate the problem that you're trying to solve. I believe
    that some of those Humvees will have wear and tear on them that
    will render them fairly useless to go ahead and pay to
    transport all the way back, spend all the transportation costs
    et cetera, to get them back and rehab them. There was minimal
    life left in them. They would be better off, if it fits in with
    the overall scheme, Mr. Chairman, to leave those. Maybe the
    uparmored Humvees, some of the uparmored trucks that have hit
    pretty close to their life expectancy, but, still would be
    very, very much value added in the theater, sir.
        Senator Ensign. Any of the rest of the panel have comments?
        General Lovelace. The only comment I'd make here is, is
    that what will govern for us is if something is declared
    excess. A lot of the things the Iraqi security forces need, are
    those things that we, ourselves across a modular Army are also
    short. So, while I appreciate everything that is said, and we
    are aware, that's just the kind of tension that we're going to
    go through as we want to also be very helpful in equipping the
    Iraqi security forces. We also have to be mindful then of what
    equipment we have that is excess. That's all I'd like to say,
    sir.
        Senator Ensign. Senator Akaka, I wonder if Senator Inhofe
    wants to go back upstairs to the other meeting. So, if we could
    allow him some questions right now.
        Senator Inhofe. It would be very brief. But I do have to go
    to the full committee hearing. I mentioned in my opening
    statement this statement that General Blum had made concerning
    the equipment on hand. It's down to 34 percent right now, as
    the result of the losses, and the damage, and this type of
    thing. Which is just incredibility low. I think he went on to
    say that our readiness level of the Guard here is C-4, while
    we're C-1 over there. But, C-4 in terms of the condition of it
    there, because--and this tells me that we can't continue along
    this road. Have you talked to General Blum about this, and do
    you agree with his charts as to where we are today? In terms of
    our equipment, in terms of our C-4s versus C-1s?
        General Lovelace. Sir, I'm familiar with the statistics
    that General Blum has provided you. I guess that with how he
    has taken a look at the equipment on hand. What I would walk
    you through is, is that some of the percentage also reflects
    what is his accepting of in lieu of items. These are older
    vehicles which we in the Army recognize are older fleet. I'm
    talking about M35A2 deuce and a halves, older 5-ton trucks,
    which we acknowledge that we have to replace. He does not
    account for that percentage that he is showing.
        We also start in the hole--and this is part of what the
    Chief, sir, has expressed to you all when he shows his chart
    with the holes. He talks about what we have to fill in. Some of
    those holes that we have to fill in are in the National Guard
    themselves, and in the U.S. Army Reserve (USAR), as well as
    Active component (AC). So, some of those holes, you start out
    in the hole, and you work your way down to--they have less
    sizable amount of equipment in theater, and we agree. That's
    why then when you hear the Chief and the Secretary talk, they
    express a figure at--from 2005 to 2011 in an investment in the
    U.S. and the Guard of about $21 billion, as well as about $3.8
    to $3.6 billion in the USAR. That doesn't include the program
    that they're getting ready to walk into, sir.
        General Huly. If I could just follow on from the Marine
    Corps perspective. I have not talked to General Blum. He's more
    U.S. Army, Guard, and Reserve. That's a good news and a bad
    news story. The good news out of all of this is the forces that
    are forward deployed in theater aren't short of any major end
    items of equipment. I think that goes to say a great deal about
    how you have supported us in this effort so far.
        The bad news is--I will be very candid with you--about 49
    percent of our Continental United States (CONUS)-based forces,
    which are rotating back very quickly, and turning around and
    going again, at about our infantry battalion, for instance it's
    about a one-to-one deployment tempo. For instance, if they're
    gone for 7 months, they're home for 7 months. During that 7
    months that they're home, preparing to go again, they're
    undergoing a great deal of pretty intense training. To go
    through that training they need the equipment.
        About 49 percent of those units that are CONUS-based are
    probably in the C-2 to C-4 category, and a lot of that is
    because of equipment shortages.
        What we're doing to mitigate that is we're swapping
    equipment back and forth what we call cost leveling it and
    giving it to the units on a priority, and the units that are
    actually in training, preparing to go, pretty much have what
    they need. I'll let Lieutenant General Sattler elaborate on
    that, on a little bit more. What we need to do is we need to
    continue to get the supplementals to continue to purchase the
    equipment to replace our losses.
        I have probably a resetting of the force just to get us
    back to pre-September 11 levels, it's going to cost about $11.7
    billion of what I currently know today.
        Senator Inhofe. See, and that's the point. What he's saying
    and what, I think we all would agree, that the equipment over
    there--in fact the Army testified--it might have been General
    Schoomaker, that they've seen some 20 tanks, 50 Bradleys, 20
    Strykers, 85 helicopters, 20 Armor Personnel Carriers (APC),
    250 Humvees, and over 500 trucks destroyed, right now. Is that
    consistent with figures that you're aware of?
        General Vines. I better agree with the Chief, yes, sir.
        Senator Inhofe. Yes, that's a good idea. One last thing,
    General Vines you just now mentioned in your brief opening
    remarks about the quality of the training of the Iraqi security
    forces. We don't talk about that enough. I'll make my leave
    tomorrow for my 11th trip over to the Area of Responsibility
    (AOR). What I come back with every time is the enthusiasm of
    the Iraqi security forces. Then the commitment of our trainers
    as to the quality of people that they're training over there.
    This is not what you get in the media here.
        But, apparently from what I've personally seen over there,
    the quality of training for the Iraqi security forces has been
    excellent. Would any of you comment on that?
        General Vines. Sir, I would say it is excellent. The real
    challenge is not the quality of the Iraqi forces in the field.
    It is the ability of their ministries to sustain them. The
    things that we take for granted within our armed services is
    the support we receive from our Congress, the support we
    receive from the DOD, from our Headquarters, Marine Corps, and
    Department of Army. The ability to sustain forces in the field
    8,000 miles away. We take that for granted because it's been so
    outstanding.
        That capacity does not exist. So the ability to pay troops
    in the field when there's not a national banking system, to
    have a system where replacements are generated for soldiers who
    are wounded or don't report back from leave. To requisition
    spare parts, is not present in the Ministry of Defense or the
    Ministry of Interiors. So, the forces are not universally
    excellent, but are quite good. On average they're very good.
    The ability of their ministries to sustain then has not yet
    developed to the same level.
        Senator Inhofe. That's a good point. Mr. Chairman, thank
    you very much. Senator Akaka, thank you.
        General Lovelace. Sir, before you leave, sir, let me just
    follow up with one piece of information that I think is
    important. As we have gone from pre-September 11 to where we
    are now, especially with the Guard, in the last rotation we put
    seven National Guard enhanced brigades in theater, and they did
    leave equipment behind. Some of what is the issue is their
    ability to have visibility on what was the temporary sets--or
    the temporary leave behind of equipment, that we're trying now
    to migrate out of theater. Push into our depots, that we are
    resourced at about 250 percent of where we were pre-September
    11, pre-war periods. So, that kind of capacity to begin to fuel
    and reset the Guard is no different than what we're trying to
    do with the Active component forces. We are very cognizant
    because we are very attentive to what is a baseline equipment
    set, that we have to have for the Guard, in order to be able to
    allow them to do their title 32 responsibilities. We are very
    cognizant of that. We're working with them to make sure they
    have what's in a certain number--lines of equipment. We're
    trying to make sure we shape that into the capabilities so that
    the Governors have the capability that they need, in order to
    affect the kinds of things that the Governors have within their
    responsibilities.
        We're very mindful of that. We're working with the Guard to
    ensure we understand what those needs are. But, some of it is
    that temporary leave behind of equipment, were trying to
    migrate out of theater, fuel our depots, and all, and then push
    forward into. Our ability right now is to try and show them how
    you tag a piece of equipment, which was, which is now going to
    be because they might not get the same serial number. But they
    will get a like piece item of equipment, sir, please.
        Senator Ensign. Senator Akaka.
        Senator Akaka. Thank you. General Lovelace and General
    Huly, I want to ask questions that have to do with the
    readiness trends. Our data shows that readiness of your forces,
    and this is relative to what Senator Inhofe asked, that is the
    percentage of forces that are in the highest categories known
    as C-1 and C-2, has declined over the past few years. That the
    percentage of units with lower readiness has increased since
    the beginning of operations in Iraq. My question to both of
    you, is that correct?
        General Lovelace. The answer to that's, yes. I'm just
    trying to think in an open forum how I can elaborate on the
    answer. I'm having a little bit of a difficulty.
        Senator Akaka. General Huly.
        General Lovelace. You have assessed it correctly, sir.
        Senator Akaka. I would also like each of you to describe,
    to what extent these trends are of concern to you?
        General Huly. Sir, your observation is correct. Our
    readiness has generally declined for our units that are back in
    CONUS, as I've stated, and it's probably a magnitude of perhaps
    twice as many units are reporting degraded readiness now, than
    were reporting it prior to September 11. The reasons for that
    are about 40 percent of my ground combat equipment is forward
    deployed in either Iraq or Afghanistan, and only about 25 to 30
    percent of my forces are over there. So, we've given them extra
    equipment that they have that's over there, and forward
    deployed. It had to come from someplace and it's come from back
    here, and at the expense of the units that are back here. We
    have used what supplemental funding we have to help start
    resetting that force, to replace that equipment, to cross level
    as much as possible, but, we haven't always been successful
    instantly, as fast as I would need to be to making up for those
    shortages. For instance, about 50 percent of my communications
    equipment in the operational Marine Corps is forward deployed.
        I've spent what I can on those hot industry lines to
    replace what's out there recognizing that it takes awhile to
    get the money, and then to be able to obligate the money and
    then for industry to be able to build the piece of equipment,
    for us to receive it and field it so that is some of the
    shortage that I have. Some of the equipment that we've used is
    no longer modern so we're buying new equipment to replace it
    with.
        We continue to need that supplemental because I'm going to
    have to live off of that for at least 2 years after our current
    level of operations declines just to be able to reset the force
    to the level that I need to be in the future.
        So this declining readiness of units is a concern to me. I
    don't have a crystal ball, to be able to predict what the
    units, when they ultimately come out of Iraq are going to look
    like as far as readiness and the equipment they're going to
    leave behind. So, I'm doing what I can now with the
    supplementals that I receive to continue to reset the force.
        Senator Akaka. General Lovelace.
        General Lovelace. For the Army it's in two areas. One is
    personnel--and it's also in equipment. We're no different than
    the Marine Corps. The bulk--we have a good deal of the
    percentage of our equipment forward. I don't have the exact
    percentage, sir. But we also have a large percentage of our
    equipment forward. As a result then what will happen is, is
    that you have less equipment back in the States, within which
    to train on available in the motor pools, because of what is
    forward and what is being reset. That's why then, when you look
    at the supplemental dollars, we talk about the reset of the
    force. I give an example, as we go from about 12 million man-
    hours in Army Materiel Command (AMC), directed man-hours in
    AMC, to almost 27. That gives you a magnitude of what the
    effort is, and to be able to sustain and reset the force. What
    Senator Inhofe was talking about was the purchasing up for
    battle losses. We purchase battle losses based upon what we
    know, not based upon then what we can forecast, because we
    don't know exactly what those battle losses are.
        So those kinds of things then begin to decrement. As you
    also look at--there's several things going on inside the Army.
    While we are fighting a war, we're transforming, we're going to
    modularity, we're filling in the holes, we're global
    repositioning. Senator, we took out of the theater where you're
    very familiar with, we took a brigade out of the 2nd Infantry
    Division, deployed it to Iraq, and have since moved it back.
    Those kind of global repositioning of the force also, then
    begins to effect. So, there's not any one necessarily single
    factor, but you can see the aggregation and the impact it has.
    Because you see the readiness data, just like we do. You see
    the downward trend in the readiness.
        But, again the forces that are deployed already are better
    than they have been. That's because of the support that we get
    from you all, based upon what is our budget and the
    supplemental support that we get.
        Senator Akaka. Before I call on General Vines, may I ask
    both of you to please provide for the record, in classified or
    unclassified form, whatever is appropriate, the percentage of
    units that are presently C-3, C-4, and C-5.
        General Lovelace. Sir, I'd be happy to. I think we can
    comfortably give that information, and also provide
    explanations which will be helpful. I would think that would be
    helpful to me. Thank you.
        Senator Akaka. Thank you.
        [The information referred to follows:]

        On March 15, 2006, the percentage of Marine Corps units reporting
    C-3, C-4, and C-5 were 22 percent, 18 percent, and 1 percent
    accordingly.

        Senator Akaka. General Vines.
        General Vines. Sir, if I may comment, in my current
    capacity there are about 90,000 troops assigned to my
    organization. We looked at the readiness of those forces. What
    we determined was, of the decrement, for example in terms of
    equipment. About 40 percent of that equipment is either in
    transit back from the theater--40 percent of the equipment that
    we're short, is either in transit back from the theater or in
    reset.
        In other words, it is a natural function of either
    maintenance or transit times. There's another 60 percent that
    in some cases is supporting transformation and so forth. But
    almost half of our equipment that we're short is accounted for
    by just the time it takes to move it to and from theater, or to
    provide the maintenance necessary.
        Our readiness system increases the readiness of units as
    they're about to deploy, and so what we find is units that are
    in the last stages of their readiness cycle are very well
    prepared. Their readiness levels go up. The units that we
    decrement the most heavily are the units that are just
    returning. We accept some risk in those units because they are
    just returning, and they're not likely to have to deploy
    immediately.
        So, we tend to concentrate those shortages in the units
    that have just returned. So that's the way we manage that 40
    percent that's either in transit or in the reset.
        General Sattler. Sir, if I could just add two quick points.
    Number one, although it looks like readiness is degraded, it's
    mainly in the supply account, meaning there's not all of the
    equipment there for a soldier or marine to go to war. But there
    is equipment there to train, in our case, I'll just speak
    marine, but I'm sure the soldiers are the same way. So when it
    looks like it's bad readiness, we have some of the best, most
    capable, motivated, well-led warriors in the world that will
    move forward. Once they arrive on the gear, they're C-1 ready
    to go to the fight across-the-board, sir.
        But what we're doing is we pass equipment back and forth to
    train. That means the equipment back in the United States is
    being ridden harder and longer than normal also. We talked
    about aging equipment in the combat zone at a rate of somewhere
    around 7 years to 1, while we're accelerating the wear on our
    gear back home, because it doesn't get a rest. It's passed from
    unit to unit to unit in this high tempo work-up to get the unit
    ready to back. So I wanted to make that point clear. First of
    all, that the men and women are ready to go to war. They'll
    need the equipment when they get there, either by prepositioned
    gear if they go to another theater, or they'll fall in on the
    gear inside of Iraq.
        The other point, sir, the training teams that General Vines
    eluded to that are working with the Iraqi security forces to
    give them that fire, that coach and mentor them on a daily
    basis. As all of our Services build those teams, they are high-
    end. They are leaders of our staff, noncommissioned officers
    (NCOs), and our officers, these teams--and they run about 11
    men--that go in and embed with an Iraqi security force unit,
    they have to have the same types of equipment that we're short
    in our operating forces, meaning those 10 to 11 that go forward
    need all of the communications, the armored Humvees, all the
    other tracking devices. So, that is a must fill bill, and it's
    critical to our victory strategy that we continue to do this.
    But it's a bill that has to be paid, and we're going to have to
    buy that equipment and reintroduce it into in the force, sir.
        General Lovelace. Sir, if I could also add just a piece of
    information. AMC did not overnight build to capacity of 27
    million directed man-hours, that is, it started at 12 million.
    So, just an example of what I'm trying to say here is, is we
    have just finished resetting what was the first rotation in the
    theater. In other words those that came back in fiscal year
    2004, their equipment is just finishing the reset. But as the
    capacity of AMC grows, their ability and speed within which
    they can reset the force, will only be greater. You can kind of
    see now, when you start talking about the availability of
    equipment, some of it predicated upon the ability to reset.
    That was the capacity inside of AMC.
        Then the last point I want to make is that when you look at
    the data. This is for everybody to understand, a little bit
    within the Reserves you have an overstructure issue. Both in
    the USAR and in the National Guard. That's why there's cross
    leveling. Its cross leveling not only of people, but it is
    cross leveling of equipment. So, as you take equipment out of a
    unit that's deploying, the unit that's left behind has less
    people and less equipment. That sum, what's reflected in the
    charts that I know the committee has, what we'll do is we'll
    make sure we get them to you personally with explanations
    behind, sir.
        Senator Akaka. I'd like to ask you something that--and I'm
    going to let you decide whether you can answer it here, or you
    want to provide it for the record in classified or unclassified
    form. This does not have to do with equipment, as we've been
    talking about that.
        I would like each of you to tell me what your highest
    concerns are about the long-term health of your forces, the
    impact these operations have had on your forces, and what we
    need to pay particular attention to relative to your forces.
        General Vines. Sir, my biggest concern are staff NCOs and
    mid-grade officers. Because of the way our forces are
    organized, and as our Chief of Staff has said, we have to
    reorganize our forces to take into account the fight. Some of
    those forces have deployed two and three times. So the tempo on
    the individuals, we run the risk of losing some of those great
    leaders. We have the most competent leaders that I have seen in
    35 years. At the NCO and officer level, particularly at the
    captain, major, lieutenant colonel, staff sergeant, and
    sergeant first class level, we've never had their equal in my
    tour of service. However, the tempo is high enough in selected
    military operational specialties, occupational specialties,
    that we run the risk of some of them leaving because of that
    tempo. So, we have to take extraordinary measures to make sure
    these battle hardened warriors stay with us, because they're a
    national treasure. They are our secret weapons. Their equipment
    is just that, without soldiers and marines with the will to use
    it, we won't prevail, and that is our critical asset.
        General Sattler. Sir, I'll pile right on top with what
    General Vines said. We're in the exact same situation. But, I
    will add the other point that exacerbates that challenge is
    that the leaders that we're looking for to embed with the Iraqi
    security forces, those teams that I alluded to, they're called
    military transition, border transition, and police transition
    teams. These are individuals who raised their hand to go
    forward, to live with. They go join an Iraqi unit 7 months to a
    year. They live with them. They get up with them. They eat with
    them They become role models, teachers, and coaches. We can
    only send our best and brightest to go do this very dangerous
    duty because they're on the front line and they are not on some
    U.S. base surrounded by fellow soldiers, marines, sailors, and
    airmen. They're out there on the edge of the empire, in some
    cases.
        These individuals are the exact same ones who lead in
    combat as combat leaders either as first sergeants, as
    sergeants majors, as brigade commanders, as battalion
    commanders. So, they come off that tour, and they realize that
    we need that exact same expertise to put the fire and the
    backbone and the warrior spirit into these great Iraqi forces
    to help them come along. Saddam took all the role models, a lot
    of them, out of the equation. They're not there. The
    charismatic, emergent leader is an anomaly. We're starting to
    see it's there, but it needs to look at a tough soldier or a
    tough marine or a tough sailor on the ground and want to be
    like them.
        So, what happens is how many times can we go to that well
    and check? In our case, it's 500 of our best and brightest, the
    same ones that just finished leading our forces are asking to
    go back and now play this other role. They're doing it, and in
    the Army's case the number, I'm sure, is a lot larger. So, I
    would say the same things that keeps General Vines awake and
    tossing and turning are the same with me, sir.
        Senator Akaka. Thank you very much for your responses. I
    assume that those are responses for the Army and the Marine
    Corps. Thank you.
        Senator Ensign. I want to get into something a little
    different than we've been talking about. It has to do with, for
    General Lovelace, the National Guard. During the base
    realignment and closure (BRAC) process I just had our Adjutant
    General (AG) from Nevada in, talking about--and we saw some of
    it--what happened with the BRAC process. They didn't consult--
    this has to do with title 10 and title 32, not being able to
    talk to each other, or whether it's written or unwritten.
    There's that perception out there that they aren't allowed to
    consult with each other on these kinds of cases. We saw some of
    the problems in the BRAC process.
        From at least what my AG is telling me, that there are
    those problems going forward now with what we're doing with the
    National Guard, going forward with the plans that just came
    out, that the AGs do not feel that they're being consulted.
        That doesn't seem to make a lot of sense to me. The States
    have certain requirements, obviously the military has certain
    requirements, and it would seem to me that since they're the
    people over the National Guard that they should be at the table
    as part of this planning process. Can you tell me, maybe why
    there is this separation, perceived or not, and it just doesn't
    seem to make sense that this is going on. Can you comment on
    this?
        General Lovelace. Sir, I will. I'm only smiling because it
    seems almost embarrassing as I'm going to answer this. We had
    the QDR, that moves forward. It's moving forward, everyone
    essentially signs a nondisclosure statement. Because, basically
    what you're not going to do is reveal anything that's going on
    inside the QDR. At the same time, in a parallel path you have
    the program review. Eventually, at some point in time, you have
    what is a convergence of those two efforts, because they have
    to be, because the QDR was going to inform the budget process.
    So at the same time the QDR is coming to a culminating point,
    and the decisions that then now can be made public. What we do
    is we introduced to the Guard and the Reserve, at that moment,
    at the same time that the program review was about to be
    unveiled.
        So, it was a very awkward moment in time, as you can now
    talk to the Guard and the Reserve. As a matter of fact, sir,
    what's going on--like the Chief and the Secretary have both
    said in a very public forum, not only over here on the Hill,
    but to The Adjutants General (TAGs) that they have met with
    themselves, is that they have stepped back. They have been
    enlightened by, they have stepped back, we have put ourselves
    back to a different starting point with the National Guard. As
    a matter of fact, what I'm doing this afternoon when I leave
    here, I'm going over and meet with 10 of the TAGs from the
    various States. I don't know if Nevada is one of them, sir, I
    apologize.
        But, I'm meeting with 10 TAGs from various States to begin
    to walk forward, in a collaborative way, so that we can begin
    to inform the process of what we want the Army structure to
    look like. Both for warfighting, to observe those kinds of
    requirements and capacities, and capabilities. At the same time
    to recognize what the Governors have responsibilities to do
    inside their States. This is a process that we acknowledge,
    that is going to take not a month or so, it's going to take
    several months to a year to culminate at a different point and
    time. That's where we are, sir.
        Senator Ensign. In regard to that, do we need maybe in this
    year's National Defense Authorization Bill, as this is going
    forward into the future, that's the way its set up, obviously
    we're going to end up with the same problem unless we fix it.
    Is this something that is fixed administratively within DOD, or
    is this something that Congress needs to fix as far as the way
    that the whole QDR is set up?
        General Lovelace. Good question, sir. I don't have an
    immediate answer.
        Senator Ensign. It's okay, I don't want to put you on the
    spot.
        General Lovelace. Sir, you're not putting me on the spot.
    My response is if the timing of this always occurs in this
    fashion, we need to step back and think and understand because
    clearly what we want to do is to be able to work with a fellow
    soldier, regardless of component, to be able to make sure that
    we're one team.
        Senator Ensign. Right, and let me just clarify. It's okay
    if you don't have a complete answer today. What I would like
    you to do is to try to work with us, as this process is going
    forward. So, that if we have to introduce something to the
    Defense Authorization Bill this year, we want to do it. If it's
    something you can do administratively, great. We want you to
    get if fixed. However--and if you need us to help you fix it,
    we want to be there to help you fix it. But, the bottom line is
    we saw the problem with the Governors, and that's why you're
    stepping back now. That's good that you all are stepping back
    now. But, we want to fix this going into the future. Thank you.
        General Lovelace. Sir, can I just make one point?
        Senator Ensign. Absolutely.
        General Lovelace. The importance of the teamed effort with
    the Reserve components, both the USAR and the National Guard
    is, in the strategy now when we talk about the Guard and the
    Reserve, it's not a strategic reserve, it's not an operational
    reserve. They are a significant part of the operating force.
    When we talk about a supply base strategy, and we talk about 18
    plus brigades that will then be able to provide at a moment for
    our Nation. Those are not all Active components. There are
    parts of that formation, a good size of that formation that is
    Reserve component (RC). Both USAR and National Guard. So, you
    better believe we want them to be with us, we want them to make
    sure that they understand what their capabilities and
    responsibilities are. The Chief and the Secretary clearly
    understand their responsibilities of a force that has to answer
    to title 32 responsibilities, sir.
        Senator Ensign. Thank you. I hope we can get this thing
    straightened out now and obviously for the future. If I could
    ask one more question here, and it has to do with the
    supplemental budget requests, basically on body armor. What I
    understand is everyone in Iraq and Afghanistan does have body
    armor. But there's $538 million in this supplemental request
    for body armor. What would this supplemental request buy, and
    where are there shortfalls? General Huly and General Lovelace.
        General Lovelace. Sir, let me do this. I have somebody with
    me. He is going to feed me an answer real quick here. But,
    basically what we're doing is we're continuing to outfit the
    rest of the force as we move from Small Arms Protective Inserts
    (SAPI) to Enhanced Small Arms Protective Inserts (ESAPI). Yet,
    everybody in theater basically is filled with ESAPI, say maybe
    some sizes that are outside the tariff. In other words some
    very extreme sizes, mainly on what we've noticed is a couple
    hundred in the extra extra small size. So, we basically have
    everyone in the appropriate level of body armor inside of
    theater.
        General Huly. Similarly, sir, we're rounding out additional
    items of equipment that we recognize will be helpful to
    providing additional protection. In this forum I don't want to
    get into the exact nature of it. But, I'll take the question
    for the record, and I will get you exactly what our line items
    are, the purchase of it, and how it will be used once it
    arrives.
        [The information referred to follows:]

                                                [In millions of dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                                                      Fielded  (Feb.   Supplemental
                                                                            AO             2006)          Funding
    ----------------------------------------------------------------------------------------------------------------
    E-SAPI..........................................................         282.398          27,596          $115.3
    Goggles.........................................................         190,624         138,857             1.3
    Spectacles......................................................         190,624         113,844              .7
    Outer Tactical Vest.............................................         198,088         194,485             4.7
    Ballistic Hearing Protection....................................         336,068         336,068            40.0
    Light Weight Helmet.............................................         198,088         108,990              .2
    QUADGARD........................................................           4,500           4,500            15.6
    Side SAPI.......................................................         169,904          11,614             6.8
    Cooling Vest....................................................          30,000          30,000
    Other Personal Protective Equipment.............................                                            63.5
    ----------------------------------------------------------------------------------------------------------------

        Senator Ensign. Senator Clinton.
        Senator Clinton. Thank you very much, Mr. Chairman.
    Gentlemen, thank all of you for being here and for your
    service, and for leading our young men and woman so ably and
    well.
        Obviously, because we have our young men and woman in
    uniform in harms way, separated from their families, we owe it
    to them to have open and candid discussions on the current and
    projected readiness of our forces. Numerous outside studies
    have been conducted, which have raised questions about the
    overall level of readiness of our ground forces, particularly
    in the Army.
        In January 2006, a study conducted on behalf of the DOD, by
    Andrew Krepinevich, concluded that the Army cannot sustain the
    pace of troop deployments to Iraq long enough to break the back
    of the insurgency. He also suggested that the Pentagons
    decision announced in December to begin reducing the force in
    Iraq, was driven in part by a realization that the Army was
    over extended. Then in January 2006, a group lead by former
    Defense Secretary William J. Perry concluded that the strains
    of the Nation's ground forces are serious and growing and he
    even went so far as to suggest that the viability of the All-
    Volunteer Force is at risk.
        Now we've had numerous discussions in this committee on
    restructuring efforts that the Army is undertaking to shape its
    forces to be better prepared to meet the current and future
    challenges. We understand the plan is to recreate 70 modular
    brigade combat teams that are more capable of handling the wide
    range of threats that are faced. Also, that there's a plan to
    shift 40,000 soldiers from the institutional Army into the
    operational Army, to add to it's combat strength, without
    raising the end strength, efforts to realign up to 100,000
    soldiers into higher demand skills. General Lovelace in you
    testimony you state, ``that to achieve this high state of
    readiness we maneuver resources, dollars, equipment, and
    personnel to deployed and next to deploy forces which results
    in lower resource levels among those units resetting and
    starting their initial train up for future operations. Our
    success in maneuvering resources to the fight is substantial.''
    That's very ably said, General. But, you could also read that
    as saying, that perhaps we are sacrificing the preparedness of
    some units for others. With both the Army and the Marine Corps
    indicating equipment readiness rates of 90 percent or higher,
    what about the equipment on hand? How is that impacting overall
    readiness?
        So, General, based on your assessment and your testimony,
    are we in danger of undermining preparedness for some, because
    we have to focus our resources on preparing those who are
    deployed and next to deploy?
        General Lovelace. Ma'am, what we're doing now is basically
    we're taking the Army from a Cold War construct--not only by
    force structure, but how we viewed readiness. Right now, we are
    trying to work our way through a metric that because the data
    that we provide everyone uses a Cold War construct. That's why
    then, when we say that deployed is ready, the next deployed is
    the next most ready. Then at some point you have out here a
    pool that is resetting and that's part of the discussion that
    we have. That's why when we begin to provide a construct of why
    then the supplemental dollars, and what they mean to us, it
    allows us to push the readiness of the force from where it is
    now, to be able to push it to make it more ready in that pool
    of the next deployers.
        Basically the strategy is, ma'am, that we're now looking at
    a strategy where they Army provides a package of capabilities.
    It's basically about 18-plus brigades, with the combat
    support--combat service support. This includes other kinds of
    enablers, whether it's PATRIOT et cetera.
        So that part of the force is ready to go. That part of the
    force is what is deployed, and then another package sets behind
    it, which allows us to be able to surge. Just like Senator
    Akaka asked the question about what are the readiness trends?
    The readiness trends do indicate that the readiness of the
    force is down. But that has to with a lot because of the stay
    behind equipment in theater, the equipment that's being reset.
    I talked about the fact that AMC has grown its capacity by
    almost 250 percent since pre-war levels. We just finished
    resetting the force from the first rotation.
        But, as we begin to sustain with the supplemental effort
    inside what is the AMC, we'll be able to accelerate the reset
    of the force from here on out. So the supplemental is helping
    us then fuel and move the readiness of the force--to increase
    the readiness of the force of the next deployers.
        Then also will help improve the quickness within which we
    reset those that are just returning. That's the basic
    construct. That's in the open session. I'll be happy to take on
    the question and get a little bit into the classified data
    because I think that would be helpful to you, and also allow me
    to seem less awkward in trying to answer it and dodge the
    classification of the question.
        Senator Clinton. I don't argue with the theory. The theory,
    as you describe it, eloquently makes sense as a theory. But
    where the rubber meets the road, and how you actually
    operationalize and implement a theory is what I'm concerned
    about. How would you respond to the concerns expressed by a
    number of outside expert analysts, including Krepinevich, and
    including former Secretary Perry, that we are really stressing
    the military, but in particular the Army, that the all-
    volunteer military could very well be at risk?
        General Lovelace. I've read both articles, and I guess
    that's why when you see how we talk about the Chief talks and
    the Secretary talks about increasing the capacity. That's why
    the growing of the capability from the numbers of Brigade
    Combat Teams (BCTs), where we were in 2003 to where we are now.
    We're at about 39. When you start examining the ability to meet
    the rotational needs inside a theater, you can see that by
    having grown that capacity, it allows us to be better able to
    meet what is the level of effort inside a theater right now.
        Our ability to sustain it is just that. We can't. Now you
    talk about the health of the All-Volunteer Force. That's a
    great question. That is a serious commander's critical
    information requirement. Something that the Chief and the
    Secretary, as well as yourselves are all looking at. That's why
    then we have well-being initiatives. We're looking at
    everything from building strong and ready families. We have
    rest and recuperative leave. The well-being initiatives that we
    have that lay out there that begin to address the challenges
    that we all accept the force is under.
        The numbers are, as I quoted a little bit earlier, is that
    you take the 3rd Infantry Division (ID) that just redeployed.
    Better than 50 percent of that force wore Rock of the Marne
    patch in the theater. Another 12 percent wore a patch of
    another unit. In other words, 62 percent of that division was
    combat veterans. The 4th ID and the 101st, the percentage is
    greater than 40 percent.
        But then I come back and say, let's look at the
    reenlistment statistics. They are just huge. The 3rd ID, 139
    percent last year, while they were in Iraq. As they've come
    back this year, they're punching up at about 169. So that's
    reflective of then how the force--how the soldiers are viewing
    themselves, how they are viewing how well they're being taking
    care of. That's reflective of across the force.
        Senator Clinton. Thank you, General. General Huly, can the
    Marine Corps absorb the requirement to supply 2,600 marines for
    the new Special Operations mission, while going back down to
    the long-term end strength of 175,000 called for in the QDR?
    Today as the Department starts creating this new capability,
    you're at a higher level of 179,000, 180,000 personnel. How
    does that add up?
        General Huly. Yes, ma'am, you're correct. Currently, we're
    at about 180,000 on Active-Duty. But what we're doing today,
    the Commandant is on record--and certainly I agree with him--
    that we feel pretty good about that number, and that's about
    what we need to be to do what we're doing today. To be able to
    absorb not only the 2,600 embedded into the population of the
    175,000 Marine Corps, but to get down to those numbers we have
    instituted a Capabilities Assessment Group that just convened
    down in Quantico, Virginia, this month. We've brought together
    some of our finest operators and support establishment
    personnel to take a look at just how the Marine Corps is going
    to do this and probably by June, we should have a readout and a
    roadmap and a way ahead of how we are going to accomplishment
    it. It will certainly be reported out to Congress.
        Senator Clinton. Good, because I am concerned, Mr.
    Chairman, that there are some reports of internal assessments
    of readiness that are now being classified rather than being
    shared with Congress or the public. I think we should send a
    very clear message that the issue of readiness is of great
    concern to Congress, and to the wider public as well. So, I
    would hope that there would not be any further efforts to
    classify information along those lines. So, I appreciate that.
        I'd like, if I could turn to General Vines and General
    Sattler, and I want to thank both of you for your service in
    Iraq. General Sattler, thanks for hosting me in Fallujah. You
    were the most enthusiastic describer of events that I've
    encountered. I still am remembering with great appreciation
    your success and commitment there.
        I'd like to ask each of you whether you believe that the
    Army and the Marine Corps could improve their jointness in
    operating together as they obviously have been operating
    together in Iraq. The allocation of responsibility for the
    western sector of Iraq to the marines during each deployment
    seems to create a condition where the Services don't need to
    operate as jointly as I would hope they could on tactical
    matters at least. On a recent visit our staff was advised that
    the Army and Marine Corps supply systems were not fully
    integrated.
        So, that even though both may use the same rifle or the
    same vehicle, if one Service needed a part they could not
    easily determine if the other Service already had one. This is
    a small example, but I think that there's great operational
    potential, as well as cost savings potential, in continuing to
    work on jointness. I would just appreciate a comment from each
    of you based on your experience.
        General Vines. Senator, I would be happy address that. You
    have put your finger on what I consider to be our single
    greatest weakness. Not at the operational level, but at the
    strategic level. General Sattler, when he and I served together
    in Iraq, had U.S. Army companies commanded by Marine
    Battalions, which are commanded by Army Brigades, which are
    commanded by Marine Divisions. It was the most joint operation,
    to include supported by Air Force and Navy air. It was the most
    joint operation in theater--conventional forces and Special
    Operations Forces routinely task organized with each other. So,
    at the level in which we're operating in theater, in both Iraq
    and Afghanistan, and I have served both places, it is far more
    joint than it's been in the 35 years that I have served. The
    great 10th Mountain Division is back for its third deployment
    in Afghanistan. It is part of my organization, the most
    deployed force in the Army. It is again fully joint at the
    tactical operational level. But, our systems are legacy
    systems. Logistical systems, intelligence systems,
    communications systems, battle command systems, they all bear
    the stamp of services and not jointness, and you put your
    finger on it. If I want to sent an e-mail to General Sattler, I
    can't currently as we're configured look at a global directory
    and say, Sattler because he's on a different domain. That seems
    like a small thing, but that is just symptomatic.
        So, we have to move toward joint battle command, joint
    asset visibility, joint mobility systems. The men and women on
    the ground wearing the uniform are doing a brilliant job of
    using legacy Cold War systems to fight the 21st century fight.
        Senator Clinton. Thank you, General Vines.
        General Sattler.
        General Sattler. Yes, Senator Clinton. Also, ma'am, I never
    had the opportunity to thank you on your last trip when you
    talked about the $100-plus million to get the reconstruction
    effort moving in Fallujah, that that money did come in not that
    long after your visit. So I know you never got back in touch,
    but I'm sure you had something to do with that, it was much
    appreciated.
        To follow on what General Vines said, during all of those
    operations, you could not have become more joint across the
    theater even though the Multi-National Force West has Al Anbar
    Province, at the time that General Vines and I were there
    together, the 155 Mississippi Rifles were fighting under the
    MEF. That's a complete Army Guard brigade out of Mississippi.
    The 2nd and the 28th is in Ramadi. That brigade commands a
    Marine battalion underneath it, commanded, as General Vines
    said, by a Marine division commander.
        So, it's a complete shuffling of the deck of capabilities,
    with the individual who should be in command or in charge--in
    charge regardless of the uniform worn underneath, ma'am.
        So, I think at the operational and the tactical level we do
    have it. It's never been better. The sharing of forces, if we
    needed anything all we had to do is convince General Vines, as
    you should have to convince to cross-level forces. Forces came
    from the Calvary unit in Baghdad. They came from the Big Red
    One up north. We were constantly passing forces back and forth.
        So I think we could do better in some of the mainly
    command, control, and communications area, but I think we're
    pushing in that direction. It just takes time because it
    changes so fast. I think we get out ahead of each other with
    our enthusiasm on occasion, but that's the one area I believe
    could be roped in better.
        Senator Clinton. Thank you. I will continue, I have a few
    more questions, if that's all right. With respect to our pre-
    deployment training, as you both describe the way that marines
    and soldiers and even Reserve and Guard units have been really
    integrated, how would you assess the pre-deployment training,
    the cross training, the issues about whether everybody who may
    end up in one of those units has the combat skills, or the
    cultural and language sensitivities? Even how you deal with the
    threat of IEDs? How has that training changed, and what more
    needs to be done, General Vines?
        General Vines. Senator, that is a very good story. But,
    it's a fairly late breaking one. As a for instance, the threat
    in Baghdad for IEDs is different than General Sattler faced in
    Al Anbar, different types of technologies, and the threat was
    different. We have done a very good job, I believe, of pushing
    the training requirements to the home station and to the Combat
    Training Centers in places like Twentynine Palms, California,
    to give them the opportunity to train.
        But, what occasionally happens, is a unit will be organized
    and equipped to go in North Babil Province, which is just south
    of Baghdad. The threat will cause us to have to move them to,
    in this case, western Ninawa, which we did. For example, our
    Calvary Regiment we did.
        So, in some cases operational necessity changes the
    requirement to where they will operate. In some cases to take
    how things changed in 2005, we trained--as we went for our
    train up in 2004 we were not organized, trained, and equipped
    to man transition teams which are a key part of our strategy
    now. About the time I arrived in theater, in January 2005,
    General Casey said I need you to change the mission. So, the
    change took place in some cases with forces actually in
    theater. I had some concerns that I expressed to General Casey
    and the Secretary of Defense that we build a certain element of
    risk in.
        War, and indeed life, is about risk and creating the right
    controls to minimize that risk. We worked very hard to do that.
    But, the reality is, I believe we're doing quite a good job in
    terms of using technology so that forces that are preparing to
    come into theater, even 6 months out are listening to our
    battle updates that take place daily. They are listening to our
    video teleconferences that take place daily and weekly. They
    might be back at Twentynine Palms, California, or they might be
    back at Fort Stewart, Georgia. So they begin a virtual link
    with us. They understand what's going on, on a daily basis.
    They understand how the threat is adapting and what sort of
    threat is changing. Is it operating in larger, smaller groups?
    Are they using IEDs, or are the using booby traps, or are they
    using ambushes?
        So, that is a very good news story. I believe we've adapted
    in the space of just over 2 years to an entirely different type
    of fight than our predecessors fought in the early phases of
    Iraq. So, that's very positive.
        There will be the occasion, and I will guarantee you some
    of your constituents will say, I arrived in theater expecting
    to operate down south and I was moved to the north. That
    happens, it absolutely happens and in some cases because we
    have to realign to meet existing threats, or to create
    conditions that allow for transition of battle space to Iraqis,
    so that does happen.
        Senator Ensign. Thank you.
        Senator Akaka.
        Senator Akaka. Thank you very much, Mr. Chairman. General
    Lovelace and General Huly, based on the information you have
    now, what is the total cost to repair or replace the wear and
    tear on your equipment? How much of that cost remains unfunded
    in addition to the supplemental that was submitted to Congress
    only last month? Please describe whether your number only
    accounts for the costs incurred to date. I ask that because
    these costs will grow as these operations continue.
        General Huly. I'm sorry, sir, what was the last part of
    your question?
        Senator Akaka. My question was, and this has to do with
    wear and tear on your equipment, really I'm talking about reset
    costs.
        General Huly. Yes, sir.
        Senator Akaka. I'm asking, how much of that cost remains
    unfunded in addition to the supplemental that was submitted to
    Congress only last month?
        General Huly. All right, sir. What I know today, my costs
    to reset the force is $11.7 billion. $5.1 billion of that has
    been funded. If my math is correct, that leaves me with a $6.6
    billion unfunded for what's pending today.
        General Lovelace. Sir, on the Army side, the reset of the
    force each year is going to be somewhere between $10 and $13
    billion. In fiscal year 2006, the number is $13 billion. Then
    in 2007, sir, like you were saying earlier, it's hard to--I
    think maybe Senator Ensign had said this--be able to forecast
    exactly what is. But again, that figure each year will run
    between about $10 and $13 billion, depending on the level of
    effort in theater.
        Then again, my caution, sir, is that when I say this, that
    if all of a sudden at some point in time when the numbers of
    BCTs drop off, there's going to be an immediate return and less
    money is needed. As I was indicating earlier, the force in
    being that is being reset takes about 1 year to 18 months to be
    able to get that done. Those are the dollars that the
    supplemental is fueling. So, that's why when the Chief and the
    Secretary comment that it takes 2-plus years worth of reset
    dollars to be able to get yourself to the point to reset the
    force. That's what they're talking about, sir.
        Senator Akaka. Yes, thank you for your responses here. This
    is a very difficult kind of question and answer to it because
    of time and whether needs are great or not, so I thank you for
    that.
        General Sattler and General Vines, I'd like to ask about
    equipment shortages. Can you describe the extent in which
    you're able to what is mentioned as train as you fight at the
    home station given this shortage of equipment back in the
    United States when so much of our equipment is needed for the
    units currently deployed to Central Command (CENTCOM).
        My question to you is, how do you strike a balance when
    allocating equipment among units? Let me give an example.
    Protecting our forces in a high threat environment in Iraq and
    Afghanistan, our forces there must be at our top priority. Yet,
    several hundred personnel have been injured in accidents when
    driving armored vehicles, that they do not have the opportunity
    to drive in training back home, because all our armored
    vehicles are needed in CENTCOM.
        How is this discrepancy between the requirement to use
    armored vehicles in the theater and the shortage of such
    vehicles for training being handled?
        General Sattler. Senator Akaka, as I mentioned, sir, you
    are correct. We do not have full suites of equipment back here
    in CONUNS to go ahead and train on, and what the individual
    commanders from the division commanders, squadron commanders,
    Marine logistics group commanders, they orchestrate the
    training so that we can actually pass equipment back and forth
    to ensure that the individual warriors have no down time or
    dead time where they're waiting for equipment. But we set their
    training schedules so that they can basically share some of the
    high demand and currently low-density items here in the U.S.
        In the case of the armor, as you well know, Senator, the
    first thrust was to get the protection forward where it was
    needed, where we needed to save life and limb. So all of the
    armored vehicles as they came off the assembly lines, or in
    those cases, where we modified vehicles, 100 percent went to
    fill the need in the theater. We are now in the process and
    have been putting items, as you mentioned, the center of
    gravity is different from an armored vehicle than it is from a
    normal Humvee, and we understand that, sir. We train that, and
    we teach that to the individual men and women who will be
    driving. But as we have now cross-leveled the armor in the
    theater we are putting more and more of the armored 7-ton
    trucks and the armored Humvees in the hands of the trainers
    back here in the United States. So there was a gap for a period
    of time. We covered it by training, and instructing, and then
    we covered it by transitioning the men and women when they got
    to the theater--when they got into the Humvees with the higher
    center of gravity, that they would understand that they had to
    go at a slow pace to get the feel for the vehicle. But we are
    now doing it in the United States, Senator.
        Senator Akaka. General Vines?
        General Vines. Senator, two points. At the individual
    level, the things such as driving vehicles with a different
    center of gravity, we had to shift equipment around in the
    United States. Then we had to make sets of it available in
    places like Kuwait, as forces moved though. That was our
    mitigating strategy. They did not get as much time as we might
    have liked, but they got--drivers for example--access to those.
        What we have not yet been able to fully mitigate is, are
    more specialized pieces of equipment such as engineer equipment
    that is unique to the theater, very high-demand, low-density,
    complex equipment that is used to find and defeat IEDs.
    Sometimes that equipment is only available in the theater and
    so the vast bulk of our soldiers have operated the kinds of
    equipment they're expected to operate before they ever go into
    Iraq or Afghanistan.
        The piece that we have not yet totally resolved is allowing
    the staffs to do all the requisite training. How you would
    employ some of the engineer equipment to support an infantry
    movement, so you have mobility assurance, for example.
        All the planning necessary to do the electronic
    countermeasures, and using the complex engineer equipment,
    sometimes can only be trained with that equipment. Pieces of
    that equipment are only available in Iraq and Kuwait, in some
    cases. That is still only happening in the theater, sir.
        General Sattler. Senator, if I might add to what General
    Vines said. There is also a right-seat/left-seat ride period
    which all soldiers and marines adhere to. In other words, when
    I come in, the unit that I'm replacing is there, we spend 2
    weeks--it's called right-seat/left-seat, where I watch--General
    Vines is driving, I'm the student--then we switch places for
    the second week where it's how we bring the incoming unit up on
    ramp to pick up all the nuances of equipment and tactics,
    techniques, and procedures. That's the final phase after the
    training in the United States, the training in country, and
    then the right-seat/left-seat ride, Senator.
        Senator Akaka. Yes. Thank you very much.
        Mr. Chairman, I have other questions I'll submit for the
    record. Thank you for the responses.
        Senator Thune [presiding]. Thank you, Senator. I have a
    couple of questions, and I think then we'll try to wrap up. I
    want to thank you all for your testimony and appearing today
    and sharing with us your views on this very important subject.
    I also am very interested--and I know you've already covered it
    extensively about the operating--the equipment and the demands
    that we placed, and the need to replace some of those equipment
    and the investment we need to make in that. That's something I
    know that I think has been covered, it sounds like from your
    testimony, as well as to responses to questions already, so, I
    won't get into that.
        General Huly, could you expand a little bit on the Combat
    and Operational Stress Control (COSC) Program? Particularly,
    what are the decompression requirements that commanders monitor
    as part of the COSC training?
        General Huly. Sir, I could, but I think I should refer to
    General Sattler.
        Senator Thune. Okay. General.
        General Sattler. Senator Thune, when you're preparing to
    come out of the theater, we have a warrior transition program,
    where each unit pulls everyone together in a group-type
    session. Then everyone is addressed over a number of sessions,
    and we explain some of the things, the anxieties that may not
    seem normal to them at the time or upon arrival back. It's done
    in a group so that the leaders will understand the signs, so
    they can look for it in their junior marines, inside themselves
    or in their peers.
        When you come back, there's additional warrior transition
    training and phasing that happens once you get back to CONUS as
    a unit. Then there's a 30-, 60-, 90-, 120-day re-contact with
    each individual. Now each individual who is there is contacted
    by someone in their chain of command, to include those
    reservists that may go on back out into the hinterland. There's
    a call list, that individual is contacted, asked a series of
    questions to give them the opportunity to open up in case
    they're experiencing these types of problems.
        Sir, the same thing that makes a marine and a soldier have
    that warrior ethos and lean forward and stay in the attack,
    it's the same block that precludes that individual from going
    forward and asking for help if they don't think something is
    wrong because they feel it's less than warrior-like to have
    these kinds of thoughts or to have this kind of stress.
        So, we really lean forward from the senior enlisted
    leadership and officer leadership to make sure everyone
    understands this is normal. It needs to be treated just like a
    combat wound. There's nothing unwarrior-like in your ethos if
    you come forward with these problems.
        So, we're working it hard. It's a tough nut to crack but
    we're staying after it, sir.
        Senator Thune. Thank you.
        General Sattler. Institutionally, sir, I can just tell you
    that same theme is running throughout the entire United States
    Marine Corps. I think, if anything, there's a recognition that
    this is a concern. It's an issue. There's an awareness by
    everyone, not just our religious leaders and as well as our
    medical professionals, but leadership at every level, and the
    institution is recognizing this. That's a big change just in my
    time in the Marine Corps, my short 36 years that I've been in.
    I can see that this is accepted in a much different way.
        Senator Thune. Thank you. I appreciate both of your answers
    to that. We're riding our folks hard. I think we have to expect
    that there are certain transitional issues when they come back
    that need to be dealt with. So it sounds like you're very much
    on top of that and I welcome and appreciate your answer.
        Based on your written testimony, General Huly, what was
    your experience with the gap that existed between a marine's
    transition from DOD to the Veterans Administration (VA)? Prior
    to the Marine for Life Program, what lessons have you learned
    so far in easing that transition from DOD to VA with the Marine
    for Life Program?
        General Huly. We weren't doing a bad job before, sir. But
    we're doing a much better job now and we're personalizing it.
    We have much better coverage with our liaisons that are out
    there now, that are giving us a much better feel.
        First off, we now have a better line of communications to
    track the individual when he leaves the purview of the Active
    Marine Corps and he enters the VA system. We are actually
    educating the individual himself. It starts at that level, so
    he now understands that he has a point of contact back to the
    Marine Corps if he feels he's getting shorted or he has a
    concern or a problem. So just having that individual himself
    know that there's someone out there that he can touch and get
    his concerns aired and seek a resolution to his problem, other
    than someone just in the VA.
        Having someone work with the VA through our Marine for Life
    coordinators and our program managers out there has also paid
    us great dividends so that the VA understands what our concerns
    are, what the individuals concerns are, the Marine Corps as an
    institution concerns are, and it gives us a much better insight
    to what the VA programs are and how we can actually seek help.
        We now have a conduit, a lynchpin, if you will, to bridge
    the gap between the two, and it's someone in the local
    community, and it's proven very helpful.
        Senator Thune. Excellent. Any of you have any closing
    comments or observations you'd like to make before we wrap up?
        General Sattler. Sir, I would just like to reiterate one
    more time. We're proud to be representing the country in what
    we do. We're not shying from the fight at all. We're there, but
    this is in fact, incurring a cost. It's a cost that, on average
    per year it's taken us about $3.5 to $4 billion a year to
    maintain our operations and maintenance at this higher tempo.
    We've incurred a cost of over almost $12 billion to reset the
    force.
        We can't do it all in 1 year, and just giving us money all
    in one lump sum is not going to solve our concerns long-range.
    It's going to take some supplemental funding and I have to do
    it by supplementals because my annual budget is not big enough
    to pay off the bills that we're incurring to reset the cost.
    It's going to take a number of years after we cease operations
    at this pace to get the Marine Corps back to the level that we
    need to be able to continue to operate in the future.
        Senator Thune. Okay. Thank you.
        General Huly. Thanks for the support you've given us so
    far. I'm not here with my hat in my hand. But I'm just telling
    you as it is, we're going to continue to need help in the
    future. Thanks for what you're going to do too.
        Senator Thune. General Vines.
        General Vines. Senator, I would have to say that if those
    of you had the opportunity to see the young men and woman in
    uniform, as General Sattler and I did in Iraq, you would
    probably, as we are, be in awe of them for what they do on a
    daily basis. They take enormous risks on our behalf. They see
    that there are people in that part of the world, if given the
    opportunity would strike this Nation and this Homeland again.
    They understand that there's risk in what they do. But, they
    believe in what they're doing. They understand it's necessary
    for our national security. They need our continued support. Not
    just fiscally, but they need our support, not only from our
    Government, but from our people. So as our elected
    representatives, if we continue to make the case, if you can
    make the case of what is at stake, and why we need to continue
    to support the efforts of our men and women in uniform.
        General Lovelace. Sir, I've been back at the Pentagon
    almost 4 years now. I'm just about out of Purgatory here. But,
    it's been interesting for me in the 4 years to see because I
    came back on the run up of 1003 Victor. There's never been a
    busier time in our Armed Forces. It's a confluence of BRAC,
    global repositioning, we're transforming the force, we're
    modularizing, we're preparing to go to war. When you get to the
    confluence of that it puts the Army under a challenge. But, the
    Army's coming out of this better than it was. That's why then
    when you get into, and we talk about resetting and being able
    to man the top line within the total Army authorization--
    authorities and what we get. But, when you look at the
    investment that you all are making and what we're doing with it
    and the increase in the capability, filling in the holes, not
    only in the AC, but as importantly in the RC as it has become
    part of the operational force, that's a big deal. The resetting
    of this force has taken some time. It doesn't happen overnight.
        I think we've all testified to that this morning. That's
    why then--when the effort, and we ask for the supplemental
    dollars, what they do is they allow us to have the AMC at 250
    percent of what was--it's capacity at the beginning of the
    conflict. Or U.S. Army Training and Doctrine Command (TRADOC)
    being able to push out 200 percent of what it was from 2001.
        Those kinds of investment are what has now made the Army
    more agile and able to take on all of these challenges that lay
    out there. So I think it's been a pretty good investment. On
    the other hand, sir, like I said, as we started out: Is the
    Army ready? You bet it is. Is it as good as it needs to be? No,
    but it's going to get better. It's the support that we get from
    you all day-in and day-out, both the financial and also the
    moral support, which means a great deal. I just want to thank
    you.
        Senator Thune. Thank you. As a closing comment and
    observation, I want to start by again thanking you for your
    extraordinary service to our country. Please extend to those
    who serve under your command our appreciation for the good work
    that they're doing. It's often under-appreciated by the
    American media and by some in this country. But, I'll just say,
    on behalf of this Senator, and I think the majority of folks
    who serve on this committee, and hopefully in Congress, you can
    count on our continued support. We understand and believe in
    what we are doing, the mission that's been undertaken and the
    need to see that the resources are there to do all of the
    things that you have to do even after operations cease.
        General Huly, we know full well that we have to put the
    dollars into the budget to make that happen. I'm one who, along
    with a number of others and members on this committee, believes
    we don't have enough in the top line, that we need to be
    investing more because there's nothing that's more important.
    The rest is all conversation if we don't take care of our
    national security and the people who are out there defending
    our freedom. So, thank you for everything you do. You can count
    on our continued support. Please, again, extend our greatest
    appreciation to those soldiers who are serving under your
    command. Let them know how much this committee and Congress and
    the American people, I think the broad majority of the American
    people, appreciate their efforts and the good work they're
    doing.
        So, thank you very much. With that, the hearing is
    adjourned.
        [Questions for the record with answers supplied follow:]
                   Questions Submitted by Senator John Ensign
                               equipment transfer
        1. Senator Ensign. General Lovelace, General Vines, and General
    Sattler, the National Defense Authorization Act (NDAA) for Fiscal Year
    2006 included a provision that gives the President the authority to
    transfer up to $500 million of defense articles to the military and
    security forces of Iraq and Afghanistan. Have any defense items been
    transferred, or are there current plans to do so under this provision?
        General Lovelace. This authority has not been used to date to
    transfer Army equipment to the security forces of Iraq and Afghanistan.
    However, the Army is reviewing requests from the Combatant Commands for
    equipment and fully intends to assist, consistent with Army readiness
    requirements.
        Recently the Multi-National Security Transition Command-Iraq
    (MNSTC-I) requested HMMWVs, materiel handling equipment, and generator
    sets from the Army. Since none of the requested equipment is excess to
    Army needs, any transfer would likely be accomplished as part of a
    Foreign Military Sales case (section 21, Arms Export Control Act) where
    MNSTC-I provides the Army with a reasonable level of reimbursement for
    the equipment transferred. Once the Army has the funds, it will use
    them to procure new HMMWVs although the quantity procured will no doubt
    be fewer than the quantity transferred. The advantage to the Army
    however, is the ability to procure new equipment. The advantage to
    MNSTC-I is the rapid availability of fully mission-capable equipment
    already in theater.
        Should the Army decide to approve MNSTC-I's request, there will be
    an accompanying sustainment package of spare parts that will likely be
    transferred under the NDAA for Fiscal Year 2006 provision authorizing
    transfer of defense articles. Also, any refurbishment work on the
    equipment will also fall under the NDAA for Fiscal Year 2006 provision.
        No longer under the Army's control is equipment previously
    designated as excess and transferred to the Defense Reutilization
    Marketing Offices (DRMOs) including individual soldier equipment such
    as older versions of the Army's Kevlar helmet and older sets of body
    armor. The Army has encouraged MNSTC-I to coordinate directly with
    appropriate DRMO authorities to acquire these items.
        General Vines. Defense items, including Iraqi Ministry of Defense
    purchased uparmored High-Mobility Multipurpose Wheeled Vehicles
    ((HMMWVs), have been transferred to the Iraqi security forces). MNSTC-
    I, not Multi-National Corps-Iraq (MNC-I), oversees these equipment
    transactions.
        The goal of these equipment transfers is to provide the Iraqi
    security forces with equipment comparable to that employed by other
    coalition forces, specifically armored vehicles to provide protection
    against Improvised Explosive Devices. To prevent fratricide between
    coalition and Iraqi security forces, a marking system was devised for
    the latter's up-armored HMMWVs.
        There is an ongoing effort both at MNC-I and MNSTC-I to ensure that
    the coalition and Iraqi security forces are properly equipped for the
    mission.
        General Sattler. No, the Marine Corps has not made such a transfer
    under Public Law 109-163, the NDAA for Fiscal Year 2006, nor are there
    any current plans to do so under this law.
        However, we have conducted transactions ``. . . under the authority
    of Emergency Supplemental Appropriations Act for Defense, the global
    war on terror, and tsunami relief, 2005; Division A, Public Law 109-
    13.'' These Pseudo-Foreign Military Sales case actions have included
    selling 1,863 5-ton cargo trucks, with the funds received paying for
    the replacement end item procurement of Medium Tactical Vehicle
    Replacements in accordance with ``Sale from Stock'' laws and policy.
    Additionally, the Marine Corps Systems Command (MARCORSYSCOM) has
    processed a second Pseudo-MFS case under the same authority (Public Law
    109-13) to sell 129 900-series wreckers and provide repair work on them
    prior to shipment. This 900-series wrecker case was approved by DSCA on
    6 April 2006. MARCORSYSCOM will be paid for these trucks and for the
    associated repairs. Transportation to theater will be paid by MNSTC-I.
        There have been other requests for end items, and the Marine Corps
    has provided a list of additional equipment that it could sell from
    stocks if desired.

                              readiness assessment
        2. Senator Ensign. General Huly, in your prepared testimony, you
    state that the Marine Corps, while continuing to meet its global war on
    terror requirements, ``is operating with increasing risk in equipment
    readiness to support deployed forces.'' Can you elaborate on that
    statement?
        General Huly. The Marine Corps places its highest priority on
    sustaining the equipment readiness of its forward deployed forces.
    However, this readiness prioritization has come at the expense of our
    strategic prepositioning programs, in-stores equipment stocks, and the
    equipment readiness of units back home. We have significant
    deficiencies in these areas. As we reset the force, we are addressing
    the deficiencies in the equipment available to our units at home
    station and in our strategic programs. Resetting our force to prepare
    for future crises and contingencies will require sustained support from
    Congress in the form of supplementals. The cost to reset within annual
    budget procurement allocations would defer all our modernization
    programs and take more than 5 years even if we assume a period of
    routine peacetime training with minimal operational requirements.

        3. Senator Ensign. General Huly, at the current operations tempo,
    how long can the Marine Corps go before this risk affects the readiness
    of deployed forces and forces getting ready to deploy?
        General Huly. As previously stated, our deployed units and
    deploying units have what they need. Our deficiencies continue to be
    addressed via our supplemental requests. Thank you for your continued
    support. The majority of our previously identified deficiencies have
    been funded, but projected delivery schedules extend well into the
    future. The interim impact is negatively degrading the readiness of
    units that are not deploying or directly supporting the global war on
    terror. We are equipping these units with enough equipment to sustain
    their unit training, while preserving two of our Maritime
    Prepositioning Ship squadrons to provide supplemental equipment as part
    of a contingency response to any emergent requirement.

                            national guard equipment
        4. Senator Ensign. General Lovelace, Lieutenant General Blum
    recently reported that the National Guard has less than 34 percent of
    its authorized equipment here at home. The equipment shortfall is
    partially because many units have been forced to leave their equipment
    in theater for follow-on forces. This could affect the Guard's ability
    to respond to emergencies. Replacing this equipment will take quite
    some time. What is your plan to ensure National Guard units have enough
    equipment on hand ``now'' to provide adequate training for their
    soldiers, and ensure that they can respond to whatever emergencies
    might arise?
        General Lovelace. The Army National Guard (ARNG) component had
    about 65 percent of its authorized equipment in September 2001 and has
    contributed 8 percent of its authorization to theater for use by
    successive rotations of Active and ARNG units. It has another 21
    percent of its authorization in deployed units or in reset, 26 percent
    at home and available for deployment to Iraq and Afghanistan. It also
    has about 10 percent of its authorization at home and available for
    most missions that are not constrained by unique operational
    requirements like what we have in Iraq.
        The Army experienced years of underfunding prior to September 11
    that resulted in a $56 billion ``hole'' in readiness caused by
    insufficient modernization to fill existing shortfalls and emerging
    needs. Shifting equipment to fill holes and emerging requirements in
    deployed and deploying units deepens the holes in training and rescuing
    units. Equipment redeployed to prepositioned stocks and home station is
    not available for mission support or training until it is reset through
    repair or recapitalization. Equipment lost through battle damage or
    worn out through operational tempo must be reset through replacement to
    support our soldiers in more capable units and to sustain our long-term
    commitments at home and abroad.
        The cyclical nature of deployment rotations enables us to
    prioritize the distribution of equipment to fill holes in units closest
    to their next deployment date. This ensures units have the right types
    and amounts of equipment to support their training needs as they reset
    and progress through the levels of readiness for deployment.
    Nondeployed units in all Army components, especially those in our ARNG
    component, must remain ready for homeland security and defense
    missions, such as natural disasters that may also occur in cycles.
        We have identified essential capabilities in a baseline equipment
    set for homeland defense and security and we are prioritizing the
    delivery of this equipment to the ARNG as soon as practicable. As
    examples, we plan to equip the ARNG by August 2007, with 100 percent of
    their Land Mobile Radio Systems--intra-squad radios that are compatible
    with local, State, and Federal radios. We have also accelerated
    fielding plans to replace the Army's oldest truck models by the end of
    September 2009, the majority of which are in the ARNG. We have also
    increased and fenced Reserve component investment accounts fourfold to
    $21 billion for the ARNG and $3.6 billion for the Army Reserve in
    fiscal years 2005-2011.
        Fiscal year 2007 will be pivotal for the Army. The anticipated
    supplemental funding to reset and protect forces in all Army components
    will enable us to protect our investment accounts and accelerate
    transforming the ARNG into a more capable and ready force.

                                    reserves
        5. Senator Ensign. General Lovelace and General Huly, current law
    states that reservists are eligible for involuntary mobilization of
    periods of up to 24 consecutive months. Subsequent Department of
    Defense (DOD) policy has sought to minimize the strain on reservists by
    limiting mobilization to 24 cumulative months. Moreover, DOD has
    attempted to limit reactivation to volunteers, reservists have either
    been deployed once or have been queued for deployment in upcoming
    rotations. In the Marine Corps' case, almost all, if not all, of their
    Reserve units have been mobilized at least once. Assuming operations
    continue at the current level, what are your plans regarding the use of
    the Reserves?
        General Lovelace. We will continue to utilize Reserve component
    soldiers in accordance with law, established policies, and DOD
    directives.
        General Huly. The Marine Corps' initial plan was based on published
    DOD policy that all reservists can be activated for a total of 24
    cumulative months. However, OSD has further restricted the policy by
    requiring those marines who have previously been activated to volunteer
    for subsequent activations, rendering U.S. Marine Corps planning
    assumptions invalid. The Marine Corps desires to reactivate units after
    24 months home station dwell time in order to fully utilize individual
    activation time. Assuming operations continue at the current level, the
    Marine Corps will continue to work within established policy to find
    creative sourcing solutions.

        6. Senator Ensign. General Lovelace and General Huly, will the
    policy regarding one mobilization need to be changed?
        General Lovelace. Title 10 U.S.C. 12302 states that reservists will
    serve ``not more than 24 consecutive months.'' Current DOD policies (20
    Sep 2001 Mobilization Policy Memo from USD (P&R) to the Assistant
    Secretaries) are 24 cumulative months of involuntary mobilization. The
    Secretary of Defense is the sole approval authority for all involuntary
    remobilizations and at this time, he does not approve any involuntary
    soldier remobilizations.
        General Huly. Yes. The Marine Corps considers all members of the
    Selected Reserve as volunteers for activation by virtue of their
    agreement to serve in either a Marine Corps Reserve (USMCR) unit or in
    an Individual Mobilization Augmentee (IMA) billet. Since the
    declaration of a Partial Mobilization (EO 12223 of 14 Sep 01), the
    Marine Corps planning guidance called for a 12-month activation period
    with a 7-month deployment followed by deactivation, a period of dwell
    time, and if required, a second subsequent 12-month activation. The
    only exception in the Marine Corps was the need to activate aviation
    units for 2-year increments. This plan was designed to enhance the
    Marine Corps' warfighting capabilities through maximum integration with
    the Active component (AC) 7-month rotation schedule while additionally
    focusing on minimizing Reserve attrition and increasing retention.
        Without involuntary reactivation authority, the USMC is required to
    source units/detachments from declining pools of never-activated
    marines (in general very junior in grade and experience) and previously
    activated volunteers from a myriad of sources. Current DOD policy
    limits the member to one involuntary activation. The Marine Corps
    recommends that DOD policy allow the Marine Corps to access each member
    for the full statutory activation authority of 24 months. Doing so will
    relieve pressure on individual members to volunteer for subsequent
    activations and deployments. Currently, the burden for meeting
    operational requirements is on the individual member who, when
    considering whether to volunteer, must decide between service to the
    country and loyalty to fellow marines on the one hand, and hardship on
    the family and their civilian employer on the other.

        7. Senator Ensign. General Lovelace and General Huly, has there
    been any discussions with the Secretary of Defense's office regarding
    changing this policy?
        General Lovelace. The Army has never asked in writing that the
    Secretary of Defense change the 24-month cumulative policy. We
    frequently communicate to OSD the stress that the 24-month cumulative
    policy places on our ability to provide cohesive units to the combatant
    commander.
        General Huly. Yes. The issue has been raised in the Reserve
    Component Utilization Policy Forum as the Services, Joint Staff, and
    OSD have looked for ways to manage use of the Reserve component.
        The Marine Corps has identified several issues with the current
    policy regarding one mobilization. The policy has adversely impacted
    the Marine Corps because it puts the onus for deploying Service
    capabilities on the back of the individual marine and sailor. Family
    and employers know the marine's second activation is voluntary.
    Additionally, the policy creates a morale problem in deploying units.
    An emotional wedge is driven between the marines that volunteer for
    reactivation and those that do not. Finally, the policy disrupts unit
    cohesion and limits unit training prior to activation, while earlier
    activation for training uses cumulative activation time.
        The Marine Corps recommends changing the policy to authorize
    involuntary activations for up to the full 24 months, even with prior
    activation, including recall of the Individual Ready Reserve (IRR).

        8. Senator Ensign. General Huly, if the policy for just one
    mobilization continues, did the Marine Corps make things harder for
    itself by establishing 7-month deployments?
        General Huly. The Marine Corps policy of 7-month deployments for
    battalion and smaller units was based upon the fact that normal Marine
    Corps deployments are approximately 7 months and the assumption that we
    would have authority to reactivate units in order to access members for
    the full 24 months of activation time. Current DOD policy, however,
    limits members to one involuntary activation. This has invalidated the
    original planning assumptions. Operationally, the 7-month policy
    without the ability to reactivate units has resulted in the loss of
    nine battalions worth of rotation availability.

        9. Senator Ensign. General Lovelace and General Huly, what is being
    done to balance the increased demand on the Active component as the
    availability of reservists diminishes?
        General Lovelace. The Army is transforming and rebalancing the
    force, while supporting the Joint Staff's continued effort to explore
    in lieu of sourcing options. Transformation and rebalancing are ongoing
    initiatives and will take time to complete. In the interim, the Army
    will rely more on Active component units to deploy in support of
    Operation Iraqi Freedom (OIF) and Operation Enduring Freedom (OEF).
    Once transformation is complete, the Army will be able to continuously
    provide combatant commanders with a force of approximately 174,000
    soldiers for steady state operations, which includes no less than 14
    Active and 4 Reserve component combat brigades. These numbers are
    predicated upon assured access to the Reserve component. The Army is
    also rebalancing the Active and Reserve component with the goal of
    converting 120,000 of force structure between fiscal year 2004-fiscal
    year 2011. The rebalancing will invest in areas of high demand in the
    long war on terrorism such as military police, civil affairs, PYSOPs,
    and Special Forces.
        General Huly. As the Marine Corps continues to expend available
    access to Reserve component units and individual marines, we are
    increasingly filling OIF/OEF shortfalls through in-lieu-of (ILO)
    sourcing from the Active component. In order to mitigate some of this
    stress and free more marines for combat duty, we have asked the Navy
    and the Air Force to provide support in other areas (JTF Horn of
    Africa, JTF staff billets, etc). We have also sought efficiencies from
    those conventional combat forces in lesser demand; for instance, within
    the Active component, our artillery units continue to fill important
    gaps in functional areas outside their core competencies like: motor
    transport, civil affairs, and military police. With the combination of
    these ILO solutions and simply increasing the deployment tempo for our
    Active Force, we are managing to meet our force presence requirement in
    Iraq, Afghanistan, and still maintain our forward deployed naval
    presence missions.
        From the Reserve component, we continue to seek volunteers to fill
    HQ billets or individual shortfalls in Active units. To date, this
    practice has yielded a sufficient number of marines; though our
    analysis shows that this will soon dry-up without involuntary access to
    our Select Marine Corps Reserve (SMCR) and IRR Marines. For Reserve
    units we are increasingly forced to ``cross-level'' marines from
    several different Reserve component units to make a Reserve unit that
    is ``healthy'' enough to train and deploy. There are significant short-
    and long-term institutional costs to this; it strips units in
    Continental United States (CONUS) of key leadership and ultimately
    increases risk to the operational commander who gains a unit without
    the same level of cohesive team work and experience one would normally
    expect or desire in combat situation.
        Our mitigation in both the Active component and Reserve component
    is being closely monitored. We remain aware and concerned of the long-
    term implications of these actions. Specifically the potential long-
    term loss of balanced combat power as our Active component combat
    support units cross train outside of their core competency and the
    gradual loss of leadership in those Reserve component units remaining
    in CONUS after their officers and senior enlisted cross-level to
    deploying units.

                              iraqi training teams
        10. Senator Ensign. General Lovelace and General Huly, the Services
    have been deploying key unit leaders separately from their units so
    that those leaders can support training teams that are helping the
    Iraqis build their military and other institutions. In some cases, this
    has left deploying units with more junior, inexperienced leadership, or
    has led the Services to take leaders from one unit to deploy with
    another. As a result, units are experiencing shortfalls in critical
    capabilities at the same time that they are going through extended
    deployments. What effect is the policy of deploying key unit leaders
    having on unit readiness?
        General Lovelace. Yes, the Army is deploying leaders to support
    transition teams in Iraq. When the Army is required to deploy leaders
    from operational forces, unit readiness is challenged. This is true in
    peace and during war. These challenges are mitigated by cross-leveling
    leadership; ensuring junior leaders continue their military education;
    maintaining realistic pre-deployment training; and through the unit
    training certification which commanders are responsible for prior to
    deployment to an area of responsibility (AOR). These mitigations,
    although exacerbated by wartime demands, are cyclical in nature; the
    Army continues to show appropriate readiness posture in support of the
    global war on terrorism and maintains its capability to provide combat
    ready forces when required.
        General Huly. Marines are instructed at every level to continually
    prepare to assume the responsibilities of the next higher rank and/or
    billet. This truth is well entrenched in our doctrinal creed and its
    importance is never more relevant than those instances when our Nation
    is actively engaged in military conflict. Our readiness reporting
    system does not track the subtle difference when any leader has been
    replaced by someone junior or less experienced. Its scope is
    constrained to those units that are lacking leadership. As our general
    officers have testified, our deployed units and deploying units have
    what they need. The impact is negatively degrading the readiness of
    units that are not deploying or directly supporting the global war on
    terror. Supervising and training these units is where the Marine Corps
    has accepted risk and to date that risk is manageable.

        11. Senator Ensign. General Vines and General Sattler, have you
    seen any adverse effects in the combat capability of units that have
    had their leadership ``lent'' out to Iraqi forces?
        General Vines. No. The key leadership of U.S. battalions and
    brigades that provide ``out of hide'' transition teams remain largely
    intact commanding and leading their formations. For example, in the
    case of a battalion, which is assigned two majors, one major is used to
    form the transition team while the other remains with the battalion.
    Although this causes the remaining major to pick up some of the duties
    of the major assigned to the transition team, this is mitigated by the
    transition team's geographic proximity to its parent unit which allows
    regular contact between the unit and the team members. Once the parent
    unit completes its mission and prepares to redeploy, the transition
    team returns to the unit and redeploys with it.
        Additional expansion: In most cases, the unit that provides the
    manpower for an ``out of hide'' transition team also partners with the
    same Iraqi unit. The inherent teamwork already established between the
    transition team and its parent unit allows a greater degree of
    mentorship and development of the Iraqi unit.
        General Sattler. Whenever more experienced senior leadership is
    taken away from a unit there is a potential for some degradation of
    capability. In the Marine Corps, selected key unit leaders from
    deploying units have been assigned to Iraqi units partnered with their
    parent Marine unit; groups of these leaders are called transition
    teams. We have taken some of our ``best and brightest'' leadership from
    the deploying units to enhance the ability and opportunity for success
    of the various transition teams. During our comprehensive predeployment
    training program, however, we continued our tradition of leader
    development ensuring our officers and noncommissioned officers (NCOs)
    were thoroughly prepared to lead their units. In all cases, the next
    senior leader stepped up to the plate and capably filled the potential
    void. No unit deployed without competent leadership.
        What we have discovered thus far is that the larger U.S./Iraqi
    formation is far more capable than the U.S. and Iraqi units working
    independently. We have also realized that a ``high powered transition
    team'' produces high powered results! One of the most successful
    battalions in the Multi-National Force (MNF)-West zone of action has
    taken the notion of transition teams and partnership a step further by
    aligning Iraqi and U.S. small units in widely dispersed locations. This
    has led to rapid skill growth in the Iraqi formations and improvements
    in the local security situation.
        The decision to commit some of our more experienced leaders to the
    transition teams is an operationally acceptable risk to ensure the
    success of the Iraqi formations and aid in the overall victory in Iraq.

        12. Senator Ensign. General Vines and General Sattler, how
    important are these teams to ensuring the Iraqi army is capable of
    conducting effective combat operations?
        General Vines. They are vital to ensuring success. Iraqi units
    supported by robust transition teams and a strong partnership with
    their U.S. counterpart unit, develop much faster with stronger leaders
    and greater combat capabilities.
        General Sattler. As previously stated, these transition teams are
    invaluable to the training and mentoring of the Iraqi formations and
    the overall victory which we mutually seek for Iraq. Without viable,
    stable, competent, and professional Iraqi security forces, there can be
    no eventual support and success for a democratic Iraqi Government. The
    transition teams are critical to training/mentoring the Iraqi security
    forces into a professional force. These teams provide an example for
    the Iraqi officers and enlisted to emulate. Depending on the experience
    level of the Iraqi unit, the teams provide training, guidance, and
    expertise on all aspects of a functioning military force. Therefore,
    the risk incurred in providing the ``out of hide'' leadership to the
    transitions teams, at the present time, is supportable.

                                    training
        13. Senator Ensign. General Lovelace, the Army is in the process of
    transforming itself into a more modular, easier to deploy force. This
    process will increase the number of Brigade Combat Teams (BCTs)
    available for deployment to 70. The National Training Center at Fort
    Irwin and the Joint Readiness Training Center at Fort Polk are already
    operating at or near capacity. How does the Army plan to ensure that
    all of its new BCTs are fully trained and certified to be ready for
    combat?
        General Lovelace. The Army has completed a holistic review of our
    Combat Training Center (CTC) program and is fine tuning the
    recommendations and resource strategies which will transform this
    critical training and readiness enabler to meet modular force readiness
    requirements.
        The Army actually has three maneuver combat training centers which
    focus on BCT readiness. In addition to the training facilities at Forts
    Irwin and Polk, we also use the Joint and Multinational Training Center
    (JMTC) at Hohenfels, Germany. Our existing training capacity at these
    three maneuver combat training centers is between 28-30 BCT events
    annually.
        The Army has developed a force generation model to manage the
    readiness levels of the BCTs throughout their various cycles, and
    ensure we meet combatant commander requirements for land forces. We
    develop ready Active component BCTs over a 3-year lifecycle and
    National Guard BCTs over a 6-year lifecycle. These lifecycles include a
    steady progression of soldier, leader, and unit readiness over time,
    with the assumption of a 1-year operational deployment window at the
    peak of their readiness cycle.
        Forty-two of the 70 BCTs will be in the Active component. One-third
    of them will have a combat training center event near the end of their
    first year of training, focusing on Army core mission essential tasks.
    Another third will have a maneuver combat training center event near
    the end of their second year of training, focusing on operational
    mission specific tasks and unique characteristics of the deployed area
    of operation.
        Twenty-eight of the 70 BCTs will be ARNG units. These BCTs have a
    different readiness strategy to account for their respective State
    missions in a State-Duty status, and their part-time training status.
    Our readiness strategy provides a maneuver combat training center event
    to one-sixth of these BCTs near the end of their fifth year of
    training. These CTC events for ARNG BCTs can focus on Army core mission
    essential tasks, or operational mission specific tasks and
    environmental variables, depending on their projected deployment
    status.
        Given the increased number of BCTs and their respective training
    strategies, the Army needs 33 to 34 maneuver combat training center
    exercises per year to meet the readiness requirement in a steady state
    environment. The current capacity at our three maneuver CTCs creates a
    shortfall of four to five events every year. The Army intends to fill
    that shortfall by creating an exportable training capability (ETC)
    within the CTC program.
        The ETC is not a new facility similar to Forts Irwin, Polk, or
    Hohenfels, Germany. ETCs take the combat training center methodology to
    other, existing facilities. These existing facilities include home
    station training areas for Active component units, power generation
    platforms for BCTs, and any other training facility worldwide, that can
    support the commander's training objectives and generate ready forces.

        14. Senator Ensign. General Lovelace, will you need to purchase or
    create new training facilities similar to Fort Irwin and Fort Polk?
        General Lovelace. At this time the Army does not intend to purchase
    or create a new training facility similar to Forts Irwin or Polk, or
    our JMTC in Hohenfels, Germany. General Schoomaker's vision is to
    explore other worldwide training sites that expose soldiers and leaders
    to different environmental factors, provide a better opportunity to
    train with multi-national military partners, and make our soldiers more
    aware of other cultural considerations. This vision also supports the
    DOD's Training Transformation objectives with the Joint National
    Training Capability (JNTC). The JNTC is a global network of live,
    virtual, and constructive training capabilities specifically tailored
    to meet Regional Combatant Commander requirements.
        The Army does intend to create an ETC to fill the shortfall in our
    combat training center capacity. This capability does not require land
    acquisition or significant major construction projects. Based on our
    analysis of modular force transformation schedules, Army force
    requirements for current operational missions, and our global rebasing
    plan, we project the need for this new ETC in 2010.

                                     armor
        15. Senator Ensign. General Lovelace and General Huly, the
    supplemental budget request includes $538.5 million for body armor. I
    understand that all troops in Iraq and Afghanistan do have body armor.
    What would this supplemental request buy?
        General Lovelace. Of the $538.5 million that the DOD is requesting
    for body armor in the fiscal year 2006 supplemental request, the Army's
    portion of this request if $193 million. These funds will be used to
    purchase side plates in support of deployed and deploying soldiers and
    Enhanced-Small Arms Protective Inserts (ESAPIs) for next deploying
    soldiers.
        General Huly. The Marine Corps fiscal year 2006 supplemental
    request for Body Armor/Personal Protection Equipment is $332.6 million
    ($263.7 million Active and $68.8 million Reserve). All troops in Iraq
    and Afghanistan do have body armor. The supplemental request includes
    the procurement to complete the entire acquisition objective for the
    entire Marine Corps.

        16. Senator Ensign. General Lovelace and General Huly, where are
    there still shortfalls?
        General Lovelace. On February 1, 2006, the theater requirement for
    ESAPI was met and the Army began fielding ESAPI to units at home
    station prior to deployment. No ESAPI shortages exist in theater.
        General Huly. Given the level of funding provided in the
    supplemental there are no shortfalls.

        17. Senator Ensign. General Lovelace, committee staff has been told
    that the Army has informed the six suppliers of the Small Arms
    Protective Insert (SAPI) plates that the Army has decided to reduce the
    monthly production of SAPI plates from 40,000 sets per month to 20,000
    sets per month. Additionally, the Army will reduce the number of
    suppliers from six suppliers to three. It has been alleged that the
    Army is having a problem funding the current production rate of 40,000
    sets per month. Has the Army slowed the production of SAPI plates
    because of funding shortfalls?
        General Lovelace. Production of ESAPI has been set at 20,000 sets
    per month. Production spiked to 33,000 to help fill the theater
    requirement. Now that theater requirement is met, the plan is, and
    always has been, to rescale back to 20,000 sets per month. This
    reduction in Army production allows the other Services and Defense
    Logisitics Agency (DLA) to procure in specification plates for their
    requirements. The Army requirement for IDA remains at 966,000 sets. The
    Army will use fiscal year 2006 and fiscal year 2007 funding to procure
    the remaining Army ESAPI sets to satisfy the requirement.

                                   personnel
        18. Senator Ensign. General Lovelace and General Huly, the Services
    have focused on manning next-to-deploy units, at times taking personnel
    from non-deploying units to prepare other units for deployment to Iraq
    and Afghanistan. What challenges has this cross-manning created for the
    DOD?
        General Lovelace. The Army remains ready and capable of meeting the
    Nation's needs and has continued to provide units at high levels of
    readiness to support combatant commanders' requirements. However,
    nondeployed unit readiness has been impacted by cross-leveling of
    forces and equipment to support deploying units and stay behind
    equipment requirements in theater. Personnel cross-leveling occurs most
    frequently in the Reserve component due to current DOD mobilization
    policies but also occurs to a lesser extent in the Active component.
    Personnel cross-leveling is disruptive to unit cohesion, challenges our
    force planners, and places risk on tactical commanders. The
    continuation of timely supplemental funding for reset is imperative to
    improve unit readiness, fill equipment shortfalls resulting from combat
    operations, and ensure units are prepared for potential future
    contingency missions.
        General Huly. Active - The assigning of personnel from non-
    deploying units to those deploying remains a normal assignments policy
    of the Marine Corps and is not new. Furthermore, the Marine Corps
    assignment policy has been to minimize the assignment of individuals to
    consecutive supporting establishment tours. Combined, these policies
    achieve equity in individual deployment tempo and have proven
    successful in that regard.
        It is also important to note that no measurable disparity exists
    between the staffing levels of the operating forces and the supporting
    establishments as a result of current operational demands. Both are
    staffed equally relative to their respective aggregate staffing goals.
        A major challenge regarding the assignment of marines in supporting
    the long war's operational commitments are the fiscal resources
    allocated for personnel assignments. In order to avoid multiple
    deployments, marines need to execute more operational moves than
    normal. Supplemental funding will be required to allow the Marine Corps
    to keep cycling marines through deploying units and not increase stress
    due to prolonged periods of deployment time.
        Reserve - From the perspective of the impact on the Marine Corps
    Reserve, published OSD policy is that all reservists can be activated
    for a total of 24 cumulative months. However, OSD has further
    restricted the policy by requiring those marines who have previously
    been activated to volunteer for a second subsequent activation,
    rendering current USMC planning assumptions invalid. (USMC Planning
    Assumption--The Marine Corps considers all members of the Selected
    Reserve as volunteers for activation by virtue of their agreement to
    serve in either an SMCR unit or IMA detachment. Since the declaration
    of a Partial Mobilization (EO 12223 of 14 Sep 01), the Marine Corps
    planning guidance called for a 12-month activation period with a 7-
    month deployment followed by deactivation, a period of dwell time, and,
    if required, a second subsequent 12-month activation with the exception
    being select aviation units would be activated for 2-year increments.)
    This plan was designed to enhance the Marine Corps' warfighting
    capabilities through maximum integration with the Active component 7-
    month rotation schedule while additionally focusing on minimizing
    Reserve attrition and increasing retention. Without involuntary
    reactivation authority, the USMC is required to source units/
    detachments from declining pools of never-activated marines (in general
    very junior in grade and experience) and previously activated
    volunteers from a myriad of sources. Naturally, this further
    restriction of published OSD policy has hampered our long-term ability
    to reinforce and augment the Active component with trained and capable
    SMCR units, and has degraded our SMCR unit integrity, cohesion, and
    readiness.

        19. Senator Ensign. General Lovelace and General Huly, how have you
    assessed the risk that moving servicemembers from unit to unit has on
    the units and servicemembers affected?
        General Lovelace. The Army has developed a Lifecycle Management
    (LM) strategy that stabilizes the force, improves unit cohesion,
    minimizes disruption during preparation for combat operations, and
    promotes individual career development. Under LM and the Army Force
    Generation (ARFORGEN) model, units will cycle through readiness phases
    in a manageable progression, without the turbulent disruption of
    constant soldier and leader turnover.
        LM will better stabilize the force by reducing permanent change-of-
    station moves for soldiers to a level much lower than today. This
    strategy, when fully implemented, will allow soldiers to serve their
    first 6 to 7 years on the same installation, or even within the same
    unit. Enlisted soldiers will be able to remain in the same unit up to
    staff sergeant and officers through much of their captain years.
    Professional development will normally occur in a temporary duty
    enroute status; however, professional development may also be obtained
    in a temporary duty and return status if attendance can be synchronized
    with operational requirements. This strategy benefits families by
    stabilizing them longer in one place and facilitates a better
    prediction of their spouses' future training events and deployments.
    The end state is a capable joint expeditionary force where homesteading
    is encouraged, units are focused on depth of experience, and soldiers/
    families have more predictability.
        General Huly. Active - The Marine Corps assesses the personnel risk
    associated with our assignment policies primarily through an
    examination of measures associated with retention--particularly those
    regarding our first-term enlisted population. According to these
    indicators, the assignments made to support operational requirements
    have not had an adverse affect upon the individual marine. In fiscal
    year 2005 the Marine Corps achieved 103.5 percent of our first-term
    retention mission and we are ahead of that pace this year (fiscal year
    2006). For example, in our highly-deployed infantry population, at this
    point last year (April 7, 2005) we had achieved 85 percent of our
    first-term retention mission as opposed to having attained 98.5 percent
    thus far in fiscal year 2006. This positive trend is consistent with
    career force marines as well.
        Operational risk is mitigated in our assignment process through the
    concerted effort to stabilize units with personnel well in advance of
    scheduled pre-deployment training dates. Today, the objective of the
    Enlisted Assignment Branch is to have all deploying personnel report to
    a unit no later than 120 days before a unit's scheduled deployment date
    and, with few exceptions, this has been accomplished successfully.
    Historically, only approximately 6 percent of personnel have joined a
    unit within 90 days of deployment, and this number is being further
    reduced.
        In addition to stabilizing the units with greater lead-time prior
    to deployment, we have been able to reduce personal turbulence by
    increasing the average amount of time between the date orders are
    issued and a marine's expected report date. In fiscal year 2005 the
    average time between operational orders issuance and expected report
    date was 114 days. In fiscal year 2006 to date, that number has
    improved to 152 days on average. This initiative, along with our
    ability to staff units well in advance of deployments, has served to
    decrease individual and unit stress while simultaneously increasing the
    combat cohesion of our deploying units.
        Reserve - For the Marine Corps Reserve, ``cross-manning'' actions
    only provide a short-term solution to flesh out units prior to
    deployment. In assessing the risk, we are comfortable that we have
    provided our units with the leadership necessary to carry out their
    assigned tasks and mission. However, this is not an optimal solution.
    We place signifIcant stress on the overall population of Reserve
    marines available for activation by moving them from their regular unit
    to a new one and in some cases have provided Active component marines
    to fill key leadership positions at the small unit (platoon/company)
    level to fill emergent unit requirements. This practice does impact
    unit cohesion, integrity, and readiness.

        20. Senator Ensign. General Lovelace and General Huly, to meet the
    demand of current operations, there has been significant cross-training
    of personnel. This has included training cooks as mechanics,
    artillerymen as truck drivers, and Active-Duty servicemembers to assume
    roles more traditionally held by Reserve civil affairs officers. What
    challenges has this cross-training created for the DOD?
        General Lovelace. Based on theater requirements, the Army is
    training combat arms, combat support, and combat service support
    soldiers on military skills outside or ILO their assigned military
    occupational specialty (MOS). The challenges of cross-training soldiers
    for missions not specific to their MOS are three fold. First, the Army
    must find soldiers with the appropriate skills within other
    specialties. Second, we must provide these soldiers with the
    appropriate equipment to train on for the mission which may be
    different from their primary equipment set. And third, we must ensure
    these units or soldiers are returned to proficiency in their primary
    specialty as quickly as practical after their redeployment. Our Army
    commands and the Reserve component have created plans to address these
    challenges and ensure the highest level of preparedness for our units
    and soldiers.
        General Huly. The greatest challenges for cross-training of
    provisional units fall in the areas of time and equipment. The effort
    to sustain and regenerate Marine Forces for service in Iraq has created
    an increased operational tempo, with discrete periods of time for units
    and individuals to prepare for secondary or provisional missions. The
    Marine Corps operates several processes to aggressively identify and
    solve these challenges as they arise.
        In this tempo, the Marine Corps finds it challenging to generate
    the time required to cross-train marines and provisional units to a
    level of proficiency comparable to that of specialists. The individuals
    who form our Iraqi unit transition teams, for instance, generally have
    only a few weeks to learn their assignments, refresh their small-unit
    combat skills, cross-train on communications, defensive driving,
    maintenance and vehicle recovery skills, and absorb a functional
    understanding of Iraqi culture and language. The Marine Corps trained
    150 marines and sailors for these teams during 2004, and this year
    expects to train nearly 800. We have learned to adapt training
    curricula, equipment, and facilities to maximize benefit gained during
    these compressed timelines.
        The lengths of the time periods between deployments are also a
    challenge. Units that train and deploy specifically for a provisional
    mission, such as armor units deploying to conduct riverine security
    missions, are difficult to form, equip, and train in time to include
    them in the larger predeployment training exercises such as Mojave
    Viper at Twentynine Palms, California. The Marine Corps is constantly
    adjusting its scheduling and improving its instructor cadre to adapt to
    the unique needs of these provisional units.
        This challenge of time is particularly acute with activated Reserve
    units. Reserve unit activation policies are generally based on the
    assumption that these units will be activated to perform the mission
    for which they've trained over the years. It is a significant challenge
    to activate such a unit into a mission for which they've never
    prepared. Regardless, the marines and sailors we retrain on these
    compressed timelines accept the challenge and perform admirably.
        Following a deployment during which significant time was dedicated
    to a secondary or provisional mission, units require time to recover
    degraded proficiency in their primary mission. Creation of provisional
    units can also create unique and unforeseeable demands for equipment
    and training ammunition. Artillery units that train for duties as
    provisional rifle companies, for instance, require additional crew-
    served weapons and vehicles. As the Marine Corps does not maintain
    significant excess equipment, the provisional companies must draw these
    assets from other units in the artillery regiment or Marine division.
    That, in turn, both demands time to coordinate and execute the
    transfers of equipment and reduces the armories or motor pools of units
    training in the United States for other missions. Both these latter
    challenges were addressed in verbal testimony to the Subcommittee on
    Readiness and Management Support of the Senate Armed Services
    Committee, regarding Ground Forces Readiness, on 15 March 2006.

        21. Senator Ensign. General Vines and General Sattler, has this
    cross-training been effective? Have there been any unexpected results?
        General Vines. The cross-training and use of ``ILO forces'' has
    been successful and is a tribute to the quality of our service men and
    women today. It aptly demonstrates the agility of our force and
    leaders. The added benefit is that warfighting commanders have greater
    flexibility to employ forces on the battlefield. However, some
    specialized technical skill sets cannot be mitigated by ``ILO forces.''
    For example, medical and intelligence specialties are not easily or
    adequately replaced by other forces.
        General Sattler. All marines are considered riflemen, which remains
    the foundation of entry-level training. In combat, these marines prove
    competent in a full range of basic infantry skills.
        At the small unit level, there are many examples of cross-training
    that has enabled these units to sustain operational capabilities. These
    Marine and Navy personnel have been in combat 24/7 for months on end.
    They have learned each other's skill sets in order to maintain,
    sustain, and enhance their operational capability.
        One of the most significant examples of effectiveness has been our
    artillery battalions' ability to assume non-traditional combat roles
    and missions of high demand flow density skill sets such as those of
    the military police (MPs). Because of their alternate mission as
    provisional infantry and expertise in other artillery-related skills,
    such as convoy operations, the leap to Provisional Military Police was
    relatively small.
        The key unexpected return has been the high level of combat
    effectiveness achieved by small unit teams who have thoroughly cross-
    trained on their own initiative. Combat Logistics Battalions trained
    mechanics and drivers to be MPs. Several logistics units also developed
    in-theater OJT programs in support of cross-training. Similarly, 2d MAW
    utilized its Low Altitude Air Defense (LAAD) and Wing Band to
    facilitate its Force Protection at Al Asad.
        In general, marines were excited to be given the opportunity to do
    something outside their primary MOS, learn a new skill, and ultimately
    participate in more missions ``outside the wire'' than they originally
    anticipated. While a few marines were initially hesitant about
    performing tasks/missions outside their MOS, especially in combat, they
    ultimately performed exceptionally well.

        22. Senator Ensign. General Sattler, in your prepared statement,
    you mention that the deployment rate for your Infantry Battalions is
    almost one for one, meaning approximately 7 months on deployment with
    approximately 7 months back home. Some marines are on their third
    deployment within as many years. How has the individual marine been
    affected by this operations tempo?
        General Sattler. While the units are on 7-month rotations, only a
    small percentage of the unit members actually make three rotations due
    to normal tour lengths. The current deployment rate is difficult for
    marines and their families, but retention rates and morale remain high.

        23. Senator Ensign. General Sattler, how is it affecting recruiting
    and retention?
        General Sattler. The third rotation of 7-month deployments to Iraq
    has no impact on the recruiting effort. The impact comes from the war
    itself, but the deployments and their length do not enter the
    recruiting issues.

                                      iraq
        24. Senator Ensign. General Vines, the DOD has been reporting the
    number of battalions of the Iraqi army that have been trained, and
    their capability level. What we haven't heard about is the combat
    support and combat service support units. Are we training Iraqis to
    conduct the combat support and combat service support functions
    necessary for their army to eventually function totally without our
    support?
        General Vines. Yes. Fielding capable combat support and service
    support units is a high-priority mission for MNSTC-I. By necessity,
    Multi-National Force-Iraq (MNF-I) worked to field combat units first to
    provide an initial Iraqi security capability. After we achieved a
    measure of success in building combat arms maneuver battalions and
    brigades, we began building logistics, maintenance, and transportation
    units to provide external support to them in the field, as well as
    elements to provide communications, intelligence, and engineer support.
    Once MNSTC-I fields an Iraqi unit, MNC-I focuses on developing its
    capacity through unit-to-unit partnership and embedded transition
    teams. Less tends to be reported on Combat Support (CS) and Combat
    Service Support (CSS) units because they typically do not hold ground
    or control battlespace. However, they are essential for creating the
    conditions to allow Iraqi Army units to operate independently.

        25. Senator Ensign. General Vines, how far along are we with that
    training?
        General Vines. Accomplishing all these goals simultaneously in a
    resource-constrained environment (as well as developing Police and
    Infrastructure Protection Forces) required significant prioritization
    and for this reason combat maneuver units were fielded first to give
    the Iraqi Army the capability to control battle space, albeit with
    coalition logistical support, with a view toward gradually
    transitioning them to independent operations once their attendant CS
    and CSS formations are operational. Now that the preponderance of
    combat maneuver formations are formed, the priority shifts to manning,
    training, and equipping CS and CSS enablers in order to accelerate the
    pace of transitioning battlespace to the Iraqi Army and the
    corresponding off-ramp of U.S. and other coalition forces.
                                     ______

                 Questions Submitted by Senator James M. Inhofe
                               reserve components
        26. Senator Inhofe. General Vines and General Sattler, you have
    both commanded troops in Iraq. What was the status of the training of
    both the Active and Reserve component units that you got?
        General Vines. The ability of the Active component to change
    mission profiles and retrain in other skill sets demonstrated the
    adaptability, leadership, and caliber of the Active component soldier.
    The Reserve component units were also adaptable and trained but for a
    specific mission set. Time is a critical factor for Reserve component
    adaptability. Some Reserve component units were more ready than others.
    Those Reserve component units that quickly integrated into the
    battlespace conducted a longer than average post-mobilization period,
    attended critical MOS producing schools to meet mission requirements,
    and/or were augmented with Active component officers and soldiers.
        General Sattler. The baseline level of training for all Marine
    units deploying to Iraq continues to improve daily as we take lessons
    learned and incorporate them into our training, all units go through a
    cycle of equipping, forming, training, and deploying for combat. The
    current Pre-deployment Training Program, which all units conduct, and
    the current structured Mojave Viper (Ground) and Desert Talon (Air)
    field training exercises have greatly improved the readiness and
    operational capability of each unit since OIF I. Training has become
    more rigorous and standardized since early deployments and now includes
    transition team training and improved combat vehicle operator training.
        For Marine Corps Reserve units, pre-deployment training
    effectiveness seemed to be a function of pre-activation preparation and
    time allotted to training. Reserve units were required to undergo the
    same training as Active units, but faced challenges in meeting all
    timelines due to unique requirements attendant to activation of Reserve
    units and individuals. Reserve units possess capabilities equal to
    their Active-Duty counterparts.
        Training does not stop once units deploy to Iraq. Commanders at all
    levels routinely conduct after-action reviews of events and take action
    to ensure skill levels are maintained and meet the requirements of
    changing enemy tactics and techniques.

                                   equipment
        27. Senator Inhofe. General Vines and General Sattler, I am told
    the Army alone has seen some 20 tanks, 50 Bradleys, 20 Strykers, 85
    helicopters, 20 Armored Personnel Carriers (APCs), 250 HMMWVs, and over
    500 trucks destroyed. Is that true? What about the Marine Corps? What
    is the status of the equipment and could you tell us the approximate
    losses you are taking in this area?
        General Vines. Battle loss statistics change on a daily basis due
    to the nature of the mission in OIF. Coalition Forces Land Component
    Command (CFLCC) in Kuwait maintains a current tracking mechanism for
    all battle losses in the theater. (XVIII Airborne Corps G4 is
    contacting CFLCC C4 for the most recent report on total battle losses.)
        Tanks, Bradleys, Stryker Combat Vehicles, APCs, and uparmored
    armored HMMWVs are replaced from a combination of new production
    equipment, Left Behind Equipment, nondeployed unit equipment, Army
    Prepositioned Stocks in Kuwait, or theater stocks. All equipment is
    pushed north into Iraq dependent upon transportation asset availability
    and priority in relation to all Classes of Supply. Aircraft
    replacements are directed by Department of the Army G3 through a
    combination of Stay Behind Equipment, new production, depot repair
    program, or early deployment of follow on unit aircraft.
        Units report their battle losses immediately through the G4/S4
    channels to the MNC-I C4 and the Corps Support Command. They, in turn,
    notify the CFLCC C4 which oversees the replacement process. The Marine
    Corps reports their battle losses but replaces equipment from their own
    resources.
        General Sattler. Since October 1, 2001, losses for the various
    principle end items are as follows: 10 Light Armored Vehicles (LAVs), 4
    Tanks, 451 1-HMMWVs, 24 Amphibious Assault Vehicles (AAVs), and 33
    Medium Tactical Replacement Vehicles (MTVRs). OIF readiness rates have
    stayed consistently between 92 percent and 95 percent for the last 12
    months.

        28. Senator Inhofe. General Vines and General Sattler, how is the
    Marine Corps replacing the CH-47s it is losing?
        General Vines. The Army has requested supplemental funding for new
    build CH-47Fs to replace its Chinook losses.
        General Sattler. The Marine Corps has currently lost eight CH-53E
    and four CH-46E aircraft in support of combat operations since
    September 11, 2001.
        Our replacement plan to address attrition shortfalls for the CH-53E
    is to pull aircraft out of war reserve at Davis-Monthan. Three CH-53s
    funded by fiscal year 2005 supplemental were pulled out and inducted
    for rework in August 2005. Rework takes approximately 18-22 months to
    complete. Funding for rework of two aircraft has been requested in the
    fiscal year 2006 supplemental, and we plan to request two more in
    future supplementals. Should those four aircraft receive funding, only
    one CH-53E will remain in war reserve. Lack of an active CH-53E
    production line and a nearly-exhausted war reserve highlights the need
    for continued funding of the CH-53K.
        Since the 40-year-old CH-46E lacks an active production line and
    war reserve aircraft, our only method of replacing combat losses is to
    field the MV-22. Budgetary restrictions have limited the rate of buy to
    below what is needed to smoothly transition the force and replace
    combat losses. Based on the current program of record, the MV-22
    operational inventory will not meet the required number of aircraft to
    fulfill our transition plan inventory until 2012. Only additional
    aircraft procurement in fiscal years 2006-2008 can sufficiently address
    this shortfall.

        29. Senator Inhofe. General Lovelace and General Huly, the
    utilization rates for vehicles have gone up tremendously. Equipment is
    being sent to the depots at an extraordinary rate. My sources tell me
    the number of vehicles damaged or worn out in the Army alone in 2005
    was about 44 helicopters, 230 tanks, 318 Bradleys, 219 M113s, and over
    5,000 HMMWVs. The predictions for 2006 are even higher. Is that true?
        General Lovelace. The Army has had the following losses since the
    beginning of OIF and OEF: 28 Apaches, 17 Blackhawks, 14 Chinooks, 23
    OH-58D Kiowa helicopters, 18 Abrams tanks, 74 Bradleys, 22 Strykers,
    and 915 HMMWVs. These are a combination of washouts (equipment which is
    uneconomical to repair) and combat losses.
        The Army has had as many as 17 BCTs deployed for the last 3 years
    on a rotational basis in combat conditions. This has placed tremendous
    stress on the Army's deployed equipment in the harsh environments of
    Iraq and Afghanistan. In OIF, crews are driving tanks in excess of
    4,000 miles per year or five times the expected annual usage of 800
    miles. Army helicopters are experiencing usage rates roughly two to
    three times the planned peacetime rates. The Army's truck fleet is
    experiencing some of the most pronounced problems of excessive wear as
    a result of an operational tempo that is five to six times the
    peacetime rate and that is further exacerbated by the addition of heavy
    armor kits required to enhance force protection. This increased
    operational tempo shortens the useful life of our equipment and demands
    a much earlier and larger investment in depot maintenance than
    programmed for peacetime operations.
        We have steadily expanded the capacity at Army Materiel Command's
    (AMC) depots, and reached out to industry wherever possible to meet our
    maintenance needs in a timely manner. Direct labor hours in the organic
    (Government owned and operated) depots have more than doubled from
    fiscal year 2002 through fiscal year 2006. In fiscal year 2006, we plan
    to execute over 24 million direct labor hours. This is just one
    indicator of the steady increase in the reset effort throughout this
    conflict. This trend will continue for the duration of current
    operations and at least 2 years beyond the withdrawal of our BCTs from
    Iraq, provided that resources permit an efficient and timely recovery.
    It is vital to address reset requirements promptly in order to support
    the overall Army Campaign Plan and to avoid pushing costs into future
    years.
        General Huly. In 2005 OIF depot repair requirements for various end
    items were as follows: 48 LAVs, 5 tanks, 35 HMMWVs, 7 AAVs, 30 MTVRs.
    Current prediction would be that these numbers would be approximately
    the same in fiscal year 2006.
        Depot throughput is constrained by the amount of and requirement
    for equipment in theater. Marine Corps equipment, in general, does not
    rotate out of theater with each troop rotation due to the limited
    inventory of some items. Therefore, because the equipment is required
    for operations in Iraq, it is unavailable for depot level repair. The
    Marine Corps has recently instituted a rotation plan for some principle
    end items that will return certain types of equipment back to CONUS for
    depot level repair.

        30. Senator Inhofe. General Lovelace and General Huly, I am told
    the condition of equipment coming back from Iraq for reset, repair, and
    refurbishment now is in much worse shape than equipment coming back for
    similar depot maintenance just 2 years ago. For example, much of the
    equipment has been cannibalized to keep readiness levels up in theater,
    wiring harnesses, suspensions, engines, etc., are in much worse shape--
    is this true?
        General Lovelace. Overall, the condition of unit equipment
    returning which has been deployed for 1 year is returning in a similar
    condition as redeployed equipment in fiscal year 2005. Equipment which
    had remained in theater for longer than 1 year, some for up to 3 years,
    shows the expected increased wear caused by the environmental and high
    usage effects, and on many end items the increased strain of add on
    armor for an extended period of time. The Army has also established
    programs in theater to maintain equipment, which contributes to the
    health of equipment, although not all damage can be repaired in the AOR
    and that equipment will still require substantial repair upon return.
        AMC has several forward repair activities (FRAs) in theater to
    repair small arms, communications equipment, tactical wheeled vehicles,
    and combat vehicles. These FRAs do up to field level maintenance tasks,
    and unit commanders make good use of these repair facilities to augment
    their own capabilities. The Stryker facilities in Balad and Qatar are
    an example of repair which takes place that allows the Army to fix
    forward and get vehicles back into operational units more quickly.
        AMC has a HMMWV refurbishment center in theater that will soon be
    able to repair up to 120 vehicles a month. The vehicles repaired at the
    refurbishment center are returned to theater stock as replacements to
    battle losses. This facility, however, is not capable of the scope of
    work required to upgrade the older HMMWV to the newer variant, allowing
    it to carry the added weight of the newer armor protection. For this
    level of repair, the vehicles must be returned to CONUS and under RECAP
    at Letterkenny or Red River Army Depot.
        There has been an increase in the dollars required to conduct reset
    between fiscal year 2005 and fiscal year 2006. These increases are due
    to lessons learned during fiscal year 2004 and fiscal year 2005 reset,
    where it was determined that the earlier scope of work for reset was,
    for some equipment, inadequate. Major factors causing this growth are
    AMC's implementation of an Automatic Return Item List (ARIL), Army
    leadership decisions on Abrams/Bradley reset strategy, and upgrades to
    recap. The ARIL is the result of an inability, at the field level of
    maintenance, to adequately repair the equipment, to return it to
    adequate standards. Likewise, lessons learned during the reset of 4th
    Infantry Division Abrams and Bradleys indicated that a more
    comprehensive repair strategy was necessary. Additionally, lessons
    learned from operation in theater demanded upgrades to certain pieces
    of equipment. The demand of commanders for the Commander's Independent
    Thermal Viewer, for example, necessitates increases in production of
    the M2A3 Bradley, vice the use of the M2A2 ODS variant. Compounding
    many of these issues was the inadequate earlier reset of some combat
    vehicles and the need to rebuild and/or upgrade these vehicles in recap
    programs to ensure continued readiness and usefulness on the
    battlefield.
        When the Army begins to drawdown units in theater, the depots will
    see a large increase in reset costs for at least 2 years. The increase
    in reset costs will be a direct result of stay behind equipment (SBE)
    returning to CONUS. There are no depot level repair facilities in the
    theater-FRAs and AMC's HMMWV refurbishment center provide field level
    repairs only. Maintenance lessons learned from the Gulf War and
    previous OIF/OEF rotations show that not all delayed desert damage
    (DDD) can be repaired or even detected with only field level
    maintenance. It is imperative that this equipment be repaired or
    replaced quickly, as required, to ensure the capability of our Army to
    train for and deploy to future contingencies as required for our
    national defense.
        General Huly. Yes, this is true--the Marine Corps made a conscious
    decision to leave equipment in theater resulting in increased
    maintenance requirements. Selective interchange is a prudent source of
    supply given the combat environment in order to sustain operational
    readiness and mitigate long resupply times.

        31. Senator Inhofe. General Lovelace and General Huly, what is
    causing this?
        General Lovelace. See answer to QFR #30.
        General Huly. The equipment returning to the depots has a wider
    range of damage and does not fit the previous year's depot repair
    methodology. Inspections of equipment have resulted in a greater amount
    of repairs, thus escalating depot cost (by approximately 20 percent).
    The 20 percent estimated escalation of depot costs on equipment
    returning from Iraq is an average derived from actual costs; i.e. cost
    to repair items at the initiation of the conflict compared to more
    recent costs. The repairs are done on an inspect and repair only as
    necessary basis. Each item is inspected upon induction to the program
    and only those repairs necessary to restore the item to A condition are
    completed. This is not a complete rebuild, so therefore costs vary from
    vehicle to vehicle. Adjustments are made on the depot lines to execute
    the various types of repairs.

        32. Senator Inhofe. General Lovelace and General Huly, what can we
    do about it?
        General Lovelace. See answer to QFR #30.
        General Huly. Adjust the baseline of what is mandatory for
    replacement at the depot as a result of trends in equipment condition.
    Thus, we trade man-hours to inspect an item for an increased materiel
    cost due to replacement, but get a more reliable system in return.

                                   the guard
        33. Senator Inhofe. General Lovelace, I had General Blum in my
    office last night to ask him about a chart. The chart said that the
    Guard emerged from the 1990s as a Cold War strategic reserve with only
    75 percent of its equipment. Because of battle losses, worn out
    equipment, and equipment left behind in Iraq, the Guard only has 34
    percent of its equipment here in the United States to train on and
    respond to national emergencies. Is that true?
        General Lovelace. The ARNG component had about 65 percent of its
    authorized equipment in September 2001 and has contributed 8 percent of
    its authorization to theater for use by successive rotations of Active
    and ARNG units. It has another 21 percent of its authorization in
    deployed units or in reset, 26 percent at home and available for
    deployment to Iraq and Afghanistan. It also has about 10 percent of its
    authorization at home and available for most missions that are not
    constrained by unique operational requirements, like what we have in
    Iraq.
        The Army experienced years of underfunding prior to September 11
    that resulted in a $56 billion ``hole'' in readiness caused by
    insufficient modernization to fill existing shortfalls and emerging
    needs. Shifting equipment to fill holes and emerging requirements in
    deployed and deploying units deepens the holes in training and
    resetting units. Equipment redeployed to pre-positioned stocks and home
    station is not available for mission support or training until it is
    reset through repair or recapitalization. Equipment lost through battle
    damage or worn out through operational tempo must be reset through
    replacement to support our soldiers in more capable units and to
    sustain our long-term commitments at home and abroad.
        The cyclical nature of deployment rotations enables us to
    prioritize the distribution of equipment to fill holes in units closest
    to their next deployment date. This ensures units have the right types
    and amounts of equipment to support their training needs as they reset
    and progress through the levels of readiness for deployment.
    Nondeployed units in all Army components, especially those in our ARNG
    component, must remain ready for homeland security and defense
    missions, such as natural disasters that may also occur in cycles.
        We have identified essential capabilities in a baseline equipment
    set for homeland defense and security and we are prioritizing the
    delivery of this equipment to the ARNG as soon as practicable. As
    examples, we plan to equip the ARNG by August 2007, with 100 percent of
    their Land Mobile Radio Systems--intra-squad radios that are compatible
    with local, State, and Federal radios. We have also accelerated
    fielding plans to replace the Army's oldest truck models by the end of
    September 2009, the majority of which are in the ARNG. We have also
    increased and fenced Reserve component investment accounts fourfold to
    $21 billion for the ARNG and $3.6 billion for the Army Reserve in
    fiscal years 2005-2011.
        Fiscal year 2007 will be pivotal for the Army. The anticipated
    supplemental funding to reset and protect forces in all Army components
    will enable us to protect our investment accounts and accelerate
    transforming the ARNG into a more capable and ready force.

        34. Senator Inhofe. General Lovelace, what readiness level is the
    Guard left with here, C4?
        General Lovelace. [Deleted.]

        35. Senator Inhofe. General Lovelace, how many units are at C4?
        General Lovelace. [Deleted.]
        Army transformation to the Army Modular Force has increased the
    capability units. However, these units are now reporting against higher
    authorizations for equipment items such as trucks, weapons, night
    vision goggles, etc. The higher ``denominator'' creates an artificial
    dip in equipment on-hand readiness rates even though the units may have
    more equipment than they did prior to conversion. Deploying units are
    equipped to the highest standard to meet their assigned mission when
    deployed.
        Support to global war on terrorism also impacts readiness. For
    example, to ensure deployed units have 100 percent available strength
    we are resourcing them at strengths above authorization (for example,
    110 percent assigned in some cases). These soldiers and leaders come
    from nondeployed units and impact the readiness of units that have not
    deployed. Meeting the Central Command (CENTCOM) unique training teams
    requirement also impacts personnel availability.
        Continued congressional support for modularity will close this
    capability (readiness) gap over time. The end state of Army
    Transformation is fully manned, equipped, trained, cohesive units
    across all components, ready for missions assigned based on the Army
    force generation model.

        36. General Lovelace, how do we expect these units to train for
    another rotation to Iraq or Afghanistan, or someplace else that we
    haven't even thought about?
        General Lovelace. We take several steps to ensure units have the
    ability to train for identified missions. Units receive equipment sets
    at pre-deployment training sites to augment their on-hand equipment for
    training prior to deployment. Mobile Training Teams (MTTs) then assist
    units to train on specific items of equipment. Units also receive
    equipment to train with in theater during transition prior to movement
    into their AOR. During that transition, soldiers receive training from
    the unit they are replacing to ensure they are proficient in the skills
    required to operate their equipment. Finally, we have accelerated
    fielding of critical equipment to the ARNG, and we have increased our
    future defense spending in order to adequately equip the ARNG. These
    strategies will ensure units have the right types and amounts of
    equipment to support their training needs as they progress through
    levels of training readiness for deployment.

        37. Senator Inhofe. General Lovelace, the Army has listed five UH-
    60 Blackhawk and 10 CH-47 Chinook helicopters on the unfunded priority
    list as battle losses. Why aren't these included in the supplemental?
        General Lovelace. We requested and received funding for 3 UH-60s in
    the fiscal year 2006 bridge supplemental, 20 UH-60s in the fiscal year
    2007 bridge supplemental, 1 CH-47 in the fiscal year 2006 bridge
    supplemental, and 17 CH-47s in the fiscal year 2007 bridge
    supplemental.
                                     ______

                 questions submitted by senator daniel k. akaka
                                reserve callups
        38. Senator Akaka. General Huly and General Lovelace, what
    percentage of your Reserve component personnel are available to be
    called up again under the statutory limit of 24 consecutive months, and
    under the more restrictive DOD policy limiting reservists to
    involuntary callups of 24 cumulative months?
        General Huly.
    Reserves on hand (AR, IMA, SMCR, IRR, AND IADT) = 97,545
        Mobilized 24 consecutive months or more = 1,911
        Percentage available for Mobilization = 98 percent

        Mobilized 24 cumulative months or more = 2,595
        Percentage available for Mobilization = 97 percent
    Reserves by category:
        Select Marine Corps Reserve (number) 32,258
        Mobilized 24 consecutive months or more = 915
        Percentage available for Mobilization = 97 percent

        Mobilized 24 cumulative months or more = 1,309
        Percentage available for Mobilization = 96 percent
        Individual Mobilization Augmentees (number) 2,181
        Mobilized 24 consecutive months or more = 303
        Percentage available for Mobilization = 86 percent

        Mobilized 24 cumulative months or more = 419
        Percentage available for Mobilization = 81 percent
        Individual Ready Reserve (number) 58,275
        Mobilized 24 consecutive months or more = 647
        Percentage available for Mobilization = 99 percent

        Mobilized 24 cumulative months or more = 817
        Percentage available for Mobilization = 99 percent
        Active Reserve (not a mobilization asset) (number) 2,278
        Mobilized 24 consecutive months or more = 46
        Percentage available for Mobilization = 98 percent

        Mobilized 24 cumulative months or more = 50
        Percentage available for Mobilization = 98 percent
        Initial Active-Duty for Training
        None in either category.

        Due to limitations on our ability to use involuntary reactivations
    beyond 1 year, MARFORRES is required to source units/detachments from
    pools of never-activated marines and volunteers. Although activation of
    additional units/detachments partially mitigates personnel shortages,
    the necessity of cross-leveling personnel to form fully-manned
    deployable units causes cascading negative effects onsourcing future
    OIF requirements, erodes cohesion in the sourcing and receiving units,
    dilutes the mobilization potential of the contributing units, and
    provides potential for degraded capability. Due to limitations on our
    ability to use involuntary reactivations, requests for forces which
    would normally be suited for potential Reserve sourcing may be levied
    on the Active component instead, increasing the demands on that part of
    the Total Force. During OIF-I, the Marine Corps judiciously
    involuntarily activated a small portion of its IRR. However, without
    being able to currently utilize the Marine Corps' IRR Force of
    approximately 60,000 marines, it is increasingly difficult to support
    long-term global war on terrorism manpower requirements--such as Iraqi
    transition teams and the Joint Task Force Headquarters.
        General Lovelace. There are 31,004 soldiers who have served from
    18-24 months with an average of 705 days served (this pool does not
    have sufficient time remaining to meet mission requirements); 98,059
    soldiers have served from 12-18 months; 43,288 soldiers have served
    from 6-12 months; and 13,144 soldiers have served less than 6 months.
    There are approximately 92,000 Reserve component soldiers available to
    mobilize from the Army's Reserve component assigned strength of
    522,120. There are currently 80,963 Reserve component soldiers
    mobilized in support of ongoing operations. The Army uses the component
    supplied data because this data more accurately reflects our global
    commitment; including soldiers serving under partial mobilization
    authority (10 U.S.C. 12302) and those serving voluntarily in support of
    current operations (10 U.S.C. 12301(d)). The availability of soldiers
    to be mobilized is also more accurately portrayed using component
    supplied data because it factors out categories such as Trainees,
    Transients, Holdees, and Students, nonparticipants, IMA soldiers,
    Institutional Army (training base and base support; health, legal,
    administration) and other previously mobilized soldiers (i.e. 10 U.S.C.
    12304).

        39. Senator Akaka. General Huly and General Lovelace, have either
    of your Services requested DOD to change the policy limiting
    mobilizations to 24 cumulative months? If not, how long can you sustain
    the current level of deployments without doing so?
        General Huly. No. The Marine Corps recommends allowing the
    reactivation of units to utilize the full statutory 24 months of
    activation time. Marine Corps force management practices were designed
    to enhance the warfighting capability and long-term sustainability of
    the Marine Reserves in the following ways: 1) by providing trained,
    cohesive, combat-ready units; 2) efficiently using Reserve marines' 24
    months of cumulative activation; and 3) preserving USMCR units for
    subsequent requirements, improving predictability of subsequent
    activations, and permitting reconstitution of previously activated
    units.
        General Lovelace. The Army has never asked in writing that the
    Secretary of Defense change the 24-month cumulative policy. We
    frequently communicate to OSD the stress that the 24-month cumulative
    policy places on our ability to provide cohesive units to the combatant
    commander.

        40. Senator Akaka. General Huly and General Lovelace, what is your
    current policy on mobilizing Guard or Reserve personnel more than once
    in a 6-year period?
        General Huly. The ``1 in 6 years'' mobilization concept is a goal,
    not a policy. Combatant commander force requirements, requested within
    the parameters of statutory activation authorities, dictate activation
    tempo and when we are required to access our Reserves.
        General Lovelace. Title 10 U.S.C. 12302 states that reservists will
    serve ``not more than 24 consecutive months.'' Current DOD policies (20
    Sep 2001 Mobilization Policy Memo from USD(P&R) to the assistant
    secretaries) are 24 cumulative months of involuntary mobilization. The
    Secretary of Defense is the sole approval authority for all involuntary
    remobilizations and at this time, he does not approve any involuntary
    remobilizations of individual soldiers.

                                personnel tempo
        41. Senator Akaka. General Lovelace and General Huly, please
    describe the extent to which personnel tempo--that is, the number of
    days a soldier or marine is deployed away from home, has increased in
    the past 4 years. Congress enacted a provision of law several years ago
    [37 U.S.C. section 436] requiring special compensation for people
    deployed more than 190 consecutive days, or more than 400 days over a
    2-year period. The Department is exercising the waiver authority
    contained in that provision, but please provide the number of personnel
    in your Service who would qualify for such compensation if the waivers
    were not in force, and the average number of days deployed over the
    past 730 days, by month over the past 4 years.
        General Lovelace. The law defines the personnel tempo (PERSTEMPO)
    as: ``a member of the Armed Forces shall be considered to be deployed
    or in deployment on any day, in which, pursuant to orders, the member
    is performing service in a training exercise or operation at a location
    or under circumstances that make it impossible or infeasible for the
    member to spend off-duty time in the housing in which the member
    resides.'' On 8 October, 2001, the national security waiver was
    implemented and remains in effect, suspending special pay for
    PERSTEMPO.
        As of April 11, 2006, there were 127,000 soldiers (Active,
    Reserves, and ARNG) deployed to OIF and OEF of which roughly 53,628
    have been deployed for over 191 consecutive days. On average, these
    soldiers have been deployed for 327 consecutive days and would be
    entitled to 136 days of PERSTEMPO pay. There are approximately 57,457
    soldiers who have been deployed for 401 days or more within the last 2
    years. On average, this group has been deployed for 497 days within the
    past 2 years and would be entitled to 97 days of pay if the national
    security waiver were rescinded today. Providing a month-to-month
    display of the above data would not accurately reflect this because the
    same soldiers could appear in consecutive months, resulting in a
    significant duplication of records.
        General Huly. The original PERSTEMPO legislation required special
    compensation for a member only for the frequency of deployment, i.e.,
    if a member is deployed for more than 400 days over a 2-year period.
    The legislation was subsequently modified to allow compensation for the
    duration of deployments, for example, if a member is deployed for more
    than 190 consecutive days. The modified legislation allows the Services
    to establish different compensation thresholds to meet their service-
    unique requirements while meeting the congressional intent on
    PERSTEMPO.
        As of 7 Apr 2006, we have 6,165 Active component and 1,541 Reserve
    component marines on Active-Duty who have been deployed in excess of
    400 days over the preceding 2 years, and about 49,010 Active component
    marines and 20,390 Reserve component marines who have been deployed for
    more than 190 consecutive days.
        The below table provides the average number of days, by month,
    Active component and Reserve component marines in the operating forces
    have been deployed over the previous 2 years, from October 2002 to
    April 2006. Includes those Active component and Reserve component
    marines who have had at least one major (defined as at least 120
    consecutive days) operational deployment during the period.

    ------------------------------------------------------------------------
                Active                              Reserve
    ------------------------------------------------------------------------
    Oct. 2002....................          201  Oct. 2002......          204
    Nov. 2002....................          206  Nov. 2002......          182
    Dec. 2002....................          210  Dec. 2002......          195
    Jan. 2003....................          145  Jan. 2003......           85
    Feb. 2003....................          140  Feb. 2003......           75
    Mar. 2003....................          161  Mar. 2003......          101
    Apr. 2003....................          185  Apr. 2003......          121
    May 2003.....................          210  May 2003.......          150
    Jun. 2003....................          227  Jun. 2003......          173
    Jul. 2003....................          236  Jul. 2003......          193
    Aug. 2003....................          240  Aug. 2003......          209
    Sep. 2003....................          242  Sep. 2003......          218
    Oct. 2003....................          242  Oct. 2003......          222
    Nov. 2003....................          239  Nov. 2003......          226
    Dec. 2003....................          236  Dec. 2003......          228
    Jan. 2004....................          233  Jan. 2004......          230
    Feb. 2004....................          202  Feb. 2004......          222
    Mar. 2004....................          201  Mar. 2004......          201
    Apr. 2004....................          214  Apr. 2004......          210
    May 2004.....................          224  May 2004.......          219
    Jun. 2004....................          232  Jun. 2004......          230
    Jul. 2004....................          245  Jul. 2004......          240
    Aug. 2004....................          239  Aug. 2004......          215
    Sep. 2004....................          237  Sep. 2004......          219
    Oct. 2004....................          246  Oct. 2004......          223
    Nov. 2004....................          254  Nov. 2004......          238
    Dec. 2004....................          262  Dec. 2004......          253
    Jan. 2005....................          264  Jan. 2005......          266
    Feb. 2005....................          244  Feb. 2005......          266
    Mar. 2005....................          238  Mar. 2005......          247
    Apr. 2005....................          233  Apr. 2005......          247
    May 2005.....................          233  May 2005.......          243
    Jun. 2005....................          235  Jun. 2005......          241
    Jul. 2005....................          235  Jul. 2005......          239
    Aug. 2005....................          231  Aug. 2005......          237
    Sep. 2005....................          232  Sep. 2005......          235
    Oct. 2005....................          239  Oct. 2005......          239
    Nov. 2005....................          247  Nov. 2005......          242
    Dec. 2005....................          256  Dec. 2005......          244
    Jan. 2006....................          263  Jan. 2006......          246
    Feb. 2006....................          270  Feb. 2006......          245
    Mar. 2006....................          271  Mar. 2006......          243
    Apr. 2006....................          271  Apr. 2006......          243
    ------------------------------------------------------------------------

                              readiness assessment
        42. Senator Akaka. General Lovelace and General Huly, what is your
    current assessment of your Service's readiness?
        General Lovelace. The Army remains ready and able to conduct full-
    spectrum operations in support of the National Defense Strategy within
    the current context of continuous operations. Pre-existing shortfalls
    and increased requirements to support combat operations have resulted
    in decreased measured resource levels in all components. Temporary
    declines in measured resource levels after redeployment are normal, and
    are primarily due to personnel transitions, equipment losses, and the
    unavailability of equipment needing maintenance. The Army is
    transforming to meet the challenge of the ongoing fight and future
    contingencies resulting from diverse threats. The Army Modular Force
    and Army Force Generation initiatives are nested and integrated in the
    Army Campaign Plan. These are complimentary and will improve soldier
    capabilities and unit readiness over time.
        General Huly. The readiness of our forward deployed forces is high.
    Our units have the personnel, training, and equipment they need to
    accomplish the mission. We do face significant challenges in the
    manning, training, and equipping of our nondeployed forces. In order to
    meet the requirements of units fighting global war on terror, we have
    drawn resources from units back at home station. This has resulted in
    decreased readiness levels for nondeployed forces. We also have
    significant shortfalls in our strategic programs. The deficiencies in
    our units at home station and in our strategic programs degrade our
    ability to respond to crises and contingencies outside of the CENTCOM
    AOR.

        43. Senator Akaka. General Lovelace and General Huly, what are some
    of the key challenges your Service faces in equipping, training, and
    otherwise preparing forces in light of the demands of ongoing
    operations as well as the need to maintain readiness to perform other
    missions?
        General Lovelace. The Army faces key equipping challenges in the
    repair, recapitalization, procurement, and research, development,
    testing, and evaluation of equipment to protect and reset the force in
    support of the long global war on terrorism and to ensure Reserve
    component forces are effectively equipped for homeland security and
    defense. We need to meet urgent operational needs in theater, enhance
    soldier force protection, upgrade equipment capabilities based on
    lessons learned in theater replace critical assets lost in operations,
    and prevent production breaks in the supply of critical equipment. High
    priority equipping challenges across the Army include Bradley Fighting
    Vehicles, Abrams SEP tanks, CH-47 helicopters, Fire Support Vehicles,
    Patriot Missile systems, Ml13 Armored Personnel Carriers, Improved
    Recovery Vehicles, UH-60 Helicopters, and Armored Security Vehicles.
        Required force protection equipment includes aviation survivability
    equipment, protection for forward operating bases, ballistic protection
    of ground vehicles, intelligence systems, night vision devices, combat
    survivor locators, individual and crew-served weapons, and various
    other items that work together, providing increased protection for our
    soldiers. Critical reset actions include repair and recapitalization of
    battle worn equipment, replacement of battle damaged equipment, and
    replacement of Reserve component equipment contributed to successive
    rotations overseas. High priority for Reserve component equipment
    includes families of medium tactical wheeled vehicles and palletized
    load system vehicles, construction and tactical bridging equipment,
    tactical radios, joint network node equipment, tactical operations
    center equipment, and the Javelin. Other programs requiring investment
    includes classified items, training devices, rapid equipping items,
    equipment for strategic communications, battle command, and
    intelligence purposes, and shortages of secondary items in war
    reserves.
        General Huly. Ongoing operations to include Iraq and Afghanistan,
    have placed extraordinary demands on our marines and their equipment.
    That said, our marines that are going in harms way are well-trained and
    well-equipped. The high readiness of our forward deployed forces is the
    result of a significant investment of resources. In order to meet the
    challenges of ongoing operations, we provide our marines with
    comprehensive, realistic, and demanding predeployment training. This
    training is supported by enhanced training facilities, adequate
    equipment, and a robust instructor cadre. Global war on terror has also
    placed a significant draw on our personnel. We provide many of our best
    and brightest young officers and senior NCOs in support of Iraqi/Afghan
    security force training teams. We have augmented our forward deployed
    units with additional personnel in order to meet the unique challenges
    of the current fight. We have also provided a large number of marines
    in support of joint staffs. Equipment demands have also been unusually
    high. For example, the communications and tactical mobility
    requirements of OIF/OEF greatly exceed our authorized allowances. In
    some cases the requirements are actually double our allowances. The
    harsh conditions have also caused us to put years of usage on our
    equipment in a matter of months. We are replacing our equipment much
    faster than we had planned and programmed. We have met all of our
    global war on terrorism-related requirements by drawing on our
    strategic programs and home station units. They have been the bill
    payers. This has impacted our ability to maintain a high state of
    readiness to perform other missions. Congress sustained support in
    resetting our force will help to restore the Marine Corps equipment
    warfighting capability across the spectrum of conflict and help prepare
    us for future conflicts.

                    cross-training personnel for deployment
        44. Senator Akaka. General Lovelace and General Huly, how has your
    Service evaluated the effectiveness of pre-deployment training for
    personnel who will be serving in a different capacity than that for
    which they were previously trained?
        General Lovelace. The Army produces after-action reports at Corps-
    level and at Brigade-level ``by-exception'' to evaluate the
    effectiveness of personnel who have been deployed. We do this both at
    deployment mid-cycle and after soldiers have returned from deployment.
    Prior to deployment, the United States Army Forces Command (FORSCOM) is
    responsible for evaluating training for Reserve component personnel who
    will be serving in a different capacity, and the Commanding General 1st
    Army is responsible for validating them for war. The Army's Corp
    Commanders are responsible for evaluating Active-Duty soldier pre-
    deployment training. All Army components end their pre-deployment
    training at a CTC or with a CTC-like training event. At that time, the
    1st Army Commander and Army Corps Commanders verify that their units
    are ready for war.
        General Huly. The Marine Corps is a learning organization. The
    Marine Corps Center for Lessons Learned (MCCLL), as part of their
    primary mission focus, has an ongoing, aggressive information
    collection program to assist in the assessment of unit predeployment
    training effectiveness. MCCLL was made a part of the Training and
    Education Command (TECOM) for just this purpose. MCCLL accomplishes
    these assessments by conducting surveys and one-on-one interviews with
    unit personnel before, during, or after deployment, to get first hand
    feedback on the effectiveness of our training programs and ways to make
    them better. The MCCLL then forwards identified issues to the
    appropriate agency for action.
        This effort includes assessing those units fulfilling missions
    different than those for which they traditionally train. During the
    week of 17 April 2006, MCCLL conducted a post-deployment lessons
    learned collection on Second LAAD Battalion at MCAS Cherry Point, NC.
    Although second LAAD's primary mission is air defense, they were
    assigned the mission of a provisional security battalion for their
    deployment to Iraq. Upon notification of their security mission, the
    battalion shifted their predeployment training emphasis to crew served
    weapons, convoy operations, and base security operations. Training
    exercises focused on establishing and maintaining a defensive
    perimeter, live fire crew served weapons training, entry control point
    and vehicle control point procedures, and convoy operations tactics,
    techniques, and procedures. Elements of the battalion participated in a
    Revised Combined Arms Exercise at MCAGCC, Twentynine Palms, California,
    and Exercise Desert Talon at Yuma, Arizona. Again, the training
    emphasis was on crew served weapons, stability, and support operations
    and convoy operations. Post-deployment interviews with the battalion
    indicated a sense that they were well-prepared for the provisional
    security mission they fulfilled in Iraq, as well as identified some
    areas for improvement of training. Reports on this collection effort
    have been forwarded to the training community through the TECOM Lessons
    Integration Division for their use in improving training.
        Some Marine units also fulfill a provisional military police
    mission. In an effort similar to one conducted by the corrections
    community last year in developing training in detainee operations,
    marines from the military police schoolhouse at Fort Leonard Wood,
    Missouri, will be deployed by MCCLL to Iraq during May 2006 to
    collection lessons and observations that they will use to quickly
    develop a training program for provisional military police units.
        In addition to these collection efforts focused on pre-deployment
    training, MCCLL has developed a Web-based Lessons Management System
    (LMS) that receives observations, recommendations, and supporting
    documentation from operating forces deployed around the world. Within
    MCCLL these records, in conjunction with in-theater interviews, post
    deployment commanders' conferences, and unit After Action Reports, are
    reviewed by senior analysts to identify positive and negative trends or
    patterns. MCCLL then forwards identified issues to those Marine Corps
    agencies tasked with improving how we organize, train, and equip
    Marines, for their action. Important to note, the joint staff (J7)
    announced on April 28, 2006, that the Marine Corps LMS will become the
    standard Web-based program (due to capability and ease of use) for the
    joint staff as a central repository for lessons learned.
        In summary, the intent in all these lessons learned collection
    efforts is to reduce the time it takes to identify issues and implement
    needed changes in our organization.

        45. Senator Akaka. General Lovelace and General Huly, to what
    extent are you expecting to use the cross-training practices that have
    been used for operations in Iraq for other theaters or other
    deployments?
        General Lovelace. Each military operation is different; therefore,
    the training requirement will be determined base on the guidance of the
    combatant commander in theater. For example, the requirements for
    Bosnia were different from Afghanistan and Afghanistan requirements
    were different from the requirements in Iraq. Future military
    operations in different theaters are being researched at the Army's
    Institutional Schools (i.e., Command and General Staff College, Senior
    Service College) exploring the Army's personnel, equipping, and
    training strategies to meet the requirements for the next major
    military operation(s).
        The Secretary of the Army has directed the Army to ensure the
    leader development process produces multi-skilled leaders who are
    prepared for current and future situations across a range of
    operations--be it nation building, counterinsurgency, or asymmetric
    combat as part of the joint team.
        We will continue to build upon our foundational warrior tasks and
    drills (39&9) when preparing for any operational mission, and focus on
    the mission requirements unique to a theater prior to any deployment.
    The various training practices that our soldiers and leaders have
    learned for their deployment to Iraq will continue to serve them well
    in future deployments. We expect our soldiers to be adaptable and
    multi-skilled, and they have shown this capability repeatedly in their
    deployments.
        General Huly. Marines continue to demonstrate that we are an
    expeditionary force in readiness--Most Ready When the Nation is Least
    Ready. Now entering the fifth year of what is a long war, your Marine
    Corps is wholly fixed on this challenge to the Nation. This conflict
    requires the uniformed Services to provide a broader range of
    capabilities supporting extended global operations, ultimately
    delivering greater agility, adaptability, and duration of sustainment.
    While our Armed Forces continue to dominate in traditional warfare, our
    current enemy necessitates the adoption of unconventional and indirect
    approaches throughout the Joint Force.
        History reveals a pattern of marines aggressively adapting to
    circumstances, and we consider ourselves in the vanguard of instituting
    the changes required to address not only the present but our Nation's
    future challenges. The over 30,000 marines serving on the forward
    fronts in the CENTCOM AOR today are a manifestation of transformational
    advances in manning, training, educating, and equipping to confront
    this latest threat to our way of life. From force structure revision,
    to urban training facilities, to cultural and language instruction, to
    leveraging emerging technologies, our efforts recognize the new
    character of conflict, and we are delivering both marines and Marine
    units that thrive in the uncertainty which will likely define warfare
    throughout the coming decades.
        Readiness is the enduring hallmark of your Marine Corps, prepared
    today and continuously preparing for tomorrow's fight. The National
    Defense Strategy (NDS) describes a security environment composed of
    numerous and diverse challenges including a complex mix of states of
    concern, failing states that undermine regional stability and threaten
    our interests, and non-state actors who seek to destabilize legitimate
    governments. The NDS calls for more widely dispersed forces providing
    increased forward presence, security cooperation with an expanding set
    of international partners, swift preemption of non-traditional threats,
    and global response to crises in spite of challenges to access.
    Likewise, the 2006 Quadrennial Defense Review (QDR) placed great
    emphasis on increasing global freedom of action, and preventive actions
    over reactive crisis response. It also highlighted the need to
    ``assemble, command, project, reconstitute, and re-employ joint combat
    power from all domains to facilitate assured access.'' The Strategic
    Planning Guidance highlights the need to ``Deter interstate coercion or
    aggression through forward deployed rotational forces and demonstrated
    capability to respond rapidly, enable partners through security
    cooperation, and conduct presence missions.'' It also directs an
    increase in the ability of general purpose forces to conduct highly
    distributed and parallel ``irregular warfare operations'' while
    retaining the ability to defeat traditional threats.
        In preparation for tomorrow's fight, we initiated a Capabilities
    Assessment Group (CAG) in March 2006, to take a focused look at our
    operating forces in order to ensure we have properly incorporated
    national military strategies, QDR guidance, the recent decision
    (October 28, 2005) by the Secretary of Defense approving a Marine
    Special Operations Command (MARSOC) consisting of approximately 2,600
    marines and sailors, and continuing lessons learned on the battlefield.
    The focus of this initiative is not limited to remaining end strength
    neutral as with the 2004 Force Structure Review Group initiatives,
    rather the CAG will assess all aspects of our current operations and
    more importantly, our future requirements in order to determine the
    right end strength balance for our Corps. This review was initiated to
    ensure we are postured best for irregular warfare, and that we adjust
    to the establishment of MARSOC, our decision to man infantry battalions
    at 100 percent. We expect to receive a first look report this summer.

        46. Senator Akaka. General Lovelace and General Huly, what kind of
    impact do you expect this to have on unit and servicemember
    capabilities?
        General Lovelace. The major impact is the temporary degradation in
    the primary MOS skills after redeployment. but there is a corresponding
    overall increase in basic combat readiness skills. The upside impact of
    this multi-functional training and experience is the creation of the
    most capable Army in our history. Our soldiers have demonstrated that
    they have the capability to switch roles and are multi-functional. They
    realize that being a soldier is more than just knowing their primary
    tactical and technical military skill. We offset any degradation by
    requiring commanders to develop reconstitution training plans that will
    return their unit to full readiness for their primary assigned mission
    within 180 days. Upon return to their home station, a unit will reset
    and begin to train for full spectrum readiness. The broader the
    experience a soldier has, the more capable he will be in the future.
        General Huly. While there is limited immediate impact on our Active
    component unit and servicemember capabilities, ultimately, Active
    component personnel/units being cross-trained to fulfill ILO
    requirements (normally filled by the Reserve component) must be
    reassigned to their core competency in order to maintain proficiency
    and capability in the force. Careful management of those units and
    personnel that are executing missions other than their specialty is
    ongoing and will continue in the future so no expertise or capability
    is lost. In the meantime, our overall readiness to meet other
    warfighting OPLAN requirements is reduced. For example, with much of
    our Active-Duty artillery training and executing non-artillery core
    missions, our collective readiness to meet the artillery requirements
    of a warfighting OPLAN is degraded. On the individual marine level, it
    is yet to be determined whether there will be a negative institutional
    effect to recruiting as marines who enlist for a particular MOS are
    deployed and employed in different occupations.
        In the Reserve component we continue to pull NCO and officer
    leadership from multiple Reserve component units around the United
    States, who have not yet been activated, in order to round-out or
    create an ad hoc unit capable of training and deploying as a cohesive
    unit. The units that give up their leadership lose valuable experience,
    leadership, training, and supervision capability. This will continue to
    have an increasingly detrimental effect on the capabilities and
    readiness of Reserve component units that remain in CONUS.
    Additionally, the current environment makes family readiness and
    support to the many disparate families of these reflagged units much
    more difficult.
        The Marine Corps has worked carefully to ensure that our Reserve
    marines can augment the efforts of our Active-Duty units and marines
    now and into the future to help relieve the demands placed on them. We
    continue to work with the DOD to balance the force requirements across
    the Services.

        47. Senator Akaka. General Lovelace and General Huly, how do you
    assess the impact that moving servicemembers from unit to unit has on
    the units and servicemembers affected, including their ability to
    return to proficiency in their original specialty?
        General Lovelace. We are only just now seeing units return where
    servicemembers were serving in alternate specialties or in other units.
    We are watching those units and assessing the effects and their ability
    to relearn their primary specialties. We do not have enough information
    to support any conclusion at this point. Upon redeployment, units are
    directed to develop a reconstitution training plan that will bring the
    unit to full readiness with 180 days of redeployment This includes
    individual military occupational skill and unit collective training.
        General Huly.
    Active Component
        The Marine Corps assesses the personnel risk associated with our
    assignment policies primarily through an examination of measures
    associated with retention--particularly those regarding our first-term
    enlisted population. According to these indicators, the assignments
    made to support operational requirements have not had an adverse affect
    upon the individual marine. In fiscal year 2005 the Marine Corps
    achieved 103.5 percent of our first-term retention mission and we are
    ahead of that pace this year (fiscal year 2006). For example, in our
    highly deployed infantry population, at this point last year (April 7,
    2006) we had achieved 85 percent of our first-term retention mission as
    opposed to having attained 98.5 percent thus far in fiscal year 2006.
    This positive trend is consistent with career force marines as well.
        Operational risk is mitigated in our assignment process through the
    concerted effort to stabilize units with personnel well in advance of
    scheduled pre-deployment training dates. Today, the objective of the
    Enlisted Assignment Branch is to have all deploying personnel report to
    a unit no later than 120 days before a unit's scheduled deployment date
    and, with few exceptions, this has been accomplished successfully. By
    assigning personnel in this manner--allowing for the completion of
    formal pre-deployment training--each marine is afforded the opportunity
    to hone individual skills in the context of collective tasks well
    before departure from CONUS. Historically, only approximately 6 percent
    of personnel have joined a unit within 90 days of deployment, and we
    continue to reduce this number. It should be stated as well that the
    majority of marines are moving to deploying units from billets in which
    they have maintained proficiency in their assigned occupational field.
    In instances where this is not the case, the Enlisted Assignment Branch
    has instituted practices to allow refresher-type training. For example,
    infantry marines in grades E6 and E7 are now being assigned to the
    Infantry Small Unit Leader Course after completing a Special Duty
    Assignment and before arriving at their next command. This has had the
    benefit of removing the responsibility for this training from the
    command, as well as giving individuals highly regarded training in
    their MOS before being compelled once again to utilize those specific
    skills.
        In addition to stabilizing the units with greater lead-time prior
    to deployment, we have been able to reduce personal turbulence by
    increasing the average amount of time between the date orders are
    issued and a marine's expected report date. In fiscal year 2005, the
    average time between operational orders issuance and expected report
    date was 114 days. In fiscal year 2006 to date, that number has
    improved to 152 days on average. This initiative, along with our
    ability to staff units well in advance of deployments, has served to
    decrease individual and unit stress while simultaneously increasing the
    combat cohesion of our deploying units.
    Reserve Component
        The Marine Corps prides itself on its ability to task-organize and
    adapt to the mission. Our Service culture and indeed our ethos of
    ``Every Marine a rifleman'' have served us well during operations in
    Iraq, Afghanistan, and elsewhere in support of the global war on
    terrorism. The key is that we recruit, train, and equip marines to be
    prepared to conduct infantry-type missions regardless of MOS. This
    applies to enlisted marines as well as officers. Recently, cross-
    leveling of units has allowed the Marine Corps Reserve to continue
    supporting ongoing operations through the use of volunteers, and
    individuals not previously mobilized. One negative consequence of this
    policy, however, is the potential disruption to unit cohesion and
    limitation on unit training prior to activation. Moreover, earlier
    activation for training uses greater cumulative activation time.
        Additionally, the Marine Corps must constantly assess the risk
    associated with utilizing individuals trained and equipped to provide a
    specific military specialty such as artillery for another mission
    because we lose the artillery military specialty while the individual
    is assigned another mission. The risk continues when the individual
    returns because it takes time to reconstitute and retrain to both
    individual and unit standards of proficiency.

                   impact of heavy deployment of unit leaders
        48. Senator Akaka. General Lovelace and General Huly, the Army and
    Marine Corps have been or will be deploying key unit leaders separately
    from their units so that those leaders can support special teams that
    are helping the Iraqis build their military and other institutions. In
    some cases, this has left deploying units with a junior, inexperienced
    leadership corps, or has led the Services to take leaders from one unit
    to deploy with another unit whose leaders have been pulled away for the
    special teams. As a result, units are experiencing shortfalls in
    critical capabilities at the same time that they going through extended
    deployments. How are you ensuring that deploying units whose leaders
    have been pulled away for other duties will be able to perform at the
    necessary level?
        General Lovelace. When the Army is required to deploy leaders from
    operational forces, unit readiness is challenged. This is true in peace
    and during war. These challenges are mitigated by cross leveling
    leadership; ensuring junior leaders continue their military education;
    maintaining realistic pre-deployment training; and through the unit
    training certification which commanders are responsible for prior to
    deployment to an AOR. These mitigations, although exacerbated by
    wartime demands, are cyclical in nature; the Army continues to show
    appropriate readiness posture in support of the global war on terrorism
    and maintains its capability to provide combat ready forces when
    required.
        General Huly. Manning, training, and equipping our deploying units
    is our first priority. The Marine Corps has sufficient depth in its
    ranks to ensure that the needs of the deploying units are met. The
    units that are not preparing for an immediate deployment are
    sacrificing their leadership. The Marine Corps continues to accept risk
    in these areas, but the risk is manageable.

        49. Senator Akaka. General Lovelace and General Huly, what efforts
    are you making to ensure that additional leaders are being developed
    and to evaluate the effectiveness of units that deploy without their
    leadership, or with new leaders?
        General Lovelace. First of all, our units do not deploy without
    their leadership; and rarely will deploy with new leaders. Our policy
    is to stabilize our units with their leaders throughout their training,
    so that when they deploy, they are a cohesive unit--they have trained
    together and will deploy together.
        The Army continually develops our leaders to be able to step up to
    the next level of responsibility. Our institutional professional
    military education has adapted to the current operational environment
    by shortening their courses to allow more leaders to attend and get the
    training that they need when they need it. Additionally, we have MTTs
    that respond to specific requests from our commanders to train our
    leaders.
        General Huly. All Marine deploying units are manned with fully
    qualified NCOs who have undergone pre-deployment training that prepares
    them for the missions they will execute. The Marine Corps assignment
    objective seeks to staff all deploying units, to include its small unit
    leaders, no later than 120 days before a scheduled deployment date.
    This practice ensures small unit leaders are given the necessary pre-
    deployment instruction to hone individual combat skills, in the context
    of professionally managed collective unit training, well before the
    unit departs. Moreover, in instances when marines return from a billet
    outside their assigned occupational field, we mandate refresher
    training. For example, infantry staff noncommissioned officers (SNCOs)
    are assigned to the Infantry Small Unit Leader Course in-between
    completion of their special duty assignment tour and arrival at their
    next command. This practice enhances a small unit leader's tactical
    confidence as well as measurably lessens the burden of deploying
    command responsibility for small unit skill progression training.
        Leadership development is resident throughout the continuum of
    Marine Corps Enlisted Professional Military Education (EPME). We
    continually upgrade our EPME program to meet the leadership needs of
    evolving operational requirements. Incorporation of cultural and
    distributed operations instruction into the resident SNCO academies
    enhances our leader's effectiveness in the current operational
    environment. The EPME transformation will incorporate distance
    education as well as improved resident programs, providing enhanced
    leadership skills and warfighting capabilities for the enlisted force.
    Marine Corps University and Marine Corps Institute recently developed a
    new leadership course for Lance Corporals, focusing on leadership and
    ethical decisionmaking skills, to prepare these marines for future
    leadership roles as the youngest NCOs in deploying units.
        Evaluation of leadership in deploying units occurs during the
    Mojave Viper training assessment at Twentynine Palms, California.
    Mojave Viper is the final assessment exercise of a robust pre-
    deployment training program. The assessment occurs at the culmination
    of many months of training, using a building block approach; where our
    infantry NCOs and junior SNCOs first gain proficiency on skills common
    to success in the current operating environment. These young leaders
    then take that knowledge and begin training marines in their unit using
    a comprehensive training plan based on previous experience and lessons
    learned by other deployed units. This building block approach to
    training allows senior leaders to evaluate newer leaders prior to, and
    during, the Mojave Viper assessment. At completion of this evaluation,
    units return to home station with a better understanding of leadership
    training deficiencies, and time to address any noted deficiencies; the
    unit then deploys with the best possible understanding of its mission,
    its capabilities, and its leaders.
        Our assignments practice, cultural and language instruction, and
    pre-deployment training program efforts recognize the new character of
    conflict, and we are delivering marine leaders who thrive in the
    uncertainty which will likely define warfare throughout the coming
    decades.

        50. Senator Akaka. General Lovelace and General Huly, for non-
    deploying units that have lost leaders to special deployments, how will
    unit readiness and training be maintained, absent their experienced
    leadership corps?
        General Lovelace. Most of the requirements for mid to senior grade
    leaders have gone to the Institutional Army in order to minimize the
    impact on the Operational Army. In cases where requirements are levied
    on the Operational Army, great care is given to ensure leaders are not
    removed from units scheduled for immediate or near-term deployment.
    While unit readiness and training may be affected by the loss of
    personnel, our leaders are developed throughout their careers to be
    able to step up to the next level. Our commanders identify and develop
    soldiers and junior leaders within their units to build a bench of
    leaders that are prepared to step up to higher positions in the event
    their superiors are not available. Leader development courses at Army
    schools have adapted to provide additional training when it is needed.
    Our distance learning programs also offer opportunities to assist our
    soldiers and leaders.
        General Huly. Marine officers, SNCOs, and NCOs are accustomed to
    working under adverse circumstances and thrive on increased
    responsibility. Our junior leaders on both the Active and Reserve side
    have and will continue to accept those challenges, just as they do in
    combat when their leaders are killed or wounded. Since a typical unit
    is identified for deployment close to 1 year in advance, our manpower
    staffs have the necessary time to ensure that each identified unit is
    staffed at 90 percent or better with ready, trained, and capable
    leadership.

        51. Senator Akaka. General Lovelace and General Huly, have you
    studied the impact of these deployments on your cadre of leaders?
        General Lovelace. We continually assess and survey the Army on a
    multitude of aspects. The Army Research Institute has a number of
    instruments that have studied this subject. One impact of these
    deployments is that our leaders have more operational experience with
    foreign cultures and an appreciation for the multiple demands of our
    country than any time in recent history.
        General Huly. Yes, the Marine Corps assesses the impact associated
    with continuous deployment by a close and continuous examination of our
    Active-Duty Force retention efforts specifically comprising our first-
    term and career force enlisted marines. According to reenlistment
    metrics and the number of assignments made to support operational
    requirements, we have not experienced an unfavorable effect on our
    ability to staff deploying units given the current deployment tempo
    along with meeting its Active-Duty retention goal. As a comparison, in
    fiscal year 2005 we achieved 103.5 percent of our first-term retention
    mission; we are ahead of last year's pace for fiscal year 2006; and we
    expect to reach 100 percent by July. In our highly deployed infantry
    population, at this time last year (May 10, 2005) we had achieved 91
    percent of our first-term retention mission in comparison to already
    having accomplished 100 percent thus far in fiscal year 2006. This
    positive trend is consistent with our career force marines as we have
    attained 84 percent of our required reenlistments with a 93-percent
    military occupational skill match in fiscal year 2006. This is
    comparable to last year's 87-percent career force retention mission.
    Marines are proud of what they're doing. They know that they are well-
    equipped, well-trained, and making a difference in the global war on
    terror.

               availability of skilled reservists for deployment
        52. Senator Akaka. General Lovelace and General Huly, what
    specialties within the Reserve component have been critical to
    supporting ongoing operations, and what specialties will be critical in
    the future?
        General Lovelace. The Reserve component has provided critical
    support to ongoing operations in many key areas, with the most critical
    specialties being civil affairs, transportation, intelligence, military
    police, logistics, and combat engineers. We anticipate these
    specialties will remain critical to future operations.
        General Huly. Primarily, the mission of the Marine Corps Reserve is
    to augment and reinforce the Active component. With few exceptions the
    USMCR units mirror the Active component and train with the same
    equipment and training standards as their Active-Duty counterparts.
    Currently, 97 percent of USMCR units, to include all nine infantry
    battalions, have been activated in support of OEF and OIF. Each of
    these units has been critical to supporting ongoing operations.
    However, some specialties such as civil and mortuary affairs are unique
    to the Reserve component and have been particularly critical to the
    efforts in Iraq and Afghanistan. Additionally, military police
    capabilities have been in high demand. As a result, many of our
    artillery units have received additional training and have subsequently
    been mobilized as provisional military police units. The Marine Corps
    continually evaluates the Active/Reserve component mix to determine
    what capabilities should be located in each component based on current
    and future mission requirements.

        53. Senator Akaka. General Lovelace and General Huly, for example,
    can you please describe your efforts to increase capability in Civil
    Affairs and Psychological Operations?
        General Lovelace. One of the recommendations identified in the QDR
    is for the Army to rebalance the Civil Affairs and Psychological
    Operations (PSYOP) forces. To accomplish this, the Army is growing the
    size of the civil affairs and PSYOP force by more than 3,700 positions
    in order to provide a greater depth of capability for both Special
    Operations Forces (SOF) and conventional forces. We are also realigning
    the USAR civil affairs and PSYOP forces from USASOC to USARC to better
    support the modular conventional force organizations at all levels.
    Based on the level of support required, the ARFORGEN model will be used
    to identify and align the appropriate USAR unit with a conventional
    force organization prior to operational deployment. This allows the
    civil affairs and PSYOP units to train with and fully integrate into
    the supported unit. By integrating civil affairs and PSYOP into the
    supported unit early, those soldiers will also become adept at
    including the civil-military aspect into all of their operations from
    mission planning through execution. The Active component civil affairs
    and PSYOP units will primarily support SOF units and missions. This
    realignment provides the correct force mix and enhances civil affairs
    and PSYOP support to the full spectrum of Army missions.
        General Huly. In regards to increasing Marine Corps civil afffairs
    capabilities, the Marine Corps recently assigned Civil-Military
    Operations (CMO) as a secondary mission to all artillery regiments and
    battalions. To facilitate this capability, Civil Affairs Planning Teams
    are attached (from Civil Affairs Groups) to artillery regiments and
    battalions thus combining civil affairs knowledge with the resources
    organic to the artillery units (vehicles, personnel, crew-served
    weapons, and communications). Additionally, the Marine Corps is
    reviewing, improving, and expanding collection efforts to track
    civilian skills data among both Active component/RC to identify
    essential skill sets needed in civil affairs units.
        In order to establish the PSYOP capability of the Marine Air-Ground
    Task Force and increase interoperability of the Marine Corps and SOF,
    the Marine Corps has undertaken the development of a Tactical PSYOP
    Detachment at each Marine Expeditionary Force to provide a Tactical
    PSYOP Team to each Marine Expeditionary Unit (MEU) during a deployment
    cycle. These Tactical PSYOP Teams will provide PSYOP dissemination in
    support of operations conducted by conventional and SOF units. With the
    establishment of MARSOC and ongoing deliberations in our CAG the Marine
    Corps is reviewing the appropriate location for this capability.

        54. Senator Akaka. General Lovelace and General Huly, I understand
    that, in some cases, reservists who remain available for deployments
    are junior, or do not possess the skills needed for current operations
    without additional training. Given this, what is being done to ensure
    that these reservists are adequately trained for their deployments?
        General Lovelace. The mission of ensuring that Guard and Reserve
    soldiers are adequately trained for deployment, with the skills and
    knowledge necessary for current operations, is a leadership
    responsibility at all levels of the U.S. Army. National Guard and
    Reserve soldiers are resourced and trained in the same manner and
    priority as all deploying forces, Active component, or otherwise.
    Equipping, manning, and training resources are prioritized to the next
    deploying units, with soldiers fully qualified in their MOS and basic
    soldier skills prior to overseas movement. When a Reserve unit is
    mobilized the Training Support Divisions are responsible for training
    readiness oversight. Individual training is conducted through phased-
    mobilization to allow individuals to attend schooling prior to
    mobilization. At the mobilization station, MTTs provide training for
    all deploying soldiers. Collective unit training at the mobilization
    station is conducted with realistic role players and OPFOR. Collective
    unit training is also validated with Mission Rehearsal Exercises (MREs)
    at CTCs such as Fort Polk, LA (JRTC) and the National Training Center
    (NTC). Training requirements for units with unique missions, and
    theater specific training requirements, are identified and addressed
    prior to deployment. Theater specific training is also conducted when
    units arrive overseas.
        General Huly. The bottom line is no marine, Active or Reserve,
    deploys without receiving their requisite training. Additionally:

              a. The majority of Marine Corps reservists who have never
            been mobilized, and thus are available, are in fact junior. Of
            the approximately 12,000 available, 10,600 are in the grades of
            E1-E5 (private to sergeant). The preponderance of these marines
            have completed recruit training, Marine Combat Training (MCT),
            and appropriate MOS school training. These marines are fully
            qualified to perform their assigned duties for the billet/unit
            they are assigned. No more than 25 percent of Reserve
            accessions per fiscal year participate in the incremental
            initial Active-Duty for training program that is designed for
            reservists accepted for college enrollment. These marines
            typically split initial training into three phases spread
            across 3 years: recruit training, MOS training, and MCT.
              b. Per Marine Administrative Message 006/04, marines may be
            activated upon completion of all phases of initial training and
            upon joining their intended Reserve unit. Marines participating
            in incremental initial training whose intended unit is
            activated or pending activation prior to a marine's completion
            of training may have their training cycle accelerated in order
            to complete all required training prior to joining their
            Reserve unit for the first time. Additionally, marines between
            phases of incremental training are given the option to
            volunteer for accelerated training, activated prior to the
            unit's activation date in order to facilitate accelerated
            training, or to be put in an accelerated training track upon
            activation.
              c. Activated Marine units participate in specific pre-
            deployment, such as Mojave Viper and Desert Talon, in
            preparation for deployment. Individual Reserve marines
            mobilized to fulfill individual augment requirements may
            participate in billet specific predeployment training.

        55. Senator Akaka. General Lovelace and General Huly, what is being
    done to balance the increased demand on the Active component as the
    availability of reservists diminishes?
        General Lovelace. The Army is transforming and rebalancing the
    force, while supporting the Joint Staff's continued effort to explore
    ILO sourcing options. Transfonnation and rebalancing are ongoing
    initiatives and will take time to complete. In the interim, the Army
    will rely more on Active component units to deploy in support of OIF
    and OEF. Once transformation is complete, the Army will be able to
    continuously provide combatant commanders with a force of approximately
    174,000 soldiers for steady state operations, which includes no less
    than 14 Active and 4 Reserve component combat brigades. These numbers
    are predicated upon assured access to the Reserve component. The Army
    is also rebalancing the Active and Reserve component with the goal of
    converting 120,000 of force structure between fiscal years 2004-2011.
    The rebalancing will invest in areas of high demand in the long war on
    terrorism such as military police, civil affairs, PYSOPs, and Special
    Forces.
        General Huly. As the Marine Corps continues to expend available
    access to Reserve component units and individual marines, we are
    increasingly filling OIF/OEF shortfalls through ILO sourcing from the
    Active component. In order to mitigate some of this stress and free
    more marines for combat duty, we have asked the Navy and the Air Force
    to provide support in other areas (JTF Horn of Africa, JTF staff
    billets, etc). We have also sought efficiencies from those conventional
    combat forces in lesser demand; for instance, within the Active
    component, our artillery units continue to fill important gaps in
    functional areas outside their core competencies like: motor transport,
    civil affairs, and military police. With the combination of these ILO
    solutions and simply increasing the deployment tempo for our Active
    Force, we are managing to meet our force presence requirement in Iraq,
    Afghanistan, and still maintain our forward deployed naval presence
    missions.
        From the Reserve component, we continue to seek volunteers to fill
    HQ billets or individual shortfalls in Active units. To date, this
    practice has yielded a sufficient number of marines; though our
    analysis shows that this will soon dry up without involuntary access to
    our SMCR and IRR marines. For Reserve units we are increasingly forced
    to ``cross-level'' marines from several different Reserve component
    units to make a Reserve unit that is ``healthy'' enough to train and
    deploy. There are significant short- and long-term institutional costs
    to this; it strips units in CONUS of key leadership and ultimately
    increases risk to the operational commander who gains a unit without
    the same level of cohesive teamwork and experience one would normally
    expect or desire in combat situation.
        Our mitigation in both the Active component and Reserve component
    is being closely monitored. We remain aware and concerned of the long-
    term implications of these actions. Specifically the potential long-
    term loss of balanced combat power as our Active component combat
    support units cross train outside of their core competency and the
    gradual loss of leadership in those Reserve component units remaining
    in CONUS after their officers and senior enlisted cross-level to
    deploying units.

                              equipment management
        56. Senator Akaka. General Lovelace and General Huly, much of your
    equipment is remaining in theater, is in depot for repair, or is
    unavailable because of combat losses or wear. To support current
    operations in the face of these supply challenges, your Service has
    left much of your equipment in theater for use by deploying units.
    Thus, non-deployed units are reporting major equipment shortages while
    units in theater are reporting that they have what they need for their
    missions. Deployed units' assessments, however, are not based on the
    units' own equipment, but on the equipment that they receive once they
    are in theater. This strategy has consequences for training and the
    ability to remain ready to support missions outside of the current
    theater of operations. In light of your equipping strategy of having
    units fall in on equipment that stays in theater, how will you provide
    nondeploying units with the equipment that they need for training and
    to support Service-directed modernization programs?
        General Lovelace. The ARNG component had about 65 percent of its
    authorized equipment in September 2001 and has contributed 8 percent of
    its authorization to theater for use by successive rotations of Active
    and ARNG units. It has another 21 percent of its authorization in
    deployed units or in reset, 26 percent at home and available for
    deployment to Iraq and Afghanistan. It also has about 10 percent of its
    authorization at home and available for most missions that are not
    constrained by unique operational requirements, like what we have in
    Iraq.
        The Army experienced years of under-funding prior to September 11
    that resulted in a $56 billion ``hole'' in readiness caused by
    insufficient modernization to fill existing shortfalls and emerging
    needs. Shifting equipment to fill holes and emerging requirements in
    deployed and deploying units deepens the holes in training and
    resetting units. Equipment redeployed to prepositioned stocks and home
    station is not available for mission support or training until it is
    reset through repair or recapitalization. Equipment lost through battle
    damage or worn out through operational tempo must be reset through
    replacement to support our soldiers in more capable units and to
    sustain our long-term commitments at home and abroad.
        The cyclical nature of deployment rotations enables us to
    prioritize the distribution of equipment to fill holes in units closest
    to their next deployment date. This ensures units have the right types
    and amounts of equipment to support their training needs as they reset
    and progress through the levels of readiness for deployment. Non-
    deployed units in all Army components, especially those in our ARNG
    component, must remain ready for homeland security and defense
    missions, such as natural disasters that may also occur in cycles.
        We have identified essential capabilities in a baseline equipment
    set for homeland defense and security and we are prioritizing the
    delivery of this equipment to the ARNG as soon as practicable. As
    examples, we plan to equip the ARNG by August 2007 with 100 percent of
    their Land Mobile Radio Systems--intra-squad radios that are compatible
    with local, State, and Federal radios. We have also accelerated
    fielding plans to replace the Army's oldest truck models by the end of
    September 2009, the majority of which are in the ARNG. We have also
    increased and fenced Reserve component investment accounts fourfold to
    $21 billion for the ARNG and $3.6 billion for the Army Reserve in
    fiscal years 2005-2011.
        Fiscal year 2007 will be pivotal for the Army. The anticipated
    supplemental funding to reset and protect forces in all Army components
    will enable us to protect our investment accounts and accelerate
    transforming the ARNG into more a capable and ready force.
        General Huly. The Marine Corps continues to manage allocation and
    distribution of equipment in accordance with the Commandant's equipping
    prioritization (updated and published quarterly). The equipment
    prioritization takes into account the readiness of our forces and the
    critical training required to continue operational preparedness, as
    well as the equipping of future units--Marine Forces Special Operations
    Command, for example. Equipment within the Marine Corps' Supporting
    Establishments, specifically the Training Command Tables of Equipment
    and predeployment training packages, has remained fenced since the
    deployment of our forces in support of the global war on terrorism.

        57. Senator Akaka. General Lovelace and General Huly, to what
    extent have you assessed the extent that forces are prepared to conduct
    missions other than those assigned in the ongoing operations?
        General Lovelace. The Army remains ready and capable of meeting the
    Nation's needs and has continued to provide units at high levels of
    readiness to support combatant commanders' requirements. For the past 6
    months, the Army has exceeded readiness standards in the USCENTCOM area
    of operations by maintaining a 90-percent or better equipment
    operational readiness rate. However, nondeployed unit readiness has
    been impacted by cross-leveling forces and equipment to support
    deploying units and stay-behind equipment requirements in theater. The
    Army is mitigating risk through a force generation process that
    maneuvers resources to higher priority units to ensure that next
    deploying units are ready to execute the National Security Strategy.
    The continuation of timely supplemental funding for reset is imperative
    to improve equipment readiness, fill equipment shortfalls resulting
    from combat operations, and to ensure units are prepared for potential
    future contingency missions.
        General Huly. The Marine Corps is a learning organization; we use
    several processes to assess the preparation and readiness of our
    forces. In 2004, we conducted an extensive force structure review
    recommending approximately 15,000 structure changes to improve the
    Marine Corps' ability to meet the long-term needs of the global war on
    terror and the emerging requirements of the 21st century. We are
    implementing these changes and recently established a Capabilities
    Assessment Group to take a focused look at our operating forces to
    ensure we have properly incorporated lessons learned on the
    battlefield, QDR guidance, and the recent establishment of a Marine
    component within Special Operations Command (SOCOM). Our Reserve
    component structure initiatives will support the changing environment
    through the establishment of an Intelligence Support Battalion, a
    Security/Antiterror Battalion, and two additional Light Armored
    Reconnaissance companies. We are also augmenting existing capabilities
    in the areas of contingency contracting, civil affairs, command,
    control, communications and computers, and additional reservists for
    high-demand/low-density Individual Mobilization Augmentation
    requirements.
        The Marine Corps Training and Readiness (T&R) Program provides a
    system of manuals that assist commanders in tracking unit readiness.
    These manuals identify the training requirements and support resources
    necessary to maintain the individual and collective proficiency that
    ensures units can accomplish mission essential tasks. Units that are
    assigned missions other than their primary organizational missions use
    applicable T&R manuals to develop unit training programs tailored to
    their new mission. This program also establishes policy that ensures
    evaluation is an integral part of all training.
        The MCCLL, as part of their primary mission focus, has an ongoing,
    aggressive information collection program to assist in the assessment
    of unit pre-deployment training effectiveness. MCCLL was made a part of
    the TECOM for just this purpose. MCCLL accomplishes these assessments
    by conducting surveys and one-on-one interviews with unit personnel
    before, during, or after deployment, to get first hand feedback on the
    effectiveness of our training programs and ways to make them better.
    The MCCLL then forwards identified issues to the appropriate agency for
    action. In addition to these collection efforts focused on pre-
    deployment training, MCCLL has developed a Web-based LMS that receives
    observations, recommendations, and supporting documentation from
    operating forces deployed around the world. Within MCCLL these records,
    in conjunction with in-theater interviews, post deployment commanders
    conferences and unit after action reports, are reviewed by senior
    analysts to identify both positive and negative trends or patterns.
    MCCLL then forwards identified issues to those Marine Corps agencies
    tasked with improving how we organize, train, and equip marines for
    their action. Important to note, the Joint Staff (J7) announced on 28
    April 2006 that the Marine Corps LMS will become the standard Web-based
    program (due to capability and ease of use) for the Joint Staff as a
    central repository for lessons learned.

        58. Senator Akaka. General Lovelace and General Huly, what
    projections have you made for when your Service will fully reconstitute
    any equipment lost or damaged in theater?
        General Lovelace. The Army's best estimate is that it will take 2+
    years to fully repair, replace, and recap equipment following the
    return from usage in the OIF/OEF.
        The basis for the estimate is primarily factors involving:

              (1) the amount of equipment in theater (50 percent of the
            600,000 major end items remain in theater and do not return
            each year).
              (2) the rate at which this equipment will likely be extracted
            (it will not all come out over a 2-3 month period, it will take
            time to extract it, and because the equipment in the theater
            stocks is primarily `owned' by Army Materiel command, not the
            unit, and because it will largely go to the AMC depots for
            repair, the manpower will primarily be civilian or contractor
            as it retrogrades, it cannot be brought out as quickly as an
            equipped and manned BCT can be redeployed.)
              (3) the time required to inspect equipment after return to
            determine what equipment is economically unrepairable. AMC
            makes every effort to identify this equipment prior to
            redeployment, to avoid costly transportation for equipment
            which would later be disposed of, and concentrates this effort
            on the major end items. Lesser end items do not receive the
            same level of scrutiny due to the time and cost involved, and
            some portion will undoubtedly be redeployed with units and as
            part of the retrograde of theater stocks, and be washed out
            upon a final technical inspection at the depot. This inspection
            could occur months after an item returns as the depots work
            through the massive amount of equipment that does return. The
            Army, in accordance with Office of Management and Budget (OMB)
            and the Office of the Secretary of Defense, policy only
            requests replacement after the loss (combat or washout) is
            confirmed. A washout cannot be confirmed until the technical
            inspection is complete.

        It could take longer than 2 years if the force level in theater
    requires equipment to stay for a significant period of time, or if the
    pace of operations remains significantly high for an extended period.
        General Huly. The entire cost to reset the Marine Corps cannot be
    executed in 1 fiscal year due to industrial base limitations. However,
    resetting the force can be executed with 2 years of funding for ground
    equipment and is phased accordingly. Due to the long lead times and
    industrial limits, aviation assets require additional phasing from
    fiscal year 2008 through fiscal year 2012.
        In addition, much of the Marine Corps equipment is in theater.
    Until this equipment is returned to CONUS and evaluated it will be
    difficult to assess the extent of damage (and whether the item can be
    repaired or needs replaced). Furthermore, the Marine Corps will require
    depot maintenance funding beyond the 2-year window to repair damaged
    equipment from continuing combat operations.

                      corrosion prevention and mitigation
        59. Senator Akaka. General Lovelace and General Huly, your Services
    are about to repair or replace an enormous amount of equipment over the
    next few years due to the wear and tear of operations in Iraq and
    Afghanistan. What plans and procedures do you have in place to ensure
    that the new or refurbished equipment incorporates the best available
    corrosion prevention design, techniques, processes, and coatings to
    maximize the life of this new or like-new equipment?
        General Lovelace. The Army will use Corrosion Prevention
    Technologies (CPTs), in fiscal year 2007 and beyond, to protect
    tactical vehicles, aircraft and missile and armaments systems, and
    support equipment. Promising technology categories include clear water
    rinse systems, cable connector covers to extend the life of wiring
    harnesses, nondestructive testing to identify hidden corrosion while it
    is inexpensive to repair, and preventive maintenance treatments to
    increase corrosion resistance of tactical vehicles and support
    equipment. Approximately 11,000 tactical vehicles were completed in
    fiscal year 2005 and approximately 800 aircraft (one-third of Army's
    fleet) have undergone corrosion prevention during reset.
        The Army's largest investment is in standardized processes to
    control corrosion at the Corrosion Control Centers. These centers are
    installed at a cost of approximately $2 million. Baseline operations
    costs are projected at $1.5 million per site ($0.5 million for
    facilities and $1.0 million for equipment applications) per year. Fixed
    facilities currently exist at Schofield Barracks, Hawaii; Fort Hood,
    Texas; Fort Polk, Louisiana; and Fort Bragg, North Carolina. Mobile
    application facilities exist at eight additional sites. Corrosion
    prevention treatments are also applied during reset and depot
    maintenance at Army depots and contractor sites. Discussions have been
    held to establish more Corrosion Control Centers.
        Government Accountability Office reports have shown that the return
    on investment/cost avoidance for corrosion prevention efforts is at
    least four to one. The Army's CPC efforts will ensure that the Army
    efficiently meets the equipment readiness goals needed to sustain
    current and future contingency operations.
        General Huly. The Marine Corps identifies the levels of corrosion
    and repairs required on all ground combat and support equipment using
    the Marine Corps Corrosion Assessment Programs (MCCAP). These programs
    are executed during scheduled and unscheduled maintenance cycles at the
    field and depot activities as well during a planned Corrosion Control
    and Coating (C3) program execution. The Marine Corps currently tracks
    over 20,000 pieces of equipment through these processes.

                            mental health treatment
        60. Senator Akaka. General Lovelace and General Huly, on March 1,
    2006, the Washington Post reported that ``More than one in three
    soldiers and marines who have served in Iraq later sought help for
    mental health problems.'' I believe it is crucial that we provide the
    mental health care our servicemembers need and deserve based on their
    service in these stressful assignments. I know from the oral testimony
    at this hearing that the Army and the Marine Corps understand the
    importance of this issue and are taking steps to address it. Please
    describe the extent to which you rely on leaders in the chain of
    command, mental health professionals, chaplains, and volunteers or
    others to address this need, including screening and counseling or
    other treatment.
        General Lovelace. Frontline leaders, the chain of command, unit
    chaplains, and unit mental health providers work together to provide
    unit training and early identification of soldiers suffering from
    combat stress and post-traumatic stress disorders. These personnel are
    supported by the mental health staff of Army hospitals and clinics in
    garrison and by Army combat stress control units during deployment.
    Combat stress control teams are comprised of licensed mental health
    providers who work with our leaders before deployment conducting
    training and consultation on combat fatigue prevention. Currently more
    than 200 mental health providers are deployed in Iraq to provide
    training and far-forward treatment of soldiers suffering from combat
    stress and other deployment mental health issues.
        Post deployment mental health screening and deployment cycle mental
    health support is an important component to the mental health care we
    provide to soldiers and their families. Elements include a face-to-face
    Post-Deployment Health Assessment (PDHA) by trained healthcare
    providers prior to redeployment and a second Post-Deployment Health
    Reassessment (PDHRA) at 3 to 6 months post redeployment. Soldiers who
    report mental health concerns or who screen positive for mental health
    problems are referred to appropriate specialists for further evaluation
    and treatment. Additionally, the MilitaryOne Source service is
    available 24 hours a day, 365 days a year for soldiers and families who
    have questions or concerns about mental health problems. OneSource
    counselors refer patients to military, civilian, or VA mental health
    providers as appropriate.
        General Huly. The Marine Corps' extensive deployment history and
    combat experience have shown that the best opportunity to prevent
    combat/operational stress and assure timely intervention is through the
    involvement of the leadership and chain of command. Conversely, the
    medical community is responsible for the diagnosis and treatment of
    mental health conditions. The Commandant of the Marine Corps has
    advised leadership at every level of their responsibility to take care
    of all marines both on and off the battlefield.
        Prior to deployment, there is training for Marine officers and
    SNCOs on preventing, identifying, and managing stress injuries of all
    kinds.
        During deployment, there is mentorship by the small unit leaders
    who are the ``center of gravity'' of combat/operational stress control.
    Also in theater, there are identification and treatment services by
    Chaplains and our integrated Operational Stress Control and Readiness
    Program (OSCAR) teams. Prior to redeployment we provide additional
    training to Marine leaders concerning the stresses of return and
    reunion while providing similar briefing to both returning marines and
    waiting families. Navy medical personnel complete a PDHA and screen
    returning marines for signs of trouble, providing treatment as
    indicated.
        After deployment, there are follow-on briefs for Marine leaders,
    and junior marines on identifying and obtaining help for post-
    deployment issues. Marines are provided additional safety and
    adjustment briefings to avoid predictable pitfalls like driving,
    alcohol, and social challenges. At this time, counseling resources from
    the OSCAR team, installation Marine Corps Community Services (MCCS),
    and DOD provided Managed Health Network are available to address
    problems should they arise.
        After return and appropriate leave, additional training is provided
    leaders on types of delayed issues that might arise. Medical
    authorities conduct a follow-on Post Deployment Health Reassessment to
    provide another opportunity for marines to indicate new issues and
    provide appropriate level assistance as indicated.
        The OSCAR team is the integrating link between leadership and
    behavioral health specialists within Marine units to provide early
    intervention and reduce the effects of combat stress throughout the
    deployment cycle, before, during, and after. This is a program unique
    to the Marine Corps, and it works. OSCAR keeps marines with low-level
    problems in their assigned duties and allows those with more severe
    conditions to immediately receive appropriate treatment. Note: Of the
    66,484 marines deployed to Iraq between February 2004 and March 2005,
    1,046 (1.6 percent) were evaluated and treated by Navy mental health
    personnel for stress reactions in theater; 1,015 (97 percent of those
    evaluated) were returned to duty with follow-up care; and 30 (3 percent
    of those evaluated) required medical evacuation back to CONUS. The
    stress of the remaining 98.4 percent of deployed marines was
    effectively managed in their units.

        61. Senator Akaka. General Lovelace and General Huly, do you have
    an adequate number of people trained to provide mental health services
    to meet your needs?
        General Lovelace. The Army does have an adequate number of
    personnel trained to provide mental health services. Army mental health
    providers are very busy both in theater and back in garrison. We
    currently have over 200 mental health troops in the Iraq theater. Their
    primary mission is education, prevention, and treatment of combat
    stress reactions. Army Medical Command has hired more civilian
    providers to help backfill Active-Duty personnel who have deployed and
    to accommodate additional demand for mental health services by soldiers
    and families.
        General Huly. Yes. Over the past 3 years, the numbers of mental
    health professionals directly serving operational Marine units through
    the OSCAR program have significantly increased. Moreover, Navy mental
    health providers from medical treatment facilities across the country
    are augmenting mental health support services for marines in theater
    and in garrison. Mental healthcare providers are also available through
    the TRICARE network. Surges in mental healthcare needs in the Marine
    Corps have been met through services provided by the Managed Health
    Network, an Office of the Secretary of Defense-contracted support
    mechanism for supplemental mental health services. The Marine Corps
    also makes use of its intrinsic non-medical support capability
    resources in the identification and management of stress problems,
    including unit Chaplains, both in garrison and forward deployed, and
    Marine Corps Community Services counseling centers on Marine Corps
    bases. The Marine Corps component of Military OneSource offers
    additional confidential mental health services to marines and their
    families. With Navy medicine, the Marine Corps is closely monitoring
    mental healthcare needs to ensure requirements remain fully met.

                       security and stability operations
        62. Senator Akaka. General Huly, the Marines were not really
    designed for these long-duration operations the same way the Army was.
    In the future, do you expect the national command authorities will be
    just as likely to task a Marine unit as an Army unit with the type of
    missions you are now both performing in Iraq? If so, how might that
    affect how the Marine Corps is organized and equipped?
        General Huly. Yes, the NDS describes a security environment
    composed of numerous and diverse challenges including a complex mix of
    states of concern, failing states that undermine regional stability and
    threaten our interests, and non-state actors who seek to destabilize
    legitimate governments similar to what we see today in Iraq. The NDS
    calls for more widely dispersed forces providing increased forward
    presence, security cooperation with an expanding set of international
    partners, swift preemption of non-traditional threats, and global
    response to crises in spite of challenges to access. Likewise, the 2006
    QDR placed great emphasis on increasing global freedom of action, and
    preventative actions over reactive crisis response. Recent DOD guidance
    directs an increase in the ability of general purpose forces to conduct
    highly distributed and parallel ``irregular warfare operations'' while
    retaining the ability to defeat traditional threats.
        The strategic guidance and recent operational experience have
    already institutionalized a shift in how the Marine Corps is organized
    and equipped. Over the last year, we have restructured to meet the
    requirements of the Unified Command Plan, the NDS, and combatant
    commanders. This effort has resulted in four major changes to our
    componency construct:

              1. Establishment of Marine Forces Command as the Marine Corps
            component to the Joint Force Provider, U.S. Joint Forces
            Command (JFCOM).
              2. Establishment of U.S. Marine Corps Forces, CENTCOM as a
            stand-alone component staff of approximately 100 Active-Duty
            marines.
              3. Assignment of the Commander, Marine Forces Reserve and his
            staff as the Service component for U.S. Northern Command.
              4. Establishment of a Marine component within MARSOC
            providing approximately 2,600 USMC/Navy billets within U.S.
            SOCOM, led by a Marine brigadier general. MARSOC will provide
            additional capability to SOCOM by adding forces that will
            conduct direct action, special reconnaissance,
            counterterrorism, and foreign internal defense.

        In 2004, we conducted an extensive Force Structure Review
    recommending approximately 15,000 structure changes to improve the
    Marine Corps' ability to meet the long-term needs of the global war on
    terror and the emerging requirements of the 21st century. This effort
    was end strength and structure neutral--offsets to balance these
    increases in capabilities come from military to civilian conversions
    and the disestablishment and reorganization of less critical
    capabilities. We are implementing these changes and recently
    established a Capabilities Assessment Group to take a focused look at
    our operating forces in order to ensure we have properly incorporated
    lessons learned on the battlefield, QDR guidance, and the MARSOC
    standup. Our Reserve component structure initiatives will support the
    changing environment through the establishment of an Intelligence
    Support Battalion, a Security/Anti-Terror Battalion, and two additional
    Light Armored Reconnaissance (LAR) Companies. We are also augmenting
    existing capabilities in the areas of contingency contracting, civil
    affairs, command, control, communications, and computers, and
    additional reservists for high-demand/low-density Individual
    Mobilization Augmentation requirements.
        The Marine Corps continues to examine other opportunities to
    augment needed capabilities. For example, we are assigning each
    artillery regiment a secondary mission to conduct CMO. To do this, each
    regiment will be augmented by a Reserve civil affairs capability. By
    assigning a secondary CMO mission to artillery units, we have augmented
    our high-demand/low-density civil affairs capability while retaining
    much needed artillery units. We will continue to look for additional
    innovative ways to maximize our capabilities within our existing force
    structure.
        History reveals a pattern of marines aggressively adapting to
    circumstances, and we consider ourselves in the vanguard of instituting
    the changes required to address the present challenge. From force
    structure revision, to urban training facilities, to cultural and
    language instruction, to leveraging emerging technologies, our efforts
    recognize the new character of conflict, and we are delivering both
    marines and units that thrive in the uncertainty which will likely
    define warfare throughout the coming decades.

                              length of rotations
        63. Senator Akaka. General Vines and General Sattler, in your view,
    what are the relative merits of the Army's 1-year rotations and the
    Marines' 7-month rotations?
        General Vines. The main relative merit of the current Army and
    Marine tour rotation policies is that they provide adequate time for
    our soldiers and marines to gain not only situational awareness, but
    situational understanding of the threat and the operating environment.
    Specifically, the Army's 1-year rotation allows us to effectively use
    the Total Army by maximizing the use of National Guard and Army Reserve
    Forces based on current statutory requirements for Reserve component
    mobilization. Although full 365-day tour lengths for both Active
    component and Reserve component units reduce the overall strain on the
    Active component force, the Army needs to continue to review tour
    lengths and shorten them as soon as feasible.
        General Sattler. The primary advantage of 7-month rotations versus
    those of 1-year duration is that the unit remains fresh and focused
    throughout their deployment. Units which remain for a full 12-month
    cycle under combat conditions are at risk of becoming tired. In
    addition, a unit deployed for 7 months does not rate/need the 2-week
    leave program; therefore the unit is at full strength the entire time
    in theater vice having a percentage always on leave. In addition, 7-
    month deployments mirror MEU and Unit Deployment Program models that
    have proven their effectiveness.
        From a manpower management perspective, 7-month deployments also
    allow HQMC to manage personnel transfers and EASs without having to
    implement stop loss or stop move policies which negatively impact
    morale and retention. The 7-month force rotation plan for OIF/OEF is
    necessary to continue to support the National Military Strategic Plan
    (NMSP) for global war on terrorism while sustaining operational
    readiness and USMC Global Force Posture (GFP) for the MEUs and TACAIR
    Integrated Squadrons. It maintains the CMC-directed Force Rotation
    Ratio of 1:1 for 7 months deployed and 7 months at home station.

                                 joint training
        64. Senator Akaka. General Vines and General Sattler, what did
    joint training contribute to your preparation for operations in
    CENTCOM, and where are we now compared to where you feel we should be
    on joint training?
        General Vines. Joint training was critical to our success in
    CENTCOM. The joint seminars and exercises contributed training that was
    otherwise unavailable. They built key skills that enabled the XVIII
    Airborne Corps to efficiently interact with joint staffs and
    successfully command joint subordinates. There is always room for
    improvements in terms of exercise fidelity, modeling and simulation,
    and command, control, communications, computers, intelligence,
    surveillance, and reconnaissance architecture, but there are no glaring
    deficiencies in the joint training program.
        General Sattler. Standardized joint tactics and techniques and
    procedures and the success of joint professional education ensured the
    Joint Force in MNF-West was fully prepared to perform its mission
    without additional interservice training. An example of this ability to
    plan, plug in, and execute in a rapid fashion is the second battle of
    Fallujah. Multiple Army, Air Force, Navy, British, and Iraqi formations
    joined together a week before the battle and executed one of the
    largest urban combat operations since Hue City, Vietnam with a
    resounding victory and minimal fratricide incidents.

        65. Senator Akaka. General Vines and General Sattler, in preparing
    for your deployments, how much of your training was joint versus
    service-specific, and how much value was added by JFCOM in terms of
    things like mission rehearsal exercises or lessons learned?
        General Vines. JFCOM does an exceptional job of preparing units for
    deployment in a joint environment. JFCOM successfully replicates the
    command structures, battle rhythms, and threats found in the theater.
    They force the training audience to function in a fully joint
    environment, providing training that the Army alone cannot provide.
    Among the objectives for the Corps pre-deployment Mission Rehearsal
    Exercise (MRX) were to conduct effects based operations, integrate
    coalition partners, operate in a collaborative environment, and
    integrate MNC-I and other Government agencies and Joint Forces. The
    JFCOM After-Action Report (AAR) of the MRX yielded the following
    quotes:

              1. ``Coordination between the Joint Planning Group and Future
            Operations Section improved dramatically throughout the
            exercise after initial challenges.''
              2. ``The XVIII Airborne Corps made significant progress
            incorporating effects based operations (EBO) and effects based
            planning (EBP) in staff processes.''
              3. ``The XVIII Airborne Corps has made great strides towards
            integration within joint/multinational and interagency
            environment in order to foster coalition relations and security
            arrangements; however it was a large hurdle to overcome
            traditional mindsets.''

        General Sattler. At the operational level (corps and division),
    there have been a series of Command Post Exercises, MRX, and academic
    seminars that facilitated the focus of our efforts on the
    familiarization, integration, and synchronization of joint battle
    rhythms, processes, core competencies/capabilities, and reporting
    procedures. These have successfully reduced the friction of bringing
    together different Services to form a Multi-National Task Force. The
    MRX facilitates the higher headquarters' integration in the C2
    environments and is adequate. These events also facilitate the sharing
    of lessons learned. The next MAGTF headquarters scheduled for
    deployment is currently undergoing another joint training evolution
    with its designated higher headquarters in preparation for the OIF 06
    2008 deployment.
        Pre-deployment training at the tactical level (battalion and
    regiment) consists primarily of service-specific training. These
    organizations train to mission essential tasks using joint standards in
    multiple skill areas. This approach has proven itself invaluable since
    Operation Desert Shield/Operation Desert Storm. One example of this
    joint performance standard focus is exemplified in our ability to
    provide terminal guidance for a variety of supporting fires such as
    aviation ordnance delivery. Specific to OIF and the MNF-West zone,
    Marine Forward Air Controllers, Navy and Marine Air Naval Gun Fire
    Teams, and Air Force Tactical Air Control Parties integrated,
    coordinated, and provided terminal guidance for a wide range of weapons
    delivered from a variety of aerial platforms from Army, Navy, Marine,
    and Air Force assets during the first and second battle of Fallujah, in
    Ramadi, in Najaf, and during asymmetric warfare operations that
    continue today.
        Amplification and reinforcement of Marine Air Wing interoperability
    is accomplished at our Desert Talon Exercise. MAWTS-1 refines the
    tactics, techniques, and procedures and designs this training exercise
    to specifically support OIF, with the Aviation Combat Element Commander
    directly involved in the process.

                                reserve callups
        66. Senator Akaka. General Sattler, what was your guidance when
    preparing for your current deployment?
        General Sattler. My training guidance for marines and sailors
    preparing to deploy for the current deployment (OIF 05 2007) was no
    different for reservists than it was for my Active-Duty personnel. I
    emphasized that training would maximize individual and unit force
    protection, facilitate our ability to train Iraqi security forces, and
    prepare our warriors for the conduct of individual and collective tasks
    inherent in security, stability, and counterinsurgency operations. Our
    predeployment training program is comprehensive, mission essential task
    driven, and tailored to the changing environment by taking into account
    the latest lessons learned. As stated earlier in my response to Senator
    Inhofe (#26) our Reserve units possess the same capability as their
    Active-Duty counterparts.

        67. Senator Akaka. General Sattler, does the Marine Corps try to
    limit Marine Corps reservists to one mobilization, even though those
    mobilizations are shorter than the Army's?
        General Sattler. No. The Marine Corps considers all members of the
    Selected Reserve as volunteers for activation by virtue of their
    agreement to serve in either a SMCR unit or as an IMA. Our planning
    guidance called for a 12-month activation with a 7-month deployment
    followed by dwell time and, if required, a second activation within the
    24 cumulative partial mobilization period authorized by EO 12223 of
    September 14, 2001. Unfortunately, OSD policy further restricts second
    activations to volunteers only regardless of amount of time remaining
    on the initial 24-month activation period. This policy is impacting
    SMCR unit integrity, cohesion, and readiness.

        68. Senator Akaka. General Sattler, were you able to mobilize
    reservists who had been previously mobilized if this second
    mobilization would not cause their cumulative time on Active-Duty to
    exceed 24 months?
        General Sattler. Since the declaration of a Partial Mobilization
    (EO 12223 of 14 Sep 01), the Marine Corps planning guidance called for
    a 12-month activation period with a 7-month deployment followed by
    deactivation, a period of dwell time, and, if required, a second
    subsequent 12-month activation with the exception being select aviation
    units would be activated for a 2-year period. Published OSD policy is
    that all reservists can be activated for a total of 24 cumulative
    months. However, OSD has further restricted the policy by requiring
    those marines who have been previously activated to volunteer for a
    second subsequent activation, negating USMC planning assumptions.

                                    training
        69. Senator Akaka. General Lovelace, as the Army increases the
    number of combat brigades, how are you going to fit this increased
    number of brigades through your three combat training centers?
        General Lovelace. Our training strategy to generate ready BCTs will
    continue to fully use the investments we have made in our three
    maneuver CTCs. These investments are significant, and have paid great
    dividends in terms of fully preparing soldiers for conflict and
    ensuring mission success since their inception in the early 1980s. To
    accommodate the increased number of BCTs, we plan to create the
    capability to export our CTC methodology to existing facilities
    throughout CONUS, or worldwide. This ETC will conduct a rigorous BCT
    level exercise and meet the unit Commander's exercise objectives, while
    providing feedback on unit performance. While we do not expect level of
    support in an ETC to match the support provided at a fixed site
    maneuver combat training center, it will definitely provide better
    training than units have at home station without external resources.
        In summary, our CTC program will meet the modular force and Army
    Force Generation requirement for trained and ready BCTs through a
    combination of fixed and exportable training capabilities. Four
    simultaneous capabilities will meet this requirement. The Joint
    Readiness Training Center at Fort Polk and the National Training Center
    at Fort Irwin will remain superb, fixed site maneuver combat training
    centers. The Joint and Multinational Readiness Center at Hohenfels,
    Germany will develop an ETC in addition to their outstanding fixed site
    maneuver CTC mission. Once we identify the resources, we will create
    another ETC here in CONUS which will complete our ability to generate
    ready land forces to meet combatant commander requirements.

                             army force generation
        70. Senator Akaka. General Lovelace, the Army intends to be able to
    continuously deploy 14 Active and 4 Reserve component combat brigades
    once you have reached your target of 70 modular combat brigades, while
    limiting deployments to 1 year in 3 for Active Forces and 1 year in 6
    for the Guard and Reserve. Today you are providing those force levels
    only by deploying your units much more frequently. How many brigades
    could the Army supply today at your desired deployment ratios of 1 year
    in 3 for the Active component and 1 year in 6 for the Reserve
    component?
        General Lovelace. Once transformation to the Army Modular Force is
    complete, the Army will be able to continuously provide combatant
    commanders with a force of approximately 174,000 soldiers for steady
    state operations, which includes no less than 14 Active and 4 Reserve
    component combat brigades. These numbers are predicated upon assured
    access to the Reserve component.
        Currently, the U.S. Army has approximately 125,000 soldiers
    deployed in support of OIF/OEF alone, which includes 16 combat brigades
    (13 Active component/3 Reserve component). To support this level of
    commitment as part of a large scale, long-duration irregular global war
    on terrorism campaign, the Army continues to operate at a surge level
    of effort. Operating at this surge level of effort creates a more rapid
    velocity of unit deployments; the Army continues to add capacity in its
    operating force to allow for greater periods of reset and training.
    Maintaining this high level of commitment in OIF/OEF, in addition to
    supporting all other enduring global force demands, requires prudent
    risk mitigation measures to ensure readiness and manage stress of the
    force.

                              category iv recruits
        71. Senator Akaka. General Lovelace, there have been press reports
    that the percentage of Category IV recruits has grown in recent months.
    How many Category IV recruits has the Army enlisted since the beginning
    of this fiscal year?
        General Lovelace. The DOD quality guidelines is for less than or
    equal to 4 percent of nonprior service enlistments to be Category IVs
    on the Armed Services Vocational Aptitude Battery. This metric is
    measured on an annual basis and reported to Congress. Against the
    Army's fiscal year 2006 mission of 80,000 (71,000 nonprior service)
    mission, the Army could recruit up top 2,840 soldiers to still be
    within the DOD guidelines. Through February, the Army has enlisted
    1,889 soldiers who scored as Category IVs. The current Category IV
    percentage is 5 percent of the year-to-date accessions plus Delayed
    Entry Program. The Army is on the glidepath to be below 4 percent
    Category IV recruits by the end of the fiscal year.

        72. Senator Akaka. General Lovelace, how would you assess their
    impact on the quality of the force?
        General Lovelace. The majority of these soldiers are currently in
    the training base for their specific military occupational skill
    training. While it is still too early to fully assess their impacts on
    the quality of the force, the Army has not yet seen any negative
    indicators such as training base attrition. Let us also note that while
    these soldiers scored as Category IVs on their Armed Services
    Vocational Aptitude Battery, these soldiers are qualified to serve in
    the military and their military occupational skill. The Army has always
    had some level of Category IV soldiers. Through Army training and
    mentorship, these soldiers have served honorably and bravely.

                                 multiple tours
        73, 74, 75. Senator Akaka. General Lovelace, what percentage of
    your units are on their second tours to Iraq or Afghanistan? What
    percentage of your units are on their third tours to Iraq or
    Afghanistan? What percentage of your units are on their fourth tours to
    Iraq or Afghanistan?
        General Lovelace. Due to existing mobilization policies, no Reserve
    component combat brigade has deployed to Iraq or Afghanistan more than
    once. Although not all as complete BCTs, approximately 93 percent of
    the enhanced Reserve component separate brigades have deployed or are
    mobilized to deploy in support of OIF and OEF.
        Approximately 46 percent of the total Active component BCTs have
    deployed to Iraq or Afghanistan for two tours. Approximately 6 percent
    of the total Active component BCTs have deployed to Iraq or Afghanistan
    for three tours. None of the Active component BCTs have deployed four
    times.

                     shortage of junior enlisted personnel
        76. General Lovelace, I understand there is a shortage of personnel
    in the E1-E4 ranks. How is this shortfall affecting your ability to man
    your force structure?
        General Lovelace. Because of previous recruiting challenges and
    structure growth for NCOs, the Army is at 92.8 percent fill of the E1-
    E4 force structure (month-end February 2006). To mitigate the impact of
    the shortages at these grades, Headquarters Department of the Army
    Active Component Manning Guidance defines priorities and provides
    guidance regarding the assignment of personnel. Deploying units are the
    priority for fill (beginning 6 months prior to projected deployment
    dates), while nondeploying units and units without scheduled
    deployments assume the risk. Furthermore, recruiting targets are
    periodically adjusted to maintain higher fill levels in more critical
    specialties. Thus, the Army has limited ability to determine where
    shortages appear within the structure.

                          time required to reset army
        77, 78. Senator Akaka. General Lovelace, the Army has stated that
    it will take 2 years after the conclusion of operations in Iraq to
    reset your equipment, based on experience from Operation Desert Storm.
    Yet those operations were far less extensive, especially in their
    duration. What is the analytic basis for the Army's belief that reset
    can be accomplished within 2 years? How do you know it will not take 3
    or 4 years?
        General Lovelace. The Army's best estimate is that it will take 2+
    years to fully repair, replace, and recap equipment following the
    return from usage in the OIF/OEF.
        The basis for the estimate is primarily factors involving:

              (1) the amount of equipment in theater (50 percent of the
            600,000 major end items remain in theater and do not return
            each year).
              (2) the rate at which this equipment will likely be extracted
            (it will not all come out over a 2-3 month period, it will take
            time to extract it, and because the equipment in the theater
            stocks is primarily `owned' by Army Materiel Command, not the
            unit, and because it will largely go to the AMC depots for
            repair, the manpower will primarily be civilian or contractor
            as it retrogrades, it cannot be brought out as quickly as an
            equipped and manned BCT can be redeployed.
              (3) the time required to inspect equipment after return to
            determine what equipment is economically unrepairable. AMC
            makes every effort to identify this equipment prior to
            redeployment, to avoid costly transportation for equipment
            which would later be disposed of, and concentrates this effort
            on the major end items. Lesser end items do not receive the
            same level of scrutiny due to the time and cost involved, and
            some portion will undoubtedly be redeployed with units and as
            part of the retrograde of theater stocks, and be washed out
            upon a final technical inspection at the depot. This inspection
            could occur months after an item returns as the depots work
            through the massive amount of equipment that does return. The
            Army, in accordance with OMB and the Office of the Secretary of
            Defense, policy only requests replacement after the loss
            (combat or washout) is confirmed. A washout cannot be confirmed
            until the technical inspection is complete.

        It could take longer than 2 years if the force level in theater
    requires equipment to stay for a significant period of time, or if the
    pace of operations remains significantly high for an extended period.

        [Whereupon at 11:14 a.m., the subcommittee adjourned].

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                      2007

                                  ----------

                            WEDNESDAY, APRIL 5, 2006

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

                        IMPROVING CONTRACTOR INCENTIVES

        The subcommittee met, pursuant to notice, at 3:02 p.m. in
    SR-222, Russell Senate Office Building, Senator John Ensign
    (chairman of the subcommittee) presiding.
        Committee members present: Senators Ensign, Thune, and
    Akaka.
        Majority staff members present: Ambrose R. Hock,
    professional staff member; Gregory T. Kiley, professional staff
    member; and Elaine A. McCusker, professional staff member.
        Minority staff members present: Peter K. Levine, minority
    counsel; and Michael J. McCord, professional staff member.
        Staff assistants present: Benjamin L. Rubin and Pendred K.
    Wilson.
        Committee members' assistants present: Christopher J. Paul,
    assistant to Senator McCain; D'Arcy Grisier and Alexis Bayer,
    assistants to Senator Ensign; and Clyde A. Taylor IV, assistant
    to Senator Chambliss.

           OPENING STATEMENT OF SENATOR JOHN ENSIGN, CHAIRMAN

        Senator Ensign. This afternoon, the Subcommittee on
    Readiness and Management Support meets to receive testimony on
    acquisition policy issues in the review of the National Defense
    Authorization Request for Fiscal Year 2007.
        I am pleased to welcome today's witnesses for this hearing.
    Secretary Kenneth Krieg, who is Under Secretary of Defense for
    Acquisition, Technology, and Logistics; and David Walker, the
    Comptroller General of the United States. The purpose of this
    hearing is to specifically discuss improving contractor
    incentives to better achieve Department of Defense (DOD)
    program objectives.
        The subcommittee is particularly interested in reviewing
    the results of the December 19, 2005, Government Accountability
    Office (GAO) report titled, ``Defense Acquisitions: DOD Has
    Paid Billions in Award and Incentive Fees Regardless of
    Acquisition Outcomes.'' We're also interested in profit
    policies, contract structures, and funding approaches that can
    be used to enhance contractor performance.
        Senator Akaka and I asked GAO to review this issue after
    reading press accounts that the Air Force's top acquisition
    officials stated the Air Force's formula for setting contractor
    performance bonuses was not working. GAO has concluded that
    this problem goes well beyond the Air Force, and identified
    over $8 billion in potential waste in the 5 years of review.
    Without changing, the DOD risks billions more taxpayer dollars
    each year. We cannot continue to do business as usual. If we
    pay incentives or bonuses to contractors, we should be paying
    for performance, not for nonperformance.
        GAO has identified a problem, but what the committee needs
    to further explore is why this problem is occurring. Are there
    budgetary incentives, or a lack of attention that are driving
    DOD to pay for nonperformance? Do programs lose program dollars
    if they do not pay these bonuses? Do we need legislation to
    change the current system? How is DOD working to change the use
    of incentive and award fees to achieve DOD performance
    objectives?
        Contractor incentives and award incentive fees need to be
    placed in the context of overall acquisition reform. With that
    in mind, I've asked Mr. Walker to update the subcommittee on
    the status of DOD's efforts to address high risk acquisition
    issues identified by GAO. In addition, I've asked Secretary
    Krieg to be prepared to discuss where we stand on planned DOD
    acquisition reform efforts as a result of the Defense
    Acquisition Performance Assessment (DAPA) and the Quadrennial
    Defense Review (QDR). Mr. Walker and Secretary Krieg testified
    on acquisition reform before the House Armed Services Committee
    this morning, so this topic should be fresh on their minds.
        Thank you, gentlemen. I also look forward to hearing about
    the press reports today about James Finley, the Pentagon's
    Deputy Under Secretary for Acquisition, who told military
    contracting officials in advance of the hearing today, that
    they must limit giving defense contractors a second chance to
    win bonuses. Quote, ``performance that is less than
    satisfactory is not entitled to any award fees.'' We look
    forward to hearing about the press reports, if they are true,
    and what exactly is going on.
        So I turn to my colleague, Senator Akaka. I will be leaving
    the hearing in about 5 minutes and will be turning the gavel
    over to him. I have to be on the floor for probably 15 minutes
    or so. We work great together and have a great deal of mutual
    respect. But then, I will come back because I have a lot of
    questions as well.
        [The prepared statement of Senator Ensign follows:]

                   Prepared Statement by Senator John Ensign

        This afternoon, the Subcommittee on Readiness and Management
    Support meets to receive testimony on acquisition policy issues in
    review of the National Defense Authorization Request for Fiscal Year
    2007.
        I am pleased to welcome today's witnesses for this hearing: Kenneth
    Krieg, the Under Secretary of Defense for Acquisition, Technology, and
    Logistics; and David Walker, the Comptroller General of the United
    States.
        The purpose of this hearing is to specifically discuss improving
    contractor incentives to better achieve Department of Defense (DOD)
    program objectives. The subcommittee is particularly interested in
    reviewing the results of the December 19, 2005, Government
    Accountability Office (GAO) report titled ``Defense Acquisitions: DOD
    Has Paid Billions in Award and Incentive Fees Regardless of Acquisition
    Outcomes,'' as well as profit policies, contract structures, and
    funding approaches that can be used to enhance contractor performance.
        Senator Akaka and I asked GAO to review this issue after reading
    press accounts that the Air Force's top acquisition official stated
    that the Air Force's formula for setting contractor performance bonuses
    was not working. GAO has concluded that this problem goes well beyond
    the Air Force and identified over $8 billion in potential waste in the
    5 years it reviewed. Without changes, DOD risks billions more taxpayer
    dollars each year.
        We cannot continue to do business as usual. If we pay incentives or
    bonuses to contractors we should be paying for performance, not for
    nonperformance.
        GAO has identified a problem, but what the committee needs to
    further explore is why this problem is occurring. Are there budgetary
    incentives or a lack of attention that are driving DOD to pay for
    nonperformance? Do programs lose program dollars if they do not pay
    these bonuses? Do we need legislation to change the current system? How
    is the DOD working to change the use of incentive and award fees to
    achieve DOD performance objectives?
        Contractor incentives and award and incentive fees need to be
    placed in the context of overall acquisition reform. With that in mind,
    I have asked Mr. Walker to update the subcommittee on the status of
    DOD's efforts to address high risk acquisition issues identified by
    GAO. In addition, I have asked Secretary Krieg to be prepared to
    discuss where we stand on planned DOD acquisition reform efforts as a
    result of the Defense Acquisition Performance Assessment and the
    Quadrennial Defense Review. Secretary Krieg and Mr. Walker testified on
    acquisition reform before the House Armed Services Committee this
    morning so this topic should be fresh on their minds.
        Thank you gentlemen. I look forward to today's testimony on this
    very important topic of how DOD can improve its acquisition process
    that continues to be of interest to the committee.

        Senator Ensign. Senator Akaka?

                  STATEMENT OF SENATOR DANIEL K. AKAKA

        Senator Akaka. Thank you very much, Mr. Chairman. I look
    forward to working with you and I want you to know, hearing
    your statement, I do share your concerns as well. Once again,
    the subcommittee is focusing on a problem of critical
    importance to DOD and, of course, our taxpayers.
        Today, we will hear from GAO that DOD paid contractors more
    than $8 billion in award fees over a 4-year period without
    regard to the quality of the contractors' performance.
    According to GAO, DOD's practices with regard to award fees,
    and I'm quoting--``undermine the effectiveness of fees as a
    motivational tool and marginalizes their use in holding
    contractors accountable for acquisition outcomes. They also
    serve to waste taxpayer funds.''
        Mr. Chairman, you and I requested this review 2 years ago.
    We were concerned about DOD's use of award fees because of
    reports that both the Air Force and the Navy had paid out huge
    award fees on major acquisition programs that were running far
    behind schedule and over budget. At that time, the Air Force
    Acquisition Executive stated that the failure to properly link
    award fees to contractor performance was ridiculous and
    estimated that the Air Force could save more than $1 billion a
    year by reconstructing its award-fee program.
        The testimony we will hear today shows that he may have
    been right. No fewer than 24 of DOD's major weapon systems have
    experienced a cost growth of 50 percent or more over original
    estimates. Some have seen cost growth of 100 percent, 200
    percent, or even more. Yet, we continue to pay contractors huge
    award fees for their performance on these systems.
        I hope that we will be able to work with DOD to restructure
    contractor incentives and ensure that contractors are paid
    award fees only if they've earned these fees through superior
    performance.
        Again, I thank the chairman for holding this hearing and I
    look forward to hearing the testimony of our witnesses.
        [The prepared statement of Senator Akaka follows:]

                 Prepared Statement by Senator Daniel K. Akaka

        Mr. Chairman, thank you for calling today's hearing. Once again,
    the subcommittee is focusing on a problem of critical importance to the
    Department of Defense (DOD) and the taxpayers.
        Today, we will hear from the Government Accountability Office (GAO)
    that DOD paid contractors more than $8 billion in award fees over a 4-
    year period without regard to the quality of the contractors'
    performance. According to GAO, DOD's practices with regard to award
    fees ``undermine the effectiveness of fees as a motivational tool and
    marginalize their use in holding contractors accountable for
    acquisition outcomes. They also serve to waste taxpayer funds.''
        Mr. Chairman, you and I requested this review 2 years ago. We were
    concerned about DOD's use of award fees because of reports that both
    the Air Force and the Navy had paid out huge award fees on major
    acquisition programs that were running far behind schedule and over
    budget. At that time, the Air Force acquisition executive stated that
    the failure to properly link award fees to contractor performance was
    ``ridiculous'' and estimated that the Air Force could save more than $1
    billion a year by restructuring its award-fee program.
        The testimony we will hear today shows that he may have been right.
    No fewer than 24 of DOD's major weapon systems have experienced a cost
    growth of 50 percent or more over original estimates. Some have seen
    cost growth of 100 percent, 200 percent, or more. Yet, we continue to
    pay contractors huge award fees for their performance on these systems.
        I hope that we will be able to work with the DOD to restructure
    contractor incentives and ensure that contractors are paid award fees
    only if they earn these fees through superior performance.
        I look forward to the testimony of our witnesses.

        Senator Akaka. On behalf of the chairman, I welcome our
    witnesses: Honorable Kenneth J. Krieg, Under Secretary of
    Defense for Acquisition, Technology, and Logistics; and the
    Honorable David M. Walker, Comptroller General, United States
    Government Accountability Office. We look forward to your
    testimony.
        Mr. Walker.

    STATEMENT OF HON. DAVID M. WALKER, COMPTROLLER GENERAL, UNITED
                STATES GOVERNMENT ACCOUNTABILITY OFFICE

        Mr. Walker. Thank you, Senator Akaka. It's a pleasure to be
    back before the subcommittee to talk about GAO's latest report
    on award and incentive fees. This is the second hearing that
    Secretary Krieg and I have done today, and as far as I know,
    it's the last one, but we'll see.
        At the outset, I would like to thank you and the other
    members of this subcommittee for your long history of
    leadership on DOD acquisition issues. Also, for you willingness
    to support GAO's work in the area of best practices for weapon
    systems acquisition, and in your continued support for our
    work, and DOD's efforts to embrace a more strategic sourcing
    approach as well as service acquisition reform.
        There have been a number of efforts that have taken place
    within DOD. Progress is being made in certain regards and I
    know that Secretary Krieg and others at the DOD are dedicated
    to improving the status quo. At the same point in time as has
    been said, we face longstanding problems that candidly are not
    going to be fixed overnight. The area of incentive and award
    fees is a subset of a much broader acquisition challenge, which
    I'm happy to get into the broader challenge later, but I'm
    going to focus my remarks now on the incentive and award fees.
        I would respectfully request, Mr. Chairman, that all of my
    statement be included in the record and I'll just hit a few of
    the highlights now, if that's okay with you, Senator Akaka.
        Senator Akaka. Your statements will be placed in the
    record.
        Mr. Walker. Thank you, Senator. DOD is now spending well
    over $200 billion a year to acquire products and services that
    includes anything from spare parts to the development of major
    weapons systems. This, at a time where we have significant and
    mounting fiscal challenges. This means that the DOD must focus
    on maximizing return on investment in order to provide the
    warfighter with needed capabilities at best value for the
    taxpayer. In an effort to encourage Defense contractors to
    perform in an innovative, efficient, and effective manner, DOD
    gives its contractors the opportunity to collectively earn
    billions of dollars through monetary incentives known as award
    and incentive fees. Using these incentives properly and in
    concert with sound acquisition practices is key to maximizing
    value, minimizing waste, and getting our military personnel
    what they need, when and where they need it. It is unfortunate
    that, historically, the DOD has not used these incentives
    effectively.
        DOD's use of award and incentive fees is an issue at the
    nexus of two of GAO's high risk areas relating to DOD.
    Specifically, DOD contract management and DOD weapons systems
    acquisition. Contract management has been a longstanding
    business management challenge for the Department. DOD is the
    government's largest purchaser, yet it's often unable to assure
    it's using sound business practices to acquire the goods and
    services needed to meet the warfighter's needs. DOD's use of
    award and incentive fees could easily fall into the same
    category. For DOD weapon systems acquisitions, the persistent
    and longstanding nature of acquisition problems has perhaps
    made a range of key players both in the Pentagon and Congress
    complacent about cost growth, schedule delays, quantity
    reductions, and performance shortfalls in weapon system
    programs. DOD's strategies for incentivizing its contractors,
    especially on weapon systems development programs, reflect this
    complacency and are symptomatic of the lack of discipline,
    oversight, transparency, and accountability in DOD's
    acquisition system. This is a longstanding problem. It is not
    new.
        As a result, DOD's programs routinely engage in practices
    that do not hold contractors accountable for achieving desired
    acquisition outcomes and that is the key word, ``outcomes.''
    Therefore, they serve to undermine efforts to motivate positive
    contractor performance based upon results.
        Specifically, DOD's award-fee practices suffer from three
    main weaknesses. Number one, DOD generally does not evaluate
    contractors based upon award-fee criteria that are directly
    related to key acquisition outcomes such as meeting costs and
    schedule goals, and delivering desired capabilities to meet the
    warfighter's needs. In addition, the link between the elements
    of contractor performance that are included in the criteria and
    these outcomes, is not always clear. As a result, as our report
    noted, DOD has paid out an estimated $8 billion in award-fees
    over the life of the contracts that were in our sample
    population, regardless of whether acquisition outcomes fell
    short, met, or exceeded DOD's expectations.
        Number two, DOD programs engage in practices that undermine
    efforts to motivate excellent contractor performance by
    regularly paying contractors a significant portion of the
    available fee for what award-fee plans describe as
    ``acceptable, average, expected, good, or satisfactory,''
    performance. About half of the contracts in the population we
    studied, allowed 70 percent or more of the available fee to be
    paid for this level of performance. Importantly, the
    definitions for these levels of performance are not always
    clear, consistent, or even credible.
        Number three, DOD award-fee practices do not promote
    accountability. DOD programs gave contractors on about half of
    the award-fee contracts in the population we studied, at least
    a second opportunity to earn an estimated $669 million in
    initially unearned or deferred fees.
        Taken together, DOD's acquisition, business, and contract
    management practices, in our view, are contrary to the full
    purpose of performance based contracting concepts. They have
    resulted and, if not corrected in both form and practice, will
    continue to result in wasting billions of dollars in taxpayer
    funds. These practices are both inappropriate and
    unsustainable, and the time to change is now.
        I note that in response to our report, DOD concurred with
    three of the recommendations that we made and they partially
    concurred with the other four recommendations. I also know that
    last week, the DOD issued a policy memorandum on an award fee
    of contracts that take steps towards addressing several of the
    recommendations contained in our report, and that the DOD has
    indicated that further actions are planned to address the
    remaining recommendations.
        This guidance is a positive first step. But like so many
    prior DOD concurrences, its effectiveness will ultimately be
    determined by how well it is actually implemented. Many times
    things look great on paper, but the key is whether it is
    effectively implemented. Identifying who will be responsible
    for ensuring it is carried out and how progress will be
    monitored and measured, are key ingredients missing in the new
    guidance. We encourage the DOD to fully implement our
    recommendations, including requiring an approving official to
    review the award fee of provisions and new contracts,
    developing a mechanism to capture award and incentive fee data,
    and developing performance measures to evaluate the effect use
    of these fees.
        While implementing our recommendations on award and
    incentive fees will not fix the broader problems that DOD faces
    in the management of weapons systems or service acquisitions,
    it can serve to increase transparency and accountability for
    the fees that it pays, and increase contractor accountability
    for achieving desired results. In particular, moving toward
    more outcome-based award-fee criteria would give contractors an
    increased stake in helping DOD to develop more realistic
    targets upfront, or risk receiving less fee when unrealistic
    cost, schedule, and performance targets are not met.
        To make this new approach in incentive fees and award fees
    function as intended, DOD also needs to address the more
    fundamental issues related to its management approach such as
    the lack of a sound business case, lack of well-defined
    requirements that can stand the test of time, lack of product
    knowledge at key junctions in development, including that lack
    of adequate technology maturity, and program instability caused
    by changes in requirements, as well as a lack of stable
    funding.
        Working in concert, these steps can help DOD set the right
    conditions for more successful acquisition outcomes and make
    more efficient use of its resources in what is sure to be a
    more fiscally constrained environment, as our Nation approaches
    the retirement of the baby boom generation.
        Thank you, Senator Akaka.
        [The prepared statement of Mr. Walker follows:]

                     Prepared Statement by David M. Walker

        Mr. Chairman and members of the subcommittee: I am pleased to be
    here today to discuss the Department of Defense's (DOD) use of monetary
    incentives known as award and incentive fees. With DOD spending over
    $200 billion annually to acquire products and services that include
    everything from spare parts to the development of major weapon systems,
    our numerous, large, and mounting fiscal challenges demand that DOD
    maximize its return on investment and provide the warfighter with
    needed capabilities at the best value for the taxpayer. In an effort to
    encourage defense contractors to perform in an innovative, efficient,
    and effective way, DOD gives its contractors the opportunity to
    collectively earn billions of dollars through monetary incentives known
    as award and incentive fees. Using these incentives properly, in
    concert with sound acquisition practices, is a key to minimizing waste,
    maximizing value, and getting our military personnel what they need,
    when and where they need it. Unfortunately, DOD has not used these
    incentives effectively. How they have been used and how we believe they
    should be used is the focus of my statement today.
        To put the issues related to DOD's use of award and incentive fees
    in context, I want to step back and look at some of the broader
    management challenges that confront DOD. The Department is facing a
    significant number of recurring problems in managing its major weapon
    acquisitions. Although U.S. weapons are the best in the world, DOD's
    acquisition process for weapons programs consistently yields
    undesirable consequences--dramatic cost increases, late deliveries to
    the warfighter, and performance shortfalls. These problems occur, in
    part, because DOD tends to consistently overpromise and underdeliver in
    connection with major acquisition efforts. In addition, DOD's weapons
    programs do not capture, early on, the requisite knowledge that is
    needed to efficiently and effectively manage program risks. For
    example, programs lack clearly defined and stable requirements, move
    forward with unrealistic program cost and schedule estimates, use
    immature technologies in launching product development, and fail to
    solidify design and manufacturing processes at appropriate junctures in
    development. As a result, wants are not always distinguished from
    needs; expectation gaps are the norm; problems often surface late in
    the development process; and fixes tend to be much more costly than if
    they were caught earlier.
        Cost increases incurred while developing new weapon systems
    typically mean that DOD cannot produce as many of those weapons as
    intended nor can it be relied on to deliver them to the warfighter when
    promised and with the initially advertised capabilities. In addition,
    military operations in Afghanistan and Iraq are consuming a large share
    of DOD resources and causing the Department to invest more money sooner
    than expected to replace or fix existing weapons. Meanwhile, DOD is
    intent on transforming military operations and currently has its eye on
    multiple megasystems that are expected to be the most expensive and
    complex ever. These new desires and longstanding acquisition and
    contract management challenges are running head-on into the Nation's
    current imprudent and unsustainable fiscal path. At the same time,
    DOD's numerous business management weaknesses continue to result in
    reduced efficiencies and effectiveness that waste billions of dollars
    every year. These business management weaknesses touch on all of DOD's
    major business operations, ranging from the department's inadequate
    management of its overall business transformation effort to decades-old
    financial management and information technology problems to various
    contracting and selected supply chain challenges. In fact, all these
    areas and more are on the Government Accountability Office's (GAO) 2005
    ``high-risk'' list of programs and activities that need urgent
    attention and fundamental transformation to ensure that our national
    government functions in the most economical, efficient, and effective
    manner possible.
        DOD's use of award and incentive fees is an issue at the nexus of
    two of these high-risk areas--DOD contract management and DOD weapon
    system acquisition. Contract management has been a longstanding
    business management challenge for the Department. DOD is the
    government's largest purchaser, yet it is often unable to assure that
    it is using sound business practices to acquire the goods and services
    needed to meet the warfighter's needs. For example, we have found that
    DOD has not used various contracting tools and techniques effectively--
    such as performance-based service contracting, multiple-award task
    order contracts, purchase cards, and, most recently, award and
    incentive fees. For DOD weapon system acquisitions, we have found the
    persistent and longstanding nature of acquisition problems has perhaps
    made a range of key players both in the Pentagon and Congress
    complacent about cost growth, schedule delays, quantity reductions, and
    performance shortfalls in weapon system programs. DOD's strategies for
    incentivizing its contractors, especially on weapon system development
    programs, reflect this complacency and are symptomatic of the lack of
    discipline, oversight, transparency, and accountability in DOD's
    acquisition process. As a result, DOD programs routinely engage in
    practices that undermine efforts to motivate positive contractor
    performance and that do not hold contractors accountable for achieving
    desired acquisition outcomes, such as meeting cost and schedule goals
    and delivering desired capabilities to the warfighter.
        Specifics follow:

             DOD generally does not evaluate contractors based on
            award-fee criteria that are directly related to key acquisition
            outcomes. In addition, the link between the elements of
            contractor performance that are included in the criteria and
            these outcomes is not always clear. As a result, DOD paid out
            an estimated $8 billion in award fees over the life of the
            contracts in our study population (from their inception through
            our data collection phase), \1\ regardless of whether
            acquisition outcomes fell short of, met, or exceeded DOD's
            expectations.
    ---------------------------------------------------------------------------
        \1\ Estimates of total award fees earned are based on all
    evaluation periods held from the inception of our sample contracts
    through our data collection phase, not just those from fiscal years
    1999 through 2003. The oldest award-fee contracts in our sample were
    signed in fiscal year 1991. For some contracts, the data collection
    phase ended as early as November 2004. For at least one contract, data
    collection was not complete until April 2005.
    ---------------------------------------------------------------------------
             DOD programs engage in practices that undermine
            efforts to motivate excellent contractor performance by
            regularly paying contractors a significant portion of the
            available fee for what award-fee plans describe as
            ``acceptable, average, expected, good, or satisfactory''
            performance. Although the definition of this level of
            performance varies by contract, these definitions are generally
            not related to outcomes. About half of the contracts in our
            sample, allowed 70 percent or more of the available fee to be
            paid for this level of performance.
             DOD award-fee practices do not promote accountability.
            DOD programs gave contractors on about half of the award-fee
            contracts in our study population at least a second opportunity
            to earn an estimated $669 million in initially unearned or
            deferred fees.

        Taken together, DOD's acquisition, business, and contract
    management practices are contrary to the purpose of performance-based
    contracting concepts and have resulted and, if not corrected in both
    form and practice, will continue to result in wasting billions of
    dollars in taxpayer funds. My statement today will focus on what steps
    DOD must take to strengthen the link between monetary incentives and
    acquisition outcomes and by extension increase the transparency and
    accountability of DOD programs for fees paid and of contractors for
    results achieved. This testimony draws upon our recently issued report
    on DOD's use of award and incentive fees as well as the GAO High-Risk
    series and our body of work on weapon system acquisitions.
        GAO's many acquisition-related reports over the years raise serious
    questions about the reasonableness, appropriateness, and affordability
    of DOD's current investment plans; the soundness of the acquisition
    process which implements those plans; and the effectiveness of the
    practices DOD uses to manage its contractors, including the use of
    award and incentive fees. These reports collectively present a
    compelling case for change.
        Appendix I contains information about the scope and methodology for
    GAO-06-66, Defense Acquisitions: DOD Has Paid Billions in Award and
    Incentive Fees Regardless of Acquisition Outcomes. The work was
    conducted in accordance with generally accepted government auditing
    standards.
                                   background
        Federal agencies, including DOD, can choose among numerous contract
    types to acquire products and services. One of the characteristics that
    vary across contract types is the amount and nature of the fee that
    agencies offer to the contractor for achieving or exceeding specified
    objectives or goals. Of all the contract types available, only award-
    and incentive-fee contracts allow an agency to adjust the amount of fee
    paid to contractors based on the contractor's performance.\2\
    ---------------------------------------------------------------------------
        \2\ Other contract types do not provide this same level of control
    over fees and profits. The two most prevalent DOD contract types (based
    on the number of contract actions) are firm-fixed-price and cost-plus-
    fixed-fee. Under firm-fixed-price contracts, DOD and the contractor
    agree on a price and the contractor assumes full responsibility for all
    costs and the resulting profit or loss. Under cost-plus-fixed-fee
    contracts, DOD provides payment for the contractor's allowable incurred
    costs, to the extent prescribed in the contract, and the contractor
    receives a fee that was negotiated and fixed at the inception of the
    contract.
    ---------------------------------------------------------------------------
        Federal Acquisition Regulations (FARs) state that award- and
    incentive-fee contracts should be used to achieve specific acquisition
    objectives, such as delivering products and services on time or within
    cost goals and with the promised capabilities. For award-fee contracts,
    the assumption underlying the regulation is that the likelihood of
    meeting these acquisition objectives will be enhanced by using a
    contract that effectively motivates the contractor toward exceptional
    performance. Typically, award-fee contracts emphasize multiple aspects
    of contractor performance in a wide variety of areas, such as quality,
    timeliness, technical ingenuity, and cost-effective management.\3\
    These areas are susceptible to judgmental and qualitative measurement
    and evaluation, and as a result, award-fee criteria and evaluations
    tend to be subjective.\4\ Table 1 provides a description of the general
    process for evaluating the contractor and determining the amount of
    award fee earned.
    ---------------------------------------------------------------------------
        \3\ Award-fee contracts are intended to be flexible, so award-fee
    plans allow contracting and program officials to change the fee
    criteria in these areas and the weight given to each criterion from
    evaluation period to evaluation period.
        \4\ The Navy Award-Fee Guide suggests that objective measures also
    be utilized, to the maximum extent possible, to support the subjective
    evaluation of the contractor's performance.

           TABLE 1: GENERAL PROCESS FOR DETERMINING AWARD-FEE AMOUNTS
      1.                                        DOD officials provide input
                                                 on the contractor's
                                                 performance for an
                                                 evaluation period that just
                                                 ended.
      2.                                        Program officials compile
                                                 data and prepare briefing
                                                 or summary for award-fee
                                                 evaluation board.a
      3.                                        Award-fee evaluation board
                                                 convenes meeting;
                                                 contractor has option to
                                                 submit a self-assessment
                                                 and brief the board.
      4.                                        Award-fee evaluation board
                                                 considers all the input and
                                                 recommends a fee rating for
                                                 the contractor.
      5.                                        Fee-determining official
                                                 (usually outside the
                                                 program) makes an initial
                                                 fee determination and
                                                 notifies contracting
                                                 officer.b
      6.                                        Contracting officer notifies
                                                 contractor of initial
                                                 determination; contractor
                                                 has the option to appeal
                                                 the decision to the fee-
                                                 determining official.
      7.                                        Fee-determining official
                                                 makes final determination,
                                                 including whether to roll
                                                 over unearned fee, and
                                                 notifies contracting
                                                 officer.c
      8.                                        Contracting officer issues
                                                 final determination to
                                                 contractor and processes a
                                                 contract modification
                                                 authorizing payment.

    Sources: Army Contracting Agency Award-Fee Handbook, Air Force Award-Fee
      Guide, Navy/Marine Corps Award-Fee Guide (data); GAO (analysis).
    a Award-fee evaluation board members may include personnel from key
      organizations knowledgeable about the award-fee evaluation areas, such
      as: engineering, logistics, program management, contracting quality
      assurance, legal, and financial management; personnel from user
      organizations and cognizant contract administration offices; and the
      local small business office in cases where subcontracting goals are
      important. On major weapons programs, the boards are generally made up
      of personnel from the program office.
    b The fee-determining official is generally at a higher level
      organizationally than those directly involved in the evaluation of the
      contractor (e.g. award-fee board members). For instance, this official
      can be the program executive officer for a weapons system acquisition
      contract or a garrison commander on a base support services contract.
    c Rollover is the practice of moving unearned award fee from one
      evaluation period to a subsequent evaluation period or periods, thus
      providing the contractor an additional opportunity to earn previously
      unearned fee.

    Prevalence and Use of Award and Incentive Fees
        From fiscal year 1999 through fiscal year 2003, award- and
    incentive-fee contract actions \5\ accounted for 4.6 percent of all DOD
    contract actions over $25,000. However, when taking into account the
    dollars obligated--award- and incentive-fee contract actions accounted
    for 20.6 percent of the dollars obligated on actions over $25,000, or
    over $157 billion, as shown in figure 1. Our sample of 93 contracts
    includes $51.6 billion, or almost one-third, of those obligated award-
    and incentive-fee contract dollars.\6\ These obligations include award-
    and incentive-fee payments as well as other contract costs.
    ---------------------------------------------------------------------------
        \5\ Contract actions include any action related to the purchasing,
    renting, or leasing of supplies, services, or construction. Contract
    actions include definitive contracts; letter contracts; purchase
    orders; orders made under existing contracts or agreements; and
    contract modifications, which would include the payment of award and
    incentive fees.
        \6\ These contracts were selected as part of a probability sample
    of 93 contracts from a study population of 597 DOD award-fee and
    incentive-fee contracts that were active between fiscal years 1999 and
    2003 and had at least one contract action coded as cost-plus-award-fee,
    cost-plus-incentive-fee, fixed-price-award-fee, or fixed-price
    incentive valued at $10 million or more during that time.
    ---------------------------------------------------------------------------

        DOD utilized the contracts in our sample for a number of purposes.
    For example, research and development contracts accounted for 51
    percent (or $26.4 billion) of the dollars obligated against contracts
    in our sample from fiscal years 1999 through 2003; while non-research-
    and-development services accounted for the highest number of contracts
    in our sample. Further, we estimate that most of the contracts and most
    of the dollars in our study population are related to the acquisition
    of weapon systems.
        DOD has the flexibility to mix and match characteristics from
    different contract types. The risks for both DOD and the contractor
    vary depending on the exact combination chosen, which, according to the
    FAR, should reflect the uncertainties involved in contract performance.
    Based on the results from our sample, about half of the contracts in
    our study population were cost-plus-award-fee contracts. The theory
    behind these contracts is that although the government assumes most of
    the cost risk, it retains control over most or all of the contractor's
    potential fee as leverage. On cost-plus-award-fee contracts, the award
    fee is often the only source of potential fee for the contractor.
    According to defense acquisition regulations, these contracts can
    include a base fee--a fixed fee for performance paid to the
    contractor--of anywhere from 0 to 3 percent of the value of the
    contract; \7\ however, based on our sample results, we estimate that
    about 60 percent of the cost-plus-award-fee contracts in our study
    population included zero base fee.\8\ There is no limit on the maximum
    percentage of the value of the contract that can be made available in
    award fee, although the 20 percent included in the Space-Based Infrared
    Radar System High (SBIRS-High) development contract we examined was
    outside the norm. The available award fees on all the award-fee
    contracts in our study population typically ranged from 7 to 15 percent
    of the estimated value of the contract.
    ---------------------------------------------------------------------------
        \7\ The two F/A-22 development contracts in our sample included a
    4-percent base fee. The program office received a deviation from the
    Defense FAR Supplement, which allows for a maximum of 3-percent base
    fee.
        \8\ The 95 percent confidence interval surrounding this estimate
    ranges from 46 percent to 73 percent.
    ---------------------------------------------------------------------------
                           a system in need of reform
        DOD's use of award and incentive fees is symptomatic of an
    acquisition system in need of fundamental reform. DOD's historical
    practice of routinely paying its contractors nearly all of the
    available award fee creates an environment in which programs pay and
    contractors expect to receive most of the available fee, regardless of
    acquisition outcomes. This is occurring at a time when DOD is giving
    contractors increased program management responsibilities to develop
    requirements, design products, and select major system and subsystem
    contractors. Based on our sample, we estimate that for DOD award-fee
    contracts, the median percentage of available award fee paid to date
    (adjusted for rollover) \9\ was 90 percent, representing an estimated
    $8 billion in award fees for contracts active between fiscal years 1999
    and 2003. Estimates of total award fees earned are based on all
    evaluation periods held from the inception of our sample contracts
    through our data collection phase, not just those from fiscal years
    1999 through 2003.\10\ Figure 2 shows the percentage of available fee
    earned for the 63 award-fee contracts in our sample.
    ---------------------------------------------------------------------------
        \9\ When calculating the percentage of award fee paid (i.e.
    percentage of award fee paid = total fee paid to date/(total fee pool--
    remaining fee pool)), we included rolled-over fees in the remaining fee
    pool when those fees were still available to be earned in future
    evaluation periods.
        \10\ The oldest award-fee contracts in our sample were signed in
    fiscal year 1991. For some contracts, the data collection phase ended
    as early as November 2004. For at least one contract, data collection
    was not complete until April 2005.
    ---------------------------------------------------------------------------

        The pattern of consistently high award-fee payouts is also present
    in DOD's fee decisions from evaluation period to evaluation period.
    This pattern is evidence of reluctance among DOD programs to deny
    contractors significant amounts of fee, even in the short term. We
    estimate that the median percentage of award fee earned for each
    evaluation period was 93 percent and that the contractor received 70
    percent or less of the available fee in only 9 percent of the
    evaluation periods and none of the available fee in only 1 percent of
    the evaluation periods.
    A Case for Change: Moving Toward Outcome-Based Award-Fee Criteria

    ------------------------------------------------------------------------
                  Recommendations                       DOD Response
    ------------------------------------------------------------------------
    Move toward more outcome-based award-fee    DOD issued a policy memo on
     criteria that are both achievable and       March 29, 2006, emphasizing
     promote accountability for positive         the need to link award fees
     acquisition outcomes.                       to desired program
                                                 outcomes.
    ------------------------------------------------------------------------

        Award fees have generally not been effective at helping DOD achieve
    its desired acquisition outcomes, in large part, because award-fee
    criteria are not linked to desired acquisition outcomes, such as
    meeting cost and schedule goals and delivering desired capabilities.
    Instead, DOD programs structure award fees to focus on the broad
    aspects of contractor performance, such as technical and management
    performance and cost control, that they view as keys to a successful
    program. In addition, elements of the award-fee process, such as the
    frequency of evaluations and the composition of award-fee boards, may
    also limit DOD's ability to effectively and impartially evaluate the
    contractor's progress toward acquisition outcomes. Most award-fee
    evaluations are time-based, generally every 6 months, rather than
    event-based; and award-fee boards are made up primarily of individuals
    directly connected to the program. As a result of all these factors,
    DOD programs frequently paid most of the available award fee for what
    they described as improved contractor performance, regardless of
    whether acquisition outcomes fell short of, met, or exceeded DOD's
    expectations.
        High award-fee payouts on programs that have fallen or are falling
    well short of meeting their stated goals are also indicative of DOD's
    failure to implement award fees in a way that promotes positive
    performance and adequate accountability. Several major development
    programs--accounting for 52 percent of the available award-fee dollars
    in our sample and 46 percent of the award-fee dollars paid to date--are
    not achieving or have not achieved their desired acquisition outcomes,
    yet contractors received most of the available award fee. These
    programs--the Comanche helicopter, F/A-22 and Joint Strike Fighter
    aircraft, and the SBIRS-High satellite system--have experienced
    significant cost increases, technical problems, and development delays,
    but the prime systems contractors have received 85, 91, 100, and 74
    percent of the award fee, respectively to date (adjusted for rollover),
    totaling $1.7 billion (see table 2).

                TABLE 2: PROGRAM PERFORMANCE AND AWARD-FEE PAYMENTS ON SELECTED DOD DEVELOPMENT PROGRAMS
    ----------------------------------------------------------------------------------------------------------------
                                           Comanche          F/A-22 Raptor       Joint Strike         Space-Based
          Acquisition outcomes          reconnaissance     tactical fighter    Fighter tactical     Infrared System
                                       attack helicopter       aircraft        fighter  aircraft         High
    ----------------------------------------------------------------------------------------------------------------
    Research and development cost     $3.7 billion......  $10.2 billion.....  $10.1 billion.....  $3.7 billion
     increase over original baseline. 41.2 percent......  47.3 percent......  30.1 percent......  99.5 percent

    Acquisition cycle time increase   33 months.........  27 months.........  11 months.........  More than 12
     over original baseline.          14.8 percent......  13.3 percent......  5.9 percent.......   months a

    Number of program rebaselines...  1 b...............  14................  1.................  3

    Total award fee paid to prime     $202.5 million      $848.7 million....  $494.0 million....  $160.4 million c
     systems contractor.               paid through 2004.

    Percentage of award fee paid to   85 percent of       91 percent........  100 percent.......  74 percent
     prime systems contractor          available fee.
     (adjusted for rollover).d

    Total award fee paid to prime     No engine.........  $115 million paid   $35.8 million.....  No engine
     engine contractor.               contractor........   through 2004.                           pcontractor

    Percentage of award fee paid to   N/A    ...........  89 percent of the   100 percent.......  N/A
     prime engine contractor                               available fee.
     (adjusted for rollover).d
    ----------------------------------------------------------------------------------------------------------------
    Sources: DOD submissions to GAO, contract documentation, and GAO-05-301 (data); GAO (analysis and presentation).

    a The Air Force Space Command has not specified the acquisition cycle time for the SBIRS-High program; however,
      the delivery of the first two satellites has been delayed by more than a year.
    b Overall, there were five rebaselines for the Comanche program; however, only one occurred after development
      start. The Comanche program was canceled in 2004.
    c The program also utilizes incentive fees tied to cost and mission successes. The award fee paid does not
      include fee earned through mission success incentives. To date, the contractor has earned $3 million in these
      fees and could earn over $70 million over the life of the contract.
    d When calculating the percentage of award fee paid to date (i.e., percentage of award fee paid to date=total
      fee paid to date/(total fee pool--remaining fee pool)), we included rolled-over fees in the remaining fee pool
      when those fees were still available to be earned in future evaluation periods. For instance, even though the
      Joint Strike Fighter prime contractor has not been paid 100 percent of the award fee that was made available
      for each evaluation period, it retains the ability to potentially earn all of this unearned fee at a later
      date. By reflecting the continued availability of this unearned fee in the percentage calculation, it becomes
      clear that the contractor has, in essence, earned 100 percent of the total award fee to date.

        DOD can ensure that fee payments are more representative of program
    results by developing fee criteria that focus on its desired
    acquisition outcomes. For instance, DOD's Missile Defense Agency
    attempted to hold contractors accountable for program outcomes on the
    Airborne Laser program. On this program, DOD revised the award-fee plan
    in June 2002 as part of a program and contract restructuring. The
    award-fee plan was changed to focus on achieving a successful system
    demonstration by December 2004. Prior to the restructuring, the
    contractor had received 95 percent of the available award fee, even
    though the program had experienced a series of cost increases and
    schedule delays. Importantly, the contractor did not receive any of the
    $73.6 million award fee available under the revised plan because it did
    not achieve the key program outcome--successful system
    demonstration.\11\
    ---------------------------------------------------------------------------
        \11\ According to DOD, the contract was restructured again in May
    2004 and the cost ceiling was increased from about $2 billion to $3.6
    billion and the period of performance of the contract was extended more
    than 3 years, from June 2005 to December 2008.
    ---------------------------------------------------------------------------
    A Case for Change: Motivating Excellent Contractor Performance and
            Promoting Accountability

    ------------------------------------------------------------------------
                  Recommendations                       DOD response
    ------------------------------------------------------------------------
    Ensure that award-fee structures are        While DOD stated that award-
     motivating excellent contractor             fee arrangements should be
     performance by only paying award fees for   structured to encourage the
     above satisfactory performance.             contractor to earn the
                                                 preponderance of fee by
                                                 providing excellent
                                                 performance, it maintains
                                                 that paying a portion of
                                                 the fee for satisfactory
                                                 performance is appropriate
                                                 to ensure that contractors
                                                 receive an adequate fee on
                                                 contracts. In its March 29,
                                                 2006, policy memo, DOD
                                                 reiterated this position
                                                 and emphasized that less
                                                 than satisfactory
                                                 performance is not entitled
                                                 to any award fee.
    Issue DOD guidance on when rollover is      In its March 29, 2006,
     appropriate.                                policy memo, DOD provided
                                                 guidance and placed several
                                                 limitations on the use of
                                                 rollover.
    ------------------------------------------------------------------------

        DOD programs routinely engage in award-fee practices that are
    inconsistent with the intent of award fees, reduce the effectiveness of
    these fees as motivators of performance, compromise the integrity of
    the fee process, and waste billions in taxpayer money. Two practices,
    in particular, paying significant amounts of fee for ``acceptable,
    average, expected, good, or satisfactory'' performance and providing
    contractors multiple opportunities to earn fees that were not earned
    when first made available, undermine the effectiveness of fees as a
    motivational tool and marginalize their use in holding contractors
    accountable for acquisition outcomes.
        Although DOD guidance and FARs state that award fees should be used
    to motivate excellent contractor performance, most DOD award-fee
    contracts pay a significant portion of the available fee for what
    award-fee plans describe as ``acceptable, average, expected, good, or
    satisfactory'' performance. Although the definition of this level of
    performance varies by contract, these definitions are generally not
    related to outcomes. Some plans for contracts in our sample did not
    even require the contractor to meet all of the minimum standards or
    requirements of the contract to receive one of these ratings. Some
    plans also allowed for fee to be paid for marginal performance. Even
    fixed-price-award-fee contracts, which already include a normal level
    of profit in the price, paid out award fees for satisfactory
    performance. Figure 3 shows the maximum percentage of award fee paid
    for ``acceptable, average, expected, good, or satisfactory''
    performance and the estimated percentage of DOD award-fee contracts
    active between fiscal years 1999 through 2003 that paid these
    percentages.

        The use of rollover is another indication that DOD's management of
    award-fees lacks the appropriate incentives, transparency, and
    accountability necessary for an effective pay-for-performance system.
    Rollover is the process of moving unearned available award fee from one
    evaluation period to a subsequent evaluation period, thereby providing
    the contractor an additional opportunity to earn that previously
    unearned award-fee. We estimate that 52 percent of DOD award-fee
    contracts rolled over unearned fees into subsequent evaluation
    periods,\12\ and in 52 percent \13\ of these periods, at least 99
    percent of the unearned fee was rolled over. Overall, for DOD award-fee
    contracts active between fiscal years 1999 through 2003, we estimate
    that the total dollars rolled over across all evaluation periods that
    had been conducted by the time of our review was $669 million.
    ---------------------------------------------------------------------------
        \12\ The 95 percent confidence interval for this estimate ranges
    from 40 percent to 64 percent.
        \13\ The 95 percent confidence interval for this estimate ranges
    from 34 percent to 69 percent.
    ---------------------------------------------------------------------------
    A Case for Change: Ensuring Practice Is Consistent with Policy

    ------------------------------------------------------------------------
                  Recommendations                       DOD Response
    ------------------------------------------------------------------------
    Requiring appropriate approving officials   DOD plans to conduct an
     to review new contracts to make sure        analysis to determine what
     award-fee criteria reflect desired          the appropriate approving
     acquisition outcomes and award-fee          official level should be
     structures motivate excellent contractor    for new contracts utilizing
     performance by only providing fees for      award fees and issue
     above satisfactory performance.             additional guidance if
                                                 needed by June 1, 2006.
    ------------------------------------------------------------------------

        The inconsistent application of DOD's existing policies on award
    fees and weapon system development reinforce the need for increased
    transparency and accountability in DOD's management of award fees.
    Although DOD award-fee guidance and FARs state that award fees should
    be used to motivate excellent contractor performance, most DOD award-
    fee contracts still pay a significant portion of the available fee for
    what award-fee plans describe as ``acceptable, average, expected, good,
    or satisfactory'' performance.\14\ Air Force, Army, and Navy guidance
    that states rollover should rarely be used in order to avoid
    compromising the integrity of the award-fee evaluation process;
    however, about half of the contracts in our study population used
    rollover.
    ---------------------------------------------------------------------------
        \14\ According to FAR 16.404(a)(1), in a fixed-price-award-fee
    contract, the fixed price (including normal profit) will be paid for
    satisfactory contract performance. Award fee earned (if any) will be
    paid in addition to that fixed price. According to FAR 16.405-2(a)(2),
    a cost-plus-award-fee contract should include an award amount that is
    sufficient to provide motivation for excellence in such areas as
    quality, timeliness, technical ingenuity, and cost-effective
    management.
    ---------------------------------------------------------------------------
    A Case for Change: Developing and Sharing Proven Incentive Strategies

    ------------------------------------------------------------------------
                  Recommendations                       DOD Response
    ------------------------------------------------------------------------
    Develop a mechanism for capturing award-    DOD will conduct an analysis
     and incentive-fee data within existing      of existing systems and
     data systems, such as the Defense           determine which, if any, is
     Acquisition Management Information          best suited, to capture
     Retrieval system.                           this type of data and at
                                                 what cost. DOD expects to
                                                 complete the study by June
                                                 1, 2006.
    Develop performance measures to evaluate    DOD will review and identify
     the effectiveness of award and incentive    possible performance
     fees as a tool for improving contractor     measures and determine the
     performance and achieving desired program   appropriate actions by June
     outcomes.                                   1, 2006.
    Develop a mechanism to share proven         In its March 29, 2006,
     incentive strategies for the acquisition    policy memo, DOD tasked
     of different types of products and          Defense Acquisition
     services with contracting and program       University to develop an
     officials across DOD.                       online repository for award-
                                                  and incentive-fee policy
                                                 information, related
                                                 training courses, and
                                                 examples of good award-fee
                                                 arrangements.
    ------------------------------------------------------------------------

        Very little effort has gone into determining whether DOD's current
    use of monetary incentives is effective. Over the past few years,
    officials including the Undersecretary of Defense for Acquisition
    Technology and Logistics and the Assistant Secretary of the Air Force
    for Acquisition expressed concerns that contractors routinely earn high
    percentages of fee while programs have experienced performance
    problems, schedule slips, and cost growth. However, DOD has not
    compiled information, conducted evaluations, shared lessons learned, or
    used performance measures to judge how well award and incentive fees
    are improving or can improve contractor performance and acquisition
    outcomes. The lack of data is exemplified by the fact that DOD does not
    track such basic information as how much it pays in award and incentive
    fees. Such information collection across DOD is both necessary and
    appropriate.
                                  conclusions
        DOD's use of award-fee contracts, especially for weapon system
    development, reflects the fundamental lack of knowledge and program
    instability that we have consistently cited as the main reasons for
    DOD's poor acquisition outcomes. DOD uses these fees in an attempt to
    mitigate the risks that it creates through a flawed approach to major
    weapon system development. The DOD requirements, acquisition,
    budgeting, and investment processes are broken and need to be fixed.
    DOD's requirements process generates much more demand for new programs
    than fiscal resources can reasonably support. The acquisition
    environment encourages launching product developments that promise the
    best capability, but embody too many technical unknowns and too little
    knowledge about the performance and production risks they entail.
    However, a new program will not be approved unless its costs fall
    within forecasts of available funds and, therefore, looks affordable.
    Further, because programs are funded annually and departmentwide,
    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 expected and as promised.
        The business cases to support weapon system programs that result
    from these processes are in many cases not executable because the
    incentives inherent in the current defense acquisition system are not
    conducive to establishing realistic cost, schedule, and technical
    goals. As a result, DOD has to date not been willing to hold its
    programs or its contractors accountable for achieving its specified
    acquisition outcomes. Instead, faced with a lack of knowledge and the
    lack of a sound business case, DOD programs use award-fee contracts,
    which by their very nature allow DOD to evaluate its contractors on a
    subjective basis. This results in billions of dollars in wasteful
    payments because these evaluations are based on contractors' ability to
    guide programs through a broken acquisition system, not on achieving
    desired acquisition outcomes.
        Implementing our recommendations on award and incentive fees will
    not fix the broader problems DOD faces with its management of major
    weapons or service acquisitions. However, by implementing our
    recommendations, DOD can improve incentives, increase transparency, and
    enhance accountability for the fees it pays. In particular, moving
    toward more outcome-based award-fee criteria would give contractors an
    increased stake in helping DOD to develop more realistic targets
    upfront or risk receiving less fee when unrealistic cost, schedule, and
    performance targets are not met. To make this new approach to
    incentives function as intended, DOD would also need to address the
    more fundamental issues related to its management approach, such as the
    lack of a sound business case, lack of well-defined requirements, lack
    of product knowledge at key junctions in development, and program
    instability caused by changing requirements and across-the-board budget
    cuts. Working in concert, these steps can help DOD set the right
    conditions for more successful acquisition outcomes and make more
    efficient use of its resources in what is sure to be a more fiscally
    constrained environment as the Nation approaches the retirement of the
    ``baby boom'' generation.
                               recent dod actions
        Last week, DOD issued a policy memorandum on award-fee contracts
    that takes steps towards addressing several of the recommendations made
    in our report, and the department has indicated that further actions
    are planned to address the remaining recommendations. This guidance is
    a positive first step, but, like so many prior DOD concurrences, its
    effectiveness will ultimately be determined by how well it is
    implemented. Identifying who will be responsible for ensuring it is
    carried out and how progress will be monitored and measured are key
    ingredients that are missing in the new guidance. We continue to
    believe that DOD must designate appropriate approving officials to
    review new contracts to ensure that award-fee criteria are tied to
    desired acquisition outcomes; fees are used to promote excellent
    performance; and the use of rollover provisions in contracts is the
    exception not the rule. Changing DOD award-fee practices will also
    require a change in culture and attitude. The policy memorandum's
    position that it is appropriate to pay a portion of the available award
    fee for satisfactory performance to ensure that contractors receive an
    ``adequate fee on contracts'' is indicative of DOD's resistance to
    cultural change. Finally, we encourage the department to fully
    implement our remaining recommendations including developing a
    mechanism to capture award- and incentive-fee data and developing
    performance measures to evaluate the effectiveness of these fees.
        Mr. Chairman and members of the committee, this concludes my
    prepared statement. I would be happy to answer any questions you may
    have at this time.

        Senator Akaka. Thank you, Mr. Walker.
        Secretary Krieg.

    STATEMENT OF HON. KENNETH J. KRIEG, UNDER SECRETARY OF DEFENSE
               FOR ACQUISITION, TECHNOLOGY, AND LOGISTICS

        Secretary Krieg. Thank you, Senator, and thank you for the
    opportunity to appear before you to discuss the broad range of
    acquisition and management issues facing the DOD including, in
    particular, the need to ensure the contract incentives paid to
    contractors are better linked to contractor performance.
        Let me first briefly discuss our views on that and then
    spend just a couple of minutes hitting some of the broader
    topics that you put in your note to us for this hearing. As the
    Comptroller General noted, we agreed in large measure with the
    findings of GAO on this. So, I would support his position and I
    believe the contracting incentives, when properly used, can
    serve an important purpose in that they give companies an
    incentive to perform to a higher standard.
        As I said, we did agree with the GAO report findings in
    large measure, that the application of awards and incentive
    fees arrangements needed improvement. In particular, that hard
    objective measures that linked to program outcome were key in
    driving better performance in this regard.
        We must consider these incentives within the context of the
    overall acquisition strategy of the program. This includes
    variables that are sometimes beyond the control of contract
    managers and program managers, that can impact contract
    performance such as program stability, funding stability, and
    the like. But taking that into consideration, leads to that the
    acquisition strategy has two basic perspectives. First is the
    strategic perspective or what we decide to acquire. Second is
    the tactical perspective or how to develop, produce, and
    sustain requirements for products and services.
        In our hearing this morning, we talked a lot about that
    ``Big A.'' If we decide to build, if we decide to bring
    together cost performance and schedule, it would require
    acquisition strategies, and budgets, and create stable
    programs, then that provides the environment with sound
    incentives linked to activity, that can really drive
    performance in contracting.
        I wanted to hit a couple of other notes that you put in,
    and I think Mr. Walker referred to it, and that is to update a
    little bit about where we are in some of the GAO high risk
    items that pertain to the DOD. As we discussed last time we
    were here on business systems, the DOD has been working with
    the Office of Management and Budget (OMB) and GAO to outline a
    plan of action for improving performance and we appreciate
    their pushing and supporting our efforts in trying to think
    through the problem. We finalized the initial plans in the
    areas of contract management business systems for which, by the
    way, we are incorporating these thoughts into it: business
    systems, modernization for which you received, I think, the
    second installment of the enterprise transition plan 2 weeks
    ago, support infrastructure management, financial management,
    supply chain management, and weapon systems acquisition.
        Each of these plans will increasingly detail specific
    actions, responsibilities, deliverables, and time lines. We're
    working on rolling these responsibilities into individuals'
    performance objectives so that it would provide a strong
    linkage between their personal performance and the DOD's
    objectives.
        I've recently completed my first semiannual review of the
    performance in each plan, so I tried to review the full set of
    plans once every 6 months, in addition to working on them along
    the way. We're making progress, but as the Comptroller General
    noted, we have much to do. In fact, making plans are
    interesting, getting action in progress is what we really want
    to see happen. But I do offer the example and I do believe that
    the enterprise transition plan has proved to be a very useful
    mechanism to drive performance in the DOD on business systems
    modernization.
        The last area I wanted to spend a few minutes on was to
    touch on weapon systems acquisition and, in particular, give an
    overview of some of the things we're working on inside the DOD,
    given that we've received the DAPA. The study of the Defense
    Science Board (DSB) and the studies by the Center for Strategic
    and International Studies (CSIS), among others, and our own QDR
    just a month and a half ago, all these reports are now in and
    we are beginning to finalize our efforts in acquisition.
        We're moving forward in four broad areas that I've outlined
    as goals, among my goals in acquisition, technology, and
    logistics. One area is developing a high performing, agile, and
    ethical workforce. All of the studies agree that we need to
    align the skills of the workforce to the modern challenges. I
    believe with the average age of the workforce continuing year
    by year to move out, that we'll need to recruit and retain the
    next generation of necessary talent to do this work and
    continually train and reinforce ethical standards throughout
    our workforce.
        Our next big deliverable in this area is an overall
    strategic plan for the workforce that will integrate and
    organize these efforts and I hope to have that done in the next
    90 days or so, so we can begin to bring together diverse
    efforts, lay out responsibilities, and lay out time lines for
    performance.
        The next area is strategic and tactical acquisition
    excellence. On the strategic or what we buy side, we intend to
    experiment with the idea of portfolio management, particularly
    portfolios from the joint capabilities. This idea looks at the
    larger groupings of investments tied to the capabilities that
    would be needed by the joint force and, therefore, will help us
    better understand how specific investments contribute at the
    margin. This will be combined with bringing requirements
    acquisition resource communities closer together to consider
    trades among cost, schedule, and performance earlier in the
    systems life at notion that we are beginning to think of as
    concept decision, considering time to develop and field
    technology maturity in risk and available resources, as well as
    desired capability. Notionally then, combining those trade-off
    decisions with some type of capital financial discipline over
    time, would provide the environment for greater strategic
    stability in which program managers could operate. These
    studies clearly show that stable programs perform better than
    those that are unstable--not a surprise.
        On the tactical side, we continue the drive to use better
    systems engineering, integrated testing, independent cost
    estimating, technology readiness assessments, life cycle
    management, and the right type of contract vehicles, as well as
    trying to improve the oversight of performance.
        The DOD can improve its acquisition results by tying
    balanced decisionmaking on what we buy in a time-defined
    manner, while committing to stable funding based upon that
    decision, and using proven program management tools.
        For the sake of time, Mr. Chairman, I will enter the rest
    of my statement into the record. I appreciate your time and
    effort on this, and look forward to your questions.
        [The prepared statement of Mr. Krieg follows:]

                  Prepared Statement by Hon. Kenneth J. Krieg

        Chairman Ensign, Senator Akaka, and members of the subcommittee:
    Thank you for the opportunity to appear before you and to discuss an
    important aspect of Department of Defense (DOD) acquisitions, namely,
    the need to ensure that contract incentives paid to contractors are
    linked to contract performance. This issue was recently highlighted in
    a Government Accountability Office (GAO) report (GAO-06-66), which made
    several recommendations. The DOD largely agrees with the GAO
    recommendations, and has begun to take action to strengthen the link
    between monetary incentives and acquisition outcomes on DOD contracts,
    which I will address below. Before describing our planned actions, I
    would like to emphasize that contract incentives need to be considered
    within two broader contexts.
      contract incentives are one facet of the overall acquisition system
        First, it is necessary to keep in mind that despite contract
    performance problems, DOD contractors develop and deliver weapon
    systems that are the envy of the world and provide our warfighters with
    significant technological advantage. Thus, we need to ensure that
    contractors earn a reasonable return on DOD contracts, so that we
    maintain a viable, reliable defense industrial base capable of
    developing and producing superior weapon systems well into the future.
    One of my recently established goals addresses this--i.e., ``Reliable
    and Cost-effective Industrial Capabilities, Sufficient to Meet
    Strategic Objectives.'' One of the primary outcomes under this goal is
    to ensure ``contract finance and profit policies drive desired
    results,'' which is consistent with the GAO recommendations.
        Second, it is important to view contract incentives within the
    context of the broader acquisition system, which includes variables
    that impact contract performance that are beyond the control of
    contractors, such as program stability. Another one of my goals
    addresses these broader strategic acquisition issues--Strategic and
    Tactical Acquisition Excellence. This goal distinguishes between what
    we euphemistically refer to as the ``Big A'' acquisition, i.e., what we
    decide to acquire at the strategic level, and ``Little A'' or tactical
    acquisition, i.e., how we develop, test, produce, and sustain
    individual weapon systems. Advancing in both areas is absolutely
    critical to success. This includes balancing risk, outcomes, schedule,
    and cost when planning and adjusting portfolios, programs, and
    procurements. Such balancing should facilitate a better linkage between
    contract incentives and contract performance.
        Award and incentive fee contracts are typically used on our most
    challenging development contracts, which often involve considerable
    program instability. DOD must address improving the stability of
    programs, otherwise technical, schedule and cost risks will continue to
    hamper contract performance. For example, one initiative that has been
    identified in the recent Quadrennial Defense Review (QDR) and Defense
    Acquisition Performance Assessment is the need to have considerably
    greater integration among the requirements, budgeting and acquisition
    communities. The objective will be to pursue development of new weapon
    systems in a manner that reduces technical and schedule risk in order
    to deliver weapons to the warfighter sooner and at more predictable
    costs. This will include securing stable long-term funding, and setting
    requirements in recognition of technology readiness. By ensuring
    sufficient technical maturity and pursuing development efforts in more
    measured, evolutionary spirals, the DOD will increase the probability
    of contract success.
        While the GAO mention that award and incentive fees are part of the
    broader context of the acquisition system, the report's conclusions
    don't fully appreciate the impact of the other variables on contract
    performance.
                      use of award and incentive contracts
        A brief description of when and how award-fee and incentive
    contracts are used is beneficial. Award-fee and incentive fee contracts
    are usually used on complex research and development contracts in order
    to share the risk of performance with contractors. While these types of
    contracts are not used on that many contracts, they are usually very
    high value contracts (the GAO report found that these contracts
    constituted about 5 percent of the contracts but accounted for 20
    percent of contract dollars).
    Cost-plus-award-fee contract
        A cost-reimbursement contract that provides for a fee consisting of
    a base amount fixed at inception of the contract (usually 3 percent or
    less) and an award-fee amount, based upon a judgmental evaluation by
    the government, sufficient to motivate excellent contractor
    performance. The amount of the award fee to be paid is determined by
    the Government's judgmental evaluation of the contractor's performance
    during the award-fee period based on specified criteria. This
    determination and the methodology of determining the award fee are
    unilateral decisions made solely at the discretion of the Government.
    The Government can adjust the criteria during contract performance to
    emphasize areas most needing of attention. While award fees are
    intended to motivate excellent contractor performance, paying some of
    the award fee for satisfactory or good performance is justified
    considering that the base fee is typically less than 3 percent and not
    a reasonable total fee for satisfactory performance.
        Contractors may earn award fees in whole or in part during
    performance and such fees are intended to provide motivation for
    excellence in the areas such as quality, schedule, technical
    performance, and cost management. Award fees are tied to performance
    outcomes, but it is important to note that one criterion for using
    cost-plus-award-fee is that it is neither feasible nor effective to
    devise predetermined objective incentive targets for the cost,
    technical performance, or schedule of the contract effort. An
    additional criterion is that the likelihood of meeting acquisition
    objectives will be enhanced by using a contract that effectively
    motivates the contractor toward exceptional performance and provides
    the Government with the flexibility to evaluate both actual performance
    and the conditions under which it was achieved. Hence, Cost-Plus-Award-
    Fee contracts are often used when the nature of the work to be
    performed is such that there is a wide range of potential outcomes,
    many of which may be beyond the contractor's control. In view of these
    performance uncertainties, we use award fees, at least in part to
    motivate contractors to perform in ways that will result in the best
    possible outcomes under the circumstances. Essentially we use award
    fees to motivate outstanding management in order to mitigate the impact
    of known and unknown risks. In these cases, then, tying a portion of
    award fee to contractor management and responsiveness makes good
    business sense and is in the Government's best interest.
    Rollover
        The process of moving unearned award fee from one evaluation period
    to a subsequent period or periods, thus allowing the contractor an
    additional opportunity to earn that unearned award fee. Hence,
    rollovers provide a motivation to contractors to achieve contract
    outcomes, albeit late.
    Incentive contract
        A contract used to motivate a contractor to provide supplies or
    services at lower costs and, in certain circumstances, with improved
    delivery or technical performance, by relating the amount of fee to
    contractor performance.
                           dod response to gao report
        The DOD largely concurred with the seven GAO recommendations in the
    report and has initiated action for each. We have commenced an
    intradepartmental review of our policy on award and incentive fees. We
    recently issued a policy memorandum to the DOD acquisition workforce in
    this area. Among the areas that are emphasized in the policy is that
    award fees should be linked to desired outcomes. We must make it clear
    to all parties, including our contractors, what role the award and
    incentive fees play in a program's acquisition strategy. Guidance on
    award fee ``rollover'' is another issue addressed in this policy. This
    policy memorandum imposes a number of limitations on the use of
    ``rollover,'' including that the rollover of award fees should be an
    exception rather than the rule.
        The GAO also recommended that the DOD ensure that award-fee
    structures are motivating excellent contractor performance by only
    paying award fee for above satisfactory performance. While the purpose
    of award-fee arrangement is to motivate excellent contractor
    performance, the existing guidance on award-fee arrangements envisions
    paying award fees on a graduated scale since the guaranteed base fee is
    typically less than 3 percent. Therefore, it is reasonable to award
    some portion of the award-fee pool on a graduated basis for
    satisfactory and good performance. For this reason, we only partially
    concurred with the GAO recommendation; however, we did agree that the
    policy should be to structure award-fee arrangements so that
    contractors earn the preponderance of the award fee by providing
    excellent performance. Accordingly, the recent policy memorandum
    addresses the distinction between satisfactory performance and
    excellent performance, and the need to ensure that award fees are
    commensurate with contractor performance.
        The GAO also recommended that the DOD develop a mechanism to share
    proven incentive strategies across DOD. We concurred with this
    recommendation, and with the assistance of the Defense Acquisition
    University, we established a web-based Community of Practice for the
    DOD acquisition workforce to share good strategies for award and
    incentive fee arrangements.
        In response to other recommendations in the report we recently
    established an intradepartmental group that will assess the feasibility
    of creating an award and incentive fee database, and developing
    performance measures to evaluate the effectiveness of award and
    incentive fees as a tool for improving contractor performance and
    achieving program outcomes. In addition, the group will review existing
    guidance and conduct an analysis to determine what the appropriate
    approving official level should be for new contracts where an award and
    or incentive fee structure is utilized.
                                    summary
        The DOD largely concurred with the GAO recommendations and has
    commenced a review of our policies addressing award and incentive fee
    arrangements. We plan to complete these efforts by summer. Our review
    will consider award and incentive fee arrangements within the broader
    acquisition system context, including the many other factors besides
    the award and incentive arrangements that affect contract performance
    that are outside of the control of contractors. These include issues
    such as program instability, changes in requirements, and insufficient
    technical readiness. The DOD plans to address these broader issues as
    part of implementing my goals and the guidance in the QDR. Finally, our
    contractors develop and deliver the best weapons systems in the world
    for our warfighters, which have given them a significant technological
    edge in warfighting capability.
        In closing Mr. Chairman, thank you for the opportunity to explain
    the DOD's activities with regard to the use of award fees and incentive
    fees in DOD contracts. I am available to answer any questions you and
    the members of the subcommittee may have.

        Senator Akaka. Thank you very much, Mr. Secretary, for your
    testimony. The GAO report indicates that the median award fee
    earned by DOD contractors is 93 percent, so that almost all
    contractors get very close to the full amount of the award fee
    available, even though most major defense programs fail to meet
    budget, schedule, and performance expectations.
        DOD knows it has a problem and agrees with some of GAO's
    recommendations. However, DOD did not concur with GAO's
    recommendation that it pay award fees only to contractors whose
    performance is better than just satisfactory.
        Now, Mr. Walker, can you explain why you made this
    recommendation?
        Mr. Walker. Yes, I can, Senator. First, I think you have to
    define ``satisfactory.'' That is not a well-defined, nor
    consistently applied term. In our view, ``satisfactory'' should
    mean that you are achieving the promised outcomes. That means
    cost, schedule, and performance. It is possible that you could
    have a contractor who is meeting cost, schedule, and
    performance, who could and possibly should be awarded some fee
    for doing so. However, if they are not meeting cost, schedule,
    and performance, then the question is whether or not they
    should receive any fee, and if they beat cost, schedule, and/or
    performance, logic would say that they should receive a higher
    incentive or award fee.
        Part of the difficulty right now is we don't have a clearly
    defined or consistently applied definition of satisfactory and
    it's not outcome based.
        Secretary Krieg. I would agree in large measure with
    everything that the Comptroller General just said and that I
    think our response back was, we agreed with the spirit of the
    condition, and felt that it was important to understand exactly
    what those words meant, and exactly how you measured it. Then
    once we did that, we just didn't want to preclude the notion
    that it was only superior performance that would get it,
    because if you didn't have a definition of what each of those
    were, then tying it only to award was not a good idea. So we
    wanted to study it, drive through it, and then have an approach
    that had defined approaches to it. I think that was more a
    disagreement on the margins than it was a disagreement in
    principle.
        Mr. Walker. It is my understanding their acquisition
    regulations say that these fees are designed to motivate
    excellent performance.
        Secretary Krieg. That's right.
        Mr. Walker. By definition, ``excellent'' is not
    ``average.'' But again, I think we could probably agree on the
    substance. The key is to define the terms clearly,
    consistently, and based on outcomes. But I can tell you, that
    if you set realistic but aggressive cost, schedule, and
    performance targets, then it is possible that somebody should
    be awarded something for hitting those if they are realistic
    and not layups. At the same point in time, if they do better
    than that, then they ought to get more. Right now we have a
    situation where they are not hitting cost, schedule, and
    performance and yet, they are still getting most of the fees.
    That's obviously an unacceptable outcome for the government as
    well as taxpayers.
        Senator Akaka. Secretary Krieg, you mentioned that you
    agreed with the spirit of GAO's recommendations and my question
    to you, which you partially answered, is why did DOD not concur
    with GAO's recommendations? Besides agreeing in spirit, are
    there any evaluators that evaluate the situation on whether the
    cost, schedule, or performance was done so-called,
    satisfactorily?
        Secretary Krieg. Let me frame the whole answer. First of
    all, we agreed in total with three of them. We agreed largely
    with four of them. I was saying the spirit was around the
    question of excellence. What we would envision is a graduated
    amount of award fee based upon increasing toward a higher goal.
    But at the principal point of, do you get 93 percent for just
    showing up? The answer ought to be no.
        So I guess in principle, we're in complete agreement on
    that specific of would you only get it for an excellent or
    superior and not for a satisfactory. We just wanted to say,
    since there is no pure definition of what those are, since they
    are not objective measures, we wanted to be able to have the
    flexibility to be a graduated award fee as we put in more
    definition. I think that was a principal disagreement, but that
    is, as I've said, at the detail and not at the general notion.
        Mr. Walker. My understanding, Senator Akaka, and Secretary
    Krieg may be able to clarify this, is where we might have been
    talking past each other at the senior staff level was, they may
    have interpreted our recommendation to say that if you had
    cost, schedule, and performance, which means you did what you
    said you would do, that you shouldn't get anything. That's not
    what we're saying, and so, I think we may be in agreement.
        Secretary Krieg. I think we are largely in agreement and
    it's a matter of working through the details and that is why I
    said, we put out a policy, we've now got some work underway.
    This summer we hope to bring forward a new approach to this
    whole area and I think that at that point, we'll probably clear
    up a lot of the differences we had at the time of the report.
        Senator Akaka. Mr. Secretary, on this, do you plan to put
    in more definition?
        Secretary Krieg. Yes, sir. It will take training with it.
    It will take some degree of visibility and transparency. You'll
    have to figure out who is responsible. The framework that the
    GAO laid out, I think we're largely in agreement with, it's a
    matter of working out the details, exactly how to do it, and
    that is what we have committed to do in the next 90 days or so.
        Senator Akaka. The GAO report also recommends that the
    Secretary of Defense: one, develop a mechanism for collecting
    data on award and incentive fees; and two, develop performance
    measures to evaluate the effectiveness of these fees. This
    seems like a critical step. If we want to get the best bang for
    the buck, we need to know how we are spending our money and how
    effective our efforts have been.
        However, DOD did not concur with either of these
    recommendations. Instead, the DOD said that it will conduct a
    study and would determine what the appropriate action is.
        Mr. Walker, can you explain why you made these
    recommendations?
        Mr. Walker. Management 101 says you need to measure and you
    need to evaluate in order to determine whether or not these are
    being used effectively and appropriately. It is that simple.
        Senator Akaka. Secretary Krieg, can you explain why DOD did
    not concur with those recommendations?
        Secretary Krieg. I think again, it was more we were not
    ready to buy a process that had been laid out. We were viewing
    it not as a process being laid out by the GAO. I cannot
    disagree that we shouldn't have some level that actually views
    it as transparency, knows what it is, and knows how to measure
    it. Our idea to study it, was not to spend 2 years ignoring the
    problem, but to take 90 to 120 days, figure out what the
    management mechanisms were/are. I know at least one Service is
    already reviewing the award-fee terms and what is happening. I
    think it's more of a desire to go through our own process,
    figure out how we're going to change the way we do business at
    the principal level, I can't disagree with the Comptroller
    General at all.
        Senator Akaka. In response to a request from this
    subcommittee, the GAO issued a November 2005 report on the role
    of program managers at DOD and in the private sector. The GAO
    report says that leading private sector companies empower the
    program managers to execute the programs and hold them
    accountable for the results.
        By contrast, GAO found that DOD fails to give its program
    managers the authority that they need to execute acquisition
    programs and, as a result, is unable to hold them accountable.
    GAO determined and I quote, ``once programs begin, the program
    manager is not empowered to execute the program. In particular,
    the program managers cannot veto new requirements, control
    funding, or control staff. With so much outside their span of
    control, program managers say that DOD is unable to hold them
    accountable when the programs get off track. Another reason
    that it is difficult to hold program managers accountable, is
    that their tenure is relatively short. The problems being
    encountered today, may well be the result of a poor decision
    made years ago by another program manager.''
        Mr. Walker and Secretary Krieg, would you agree that in
    addition to changing the incentive structure for DOD
    contractors, we need to change the incentive structure for DOD
    program managers?
        Mr. Walker?
        Mr. Walker. Yes. I think you need to look at the incentives
    both for government workers as well as contractors. I will say
    this, Senator Akaka, and you may want me to get into this a
    little bit more later, I do believe that there are a number of
    things that need to change in the acquisitions area in order to
    be able to achieve desired outcomes. One of the reasons I
    believe that incentive and award fees are paid today, is
    because number one: the requirements aren't clearly defined
    upfront and they aren't nailed down; and number two: there may
    not be stable funding for some of these programs. So as a
    result of these two and other factors, many times what you find
    is people paying incentive and award fees for efforts and
    attitude, rather than for results. Sometimes, I believe that
    we're paying incentive and award fees because the government
    may change the rules of the ballgame on the contractor in the
    middle of the process by modifying the requirements and
    rebaselining the program. I can understand why some of these
    fees may have been paid.
        I don't think they should have been, but I can understand
    why they might have been and it brings me back to, and I won't
    answer it now, other changes that are needed as a part of the
    acquisitions process. Frankly, Congress is going to have to
    play a role in some of these changes in order to achieve better
    outcomes, whether or not incentive and award fees are paid.
        Senator Akaka. Secretary Krieg?
        Secretary Krieg. To the point of a program manager's
    ability to control his or her own destiny, I think that's what
    you are arguing, can we hold them accountable? It's hard to
    hold a program manager accountable if they don't control their
    destiny. So one of the things, and we have spent some time
    talking about it, we have spent a lot of time inside. The
    system is driving clear decision points in the system where you
    begin to lock requirements, have an honest assessment of where
    you are in technology risk and therefore, schedule risk.
    Technology risk being one of the key components of schedule
    risk and a stable funding. If you can create that kind of
    environment, then you can hold a program manager accountable
    for performance. If their objective reality is moving around
    them as they are trying to execute a program, it gets very hard
    to hold them accountable for that.
        So on the second notion--what we're trying to do is fix
    cost, schedule, and requirements earlier in the program and
    then, hold program managers accountable for performance and
    fend off others who want to do their own things in the program.
        Mr. Walker. We do believe there is a need for more
    stability in program managers as well, especially in connection
    with major weapon systems acquisition programs which is
    something you touched on.
        Secretary Krieg. I was going to note that we started
    working the DOD and I would not say that I have enough metrics.
    I don't have any metrics to tell you whether the work is
    working yet or not, shall we say? But try to drive particularly
    for large programs longer program management--tenure. It would
    be ideal if you had program management tenure through large
    portions of the programs, so the program manager could deliver
    a set of deliverables. We're working at that. That is a to-do
    still on my list of things.
        Senator Akaka. I hope I can ask a question about what steps
    could be taken, so that program managers can manage. It seems
    as though there are some problems there. I have other questions
    but, let me pass it over to the chairman for his questions.
        Senator Ensign [presiding]. Thank you, Senator Akaka, for
    holding down the ship while I was gone. It took a little while
    to get going over there, so I watched Mr. Walker's opening
    statement on closed circuit.
        Award-fee contracts are structured and serve a different
    purpose from incentive fee contracts. Under award-fee
    contracts, a contractor must receive some award-fee payment
    just to break even on the work that he or she performs. The
    basis for award-fee payments in these contracts may be quite
    subjective. Incentive fees on the other hand, are placed on top
    of base fees or profit and are awarded based on meeting
    objective cost and performance criteria.
        For both of you, has DOD or GAO analyzed the desirability
    of moving from use of cost plus award-fee contracts to greater
    use of cost-plus-fixed-fee with incentive fees as a better
    approach for motivating contractors on cost, schedule, or
    performance objectives? Either one.
        Mr. Walker. You properly pointed out, Mr. Chairman, that
    award fees are more subjective and that incentive fees are
    based upon more objective criteria. We believe that the type of
    contract that the government enters into, should depend upon
    what we're requiring and the relative risk associated with that
    type of acquisition. Is it something that is being developed
    for the first time and therefore, there's more uncertainty and
    there's more risk? If there's a high degree of uncertainty,
    then in that type of situation, it may make more sense to have
    a cost-plus-incentive-fee award contract.
        But if you do that, you must nail down requirements up
    front. You need to stabilize requirements. You need to follow
    commercial best practices including technology maturity as you
    move through the design development production process, and you
    should only pay incentive fees for positive outcomes. Meaning
    you meet cost, you meet schedule, and/or performance. If you
    meet all of those, you might get something. But obviously if
    you exceed them, you should get more.
        Secretary Krieg. Let me take the details for the record and
    I'll get back to you on that.
        [The information referred to follows:]

        DOD is moving to greater use of incentives that motivate
    contractors on cost, schedule, and performance. The Deputy Under
    Secretary of Defense for Acquisition and Technology issued a memorandum
    on March 29, 2006, emphasizing that award-fee contracts must be
    structured in ways that focus the government's and contractor's efforts
    on meeting or exceeding cost, schedule, and performance requirements.
    This memorandum further states that it is imperative that award fees be
    tied to identifiable interim outcomes, discrete events, or milestones.
    DOD also is drafting a second policy memorandum that will further
    emphasize the need for contracting officers to utilize multiple
    incentive contracts (e.g., incentives that are primarily tied to
    objective criteria for cost, schedule, and performance in lieu of
    contracts for which the fee is primarily comprised of subjective award-
    fee criteria).

        Secretary Krieg. But in general, we try to tailor the
    contract type to the point of the contract and the nature of
    the contract. But I think obviously, the more definitization
    you have in the program, the more you can move toward fixed.
    So, let me take your direct question for the record, but I do
    agree completely with the notion that whether it's award or
    incentive, having it be subjective is a very difficult way to
    do business and it's not the way we should be doing business.
        Senator Ensign. I want to stay on this acquisition reform.
    Secretary Krieg, you started to outline some of the DOD's
    experiments for acquisition reform and maybe, could you
    elaborate on the three different time frames for acquisition
    and what contract mechanisms are appropriate for each?
        Secretary Krieg. Three different time frames we're thinking
    about are something for which you have an urgent operational
    need and a defined answer with low technology risk that is a
    rapid acquisition candidate. Taking a rapid acquisition
    candidate through the standard 5000 series stage gate milestone
    process doesn't make a lot of sense. So there's a rapid
    acquisition model to think about.
        There is a medium, or there's a low development model,
    something that I have generally available, but for which I need
    limited development, lower risk, shorter cycle times, and then
    the third is a more full development kind of process. I still
    think too often, in a full development process, we let
    requirements be unbounded and therefore we chase within the
    mature technology far too much time. Even in the full
    development, we need to be able to constrain cost, schedule,
    and performance.
        As to contract type, obviously the more defined the answer
    is, the less technology risk, the more you can move to fixed
    types of contracts and not cost type of contracts. You can also
    change it over the life cycle of the development program.
        The other part of what we're experimenting with is in this
    notion of joint capabilities portfolio. If you would like me to
    talk a little bit about that, or we could do it later?
        Senator Ensign. Go ahead.
        Secretary Krieg. One of the things we've found over and
    over again, is we have looked at this and as people have
    studied and commentary has been laid forward, the sum of the
    best joint answer is not necessarily the sum of existing
    Service and agency programs. So as we looked at this problem of
    making choice in particular, too often in the world, we go from
    grand strategy to an individual program, without having the
    connective tissue, what we're calling portfolios. But like
    systems--not just systems. Systems, concepts, manpower,
    training, all of it that comes together to create capability.
    We've been working at the DOD on joint capability areas, the
    definition of portfolios of activity.
        This year we'll take out several of those, joint command
    and control being one of them, joint supply chain being another
    one, and look at all of the investments both in material, and
    in people, and in concepts from the joint perspective and begin
    to think about rearranging investments in that portfolio.
        So that will be one way to drive the kind of strategic
    choice that the Comptroller General and I were discussing this
    morning. So that's another experiment area we will be working
    on.
        Senator Ensign. Mr. Walker, could you talk about what some
    of the things that Secretary Krieg has just talked about, but
    also some of the things maybe GAO has looked at, like the
    various time frames including rapid acquisition and maybe, any
    of the lessons we've learned from rapid acquisition for overall
    acquisition reform. Have you evaluated any of that?
        Mr. Walker. We haven't evaluated that specifically to my
    knowledge, Mr. Chairman, but I'd be happy to go back and find
    out and provide something for the record.
        [The information referred to follows:]

        Our goal in getting DOD to transform its acquisition process has
    been to focus on fielding capability; DOD's efforts now go instead
    toward developing capability, with the result that it takes much longer
    and costs much more than necessary to deliver weapons to the
    warfighter. We have written many reports as to why programs take so
    long to field and have made numerous recommendations about what DOD
    needs to fix. We have not seen much change. As the current conflicts in
    Iraq and Afghanistan have unfolded, DOD organizations have developed
    workarounds to the standard acquisition process. There are now more
    than a half dozen ``rapid acquisition processes'' within DOD, some
    service specific and some in joint commands. These processes generally
    have a timeframe of up to 2 years, buying off-the-shelf or near off-
    the-shelf equipment. While the acquisition community needs to find ways
    to be responsive to the combatant commanders, the growing number of
    rapid acquisition processes raises questions about the ability of the
    normal acquisition process to respond both quickly and to joint needs
    that do not fall within the purview of a single military service. A
    final observation I will make on overall acquisition reform is that it
    is not reform until it changes outcomes in the form of more programs
    being delivered as promised. We have been a supporter of acquisition
    reform and encourage Mr. Krieg's efforts to find ways of fielding
    capable weapons more quickly and less expensively than has been the
    case for the past few decades. But unless good ideas are translated
    into practices they will only remain good ideas.

        Mr. Walker. I would like to share with you and Senator
    Akaka, when I was asked this morning by the House Armed
    Services Committee what are some of the things that need to be
    done in this area, I gave them six off the top of my head. This
    is not just in the incentive and award-fees area but the
    broader is acquisitions area.
        First, the DOD must reconcile what is called the ``Big A,''
    the difference between wants, needs, affordability, and
    sustainability. It has not been done and it may be bigger today
    than it was before the latest QDR. It has to be done across the
    DOD and it needs to be done based upon major capabilities,
    using portfolio concepts, and other types of effective
    strategies.
        Second, once a program gets through that process and that
    means reconsidering existing programs as a part of that ``Big
    A'' process, nothing should be----
        Senator Ensign. Hold on right there, just so Secretary
    Krieg can jump in. Just on that very point, is DOD reevaluating
    everything in the ``Big A''?
        Secretary Krieg. In fact, I would say that is where we had
    Admiral Giambastiani and the Deputy Comptroller with us today,
    and Admiral Giambastiani is the Chairman of the Joint
    Requirements Oversight Council (JROC) and me as the head of the
    Defense Acquisition Board (DAB). Ed and I spent an awful lot of
    time together working about just this very issue, because so
    many of the problems that we later have in acquisition
    execution ``Little a''--many of them can be tied back to
    decisions you didn't make or decisions you did make in early
    stages of the program.
        Mr. Walker. Mr. Chairman, I think the Secretary would agree
    with me that, in connection with the ``Big A'' means you don't
    just look at new things, you also look at existing things.
        Secretary Krieg. Very much so, that taking an existing
    material solution, that's why I said in the portfolios, it's
    not just material. It is not just a new weapon system. It is
    concepts of operations, how you use existing things in
    different ways. Maybe a much better solution than starting out
    for a specific capital solution to a problem you could
    otherwise solve. We're really trying to push at that notion.
        Mr. Walker. The answer, Mr. Chairman, is yes. Everything
    must be on the table. Just because a program is currently in
    the pipeline and just because it is at various stages of the
    pipeline, does not necessarily mean it should be continued.
        Let me give you two examples where we wasted billions and
    billions of dollars, okay? They came up this morning, Comanche
    and Crusader. We ultimately pulled the plug on those programs.
    It's not that those were totally unmeritorious, but part of the
    challenge that you have is, we have wants versus needs versus
    affordability versus sustainability. Yes, the DOD ultimately
    made the decision to kill those programs, but way too late. As
    a result, we had already spent billions of dollars that
    otherwise could have been available for other programs. So step
    one, we have to reconcile the ``Big A.''
        Secretary Krieg. Can I jump in on that one? Because I think
    it might be useful. We are trying to look at that, the two
    decisions made this year: decision one, Aerial Common Sensor
    (AES), the Army-based joint program to do signals intelligence.
    It was 1 year after Milestone B. It was early in its system
    design. It was very clear that somewhere between its
    performance, its cost, and its schedule, it was going to fail
    miserably. We made the decision to terminate the contract,
    rather than to hope that we would come up with a solution to
    solve it.
        That doesn't make that need go away. We're going to have to
    figure out how to solve that problem. But we took that program
    and said, it is not going to make it, and so we terminated the
    program.
        The second one, the B-52 Standoff Jammer, earlier in the
    development it had a set of requirements that were validated by
    the JROC. Somewhere after that validation, others got in and
    said, gee, there are other things we would like to do with this
    while we're developing it. You took a billion dollar answer and
    made it a $7 billion answer. So we decided to terminate that
    program to try to put discipline into it. It didn't make the
    requirement for standoff jamming go away. But it was clear that
    program was not going to be a solution and so we're trying to
    make those decisions earlier in the process.
        Mr. Walker. That brings me to my second point. After you
    get through the ``Big A,'' and reconcile the current inventory,
    you need to set realistic and sustainable basic requirements
    and avoid requirements creep. What's happening now, is they are
    not nailed down. You have a moving target with technology
    moving along, if you're trying to keep up with the latest
    technology, you will never be done, because technology moves so
    quickly now.
        Senator Ensign. Are you saying that with some of these
    things we need to have realistic time lifespans? In other
    words, something we can't have is a 20-year lifespan for
    certain types of equipment. It may only be a 3-year lifespan.
        Mr. Walker. That's one aspect. Another aspect is we need to
    get through the design, development, and production phases much
    quicker. In order to be able to do that, we need to define our
    requirements based upon current and near-term technologies and
    after we produce that platform, then we may be able to plug and
    play to upgrade certain components or whatever. We did that
    with the B-52, we've done that for a number of different
    platforms over the years. We need to do that because otherwise,
    you have a moving target. If you have a moving target, it is
    tough to hold the contractors accountable and it's tough to
    hold the program managers accountable.
        Senator Ensign. I'll give you an example of that. I was on
    the U.S.S. Ronald Reagan, our newest, most modern aircraft
    carrier and the systems and the computers on that ship are
    older technology already. That's our newest aircraft carrier,
    and it needs to have more plug and play type operations.
        Secretary Krieg. As you move to modular open systems, you
    can plug and play in those. Remember that the nature of
    technology is shifting on us so rapidly, that the design model
    and the nature of information technology (IT) are completely
    inconsistent with each other and we're dealing with some of
    those programs that were designed in an age where open systems
    architecture--you didn't know what it was--reverse engineering.
    That once you get to a certain capital life point, is very hard
    to do and we're stuck in that zone for a number of the programs
    we're trying bring to fruition.
        Mr. Walker. At the same point and time, the U.S.S. Ronald
    Reagan may not have the most modern available technology in
    certain regards, but it still could be by far ahead of anything
    that anybody else has, and that's one of the things we need to
    keep in mind.
        Secretary Krieg. I would add to that, the notion we have
    this general cultural desire to be at the edge of technology
    for everything. There are places for which technology
    sufficiency is just fine. So, getting that trade--but our
    culture is, you want to have the best you can for the
    warfighter and the best has historically been defined as the
    edge of technology.
        Mr. Walker. The old story, don't let the perfect be the
    enemy of the good. We need to go for an 80-percent solution and
    we need to get it done, we need to get it delivered on time,
    within cost, and with appropriate performance and then we can
    use plug and play.
        Third, there has to be a more stable funding environment.
    Fourth----
        Senator Ensign. Describe that in more detail.
        Mr. Walker. Sometimes the DOD and sometimes Congress will
    end up redirecting funds, such that you cannot provide the
    amount of funding to the contractor at the time that they were
    expecting to get it and therefore, how can you hold them
    accountable, or the program manager accountable for not hitting
    the schedule, cost, and performance?
        Senator Ensign. The DOD has their own problems there. But
    also, you mentioned Congress. Is the feedback coming from the
    DOD to Congress during the appropriations phases?
        In other words, are you following closely enough what we
    are doing up here to say, ``hey, you're asking for problems,
    you're going to cause us problems on these fee contracts, these
    performance contracts, whatever we're doing, you're going to
    end up costing a lot more money.'' Are we getting the feedback
    that we need?
        Secretary Krieg. I'm quite sure we provide feedback.
    Probably pretty thoroughly, but I'm not sure that that--I think
    we provide the feedback, sir.
        Mr. Walker. Stated differently, Mr. Chairman, Congress, at
    times, is part of the problem and Congress must be part of the
    solution.
        Senator Ensign. I don't doubt either one of those things.
        Mr. Walker. It's not just with regard to the funding, it's
    also with regard to the ``Big A.''
        Number four, use commercial best practices, including
    achieving an appropriate degree of technology maturity in the
    design, development, and production phases.
        Number five, move to more streamlined and simplified
    contracts that better balance costs and risks, and are based on
    achieving desired outcomes.
        Then number six, only pay incentive and award fees for
    positive outcomes and that means cost, schedule, and
    performance. Positive outcomes could be you did what you said
    you were going to do. We need to have realistic but not lay-up
    requirements. But if you do better than that, you ought to get
    more and that is what incentives are for. But if you don't meet
    those, you shouldn't be paying as much, if anything.
        Senator Ensign. On that point, Mr. Walker, because we do
    oversights, you do oversight, and you were talking about very
    clear and definable goals, and performance measures, metrics.
    Also does the DOD have enough flexibility to--some of this may
    be quite subjective on the fly, but when we do oversight it may
    not look that way. Therefore, there may be fear in the system
    that somebody is not going to want to give flexibility because
    they know that you're going to do a study on them. You're going
    to report back to us and we're going to call them before the
    committee. Maybe both of you might want to comment on that and
    then I'll turn it over for other people to question after this.
        Do you understand what I'm trying to get at?
        Mr. Walker. Let me give it stab and you tell me if I did.
    Things aren't nailed down. It's tough to hold people
    accountable when things aren't nailed down. Let's just say that
    over the years, irrespective of cost, quality, and performance,
    there have not been enough consequences to the responsible
    parties. As a result, we have a status quo situation in
    practice, not necessarily in design. The policy manuals can be
    great. The policies can be fine, but what is important is what
    actually happens in actual decisionmaking and acquisition
    practices.
        This hearing, in part, was about incentive and award fees
    and that is a big problem. But I honestly believe that that's
    the tip of the iceberg. It's the tail. One of the reasons we
    have a problem is because of the problems in the other five
    steps that I talked about. They result in paying incentive and
    award fees, and in situations where none of us, including the
    DOD, believes it should continue.
        Secretary Krieg. Can I try by going up even higher than the
    question? So I won't answer your question, but I think, and I
    may not answer your question directly, but it might help. I
    find this often as I go through this, and I know Mr. Walker and
    I have actually had this talk about this a lot. I find inside
    government, as opposed to inside business, we spend an awful
    lot of our time talking about inputs and not outcomes.
    Conversely, we talk a lot about activities, rather than
    results.
        I find as I read through this, a lot of this is we're not
    disciplined about thinking through what results are and
    therefore, what are the outcomes that drive results? But we do
    think a lot about what are the inputs necessary to drive. What
    are the inputs and what are the activities that would get us
    those inputs? I don't know if this is reflective of that
    culture.
        Senator Ensign. The question that the staff came up with I
    think as far as accountability, ``do you believe that including
    the combatant commanders and the service chiefs in the process
    would improve the accountability?''
        Secretary Krieg. On award fees, no.
        Senator Ensign. Just on the acquisition, as well. Not just
    award fees.
        Secretary Krieg. If it is more broadly, we've worked hard
    and we're working very hard to bring the combatant commanders
    into the needs setting. Needs being both what you want to have
    and the time you have to have it, and the relative value of
    that versus something else. So as I said in these joint
    capability portfolio experiments, I'm going to be the co-chair
    of the supply chain with Norton Schwartz at Transportation
    Command (TRANSCOM). So we're going to look at it from the joint
    perspective to try to get them in as an arbiter of what they
    think is really important.
        So getting their involvement in what we want, its relative
    importance to other things, and its importance in time, I
    think, is absolutely critical. Whether they need to be part of
    the acquisition process is situational. In some cases, I think
    yes. The functionals, the TRANSCOMs, the Strategic Commands,
    the Joint Forces Command far more so, in terms of the
    acquisition process, the ``Little a'' than say the regional
    combatant commanders who have other things to do.
        But in terms of defining needs, times, and priorities, I
    think they are the customers we're trying to serve and,
    therefore, increasing their role is really important.
        Mr. Walker. Stated differently, on the sixth criteria that
    I gave you, I think it's important that they be involved in the
    first two where you're setting needs and you're trying to set
    realistic and stable requirements upfront. Then I think it
    needs to be turned over to a professional and frankly in some
    ways, a more independent process. Like for example, when you're
    paying incentive and award fees, you need to make sure that a
    majority of the people involved in that decisionmaking process
    are independent.
        If the program manager or the people who are directly
    associated with whether things went well, or didn't go well, if
    they're the ones making the decision, that doesn't make a lot
    of sense. They should have input into the decisionmakers, but
    they shouldn't be making the decision or the majority of the
    advisors.
        Senator Ensign. Thank you.
        Senator Akaka.
        Senator Akaka. Thank you very much, Mr. Chairman. Mr.
    Walker has talked about contractor expectations. I understand
    that some contractors are so confident of receiving award fees,
    that they record a large percentage of the fees as profits in
    their financial statements before the work is even performed.
        This is also a question by Senator Levin: the GAO report
    states that, ``many award-fee board members and fee determining
    officials approach the award-fee process with the assumption
    that contractors should earn the full amount, unless there were
    specific instances of poor performance that warranted
    deductions instead of starting at zero and considering actions
    a contractor had taken to earn the available fee.''
        Mr. Walker's testimony notes that the impartiality of these
    award-fee boards is undermined by the fact that they are made
    up primarily of individuals who are directly connected to the
    program.
        Mr. Walker and Secretary Krieg, do you think that the DOD
    should establish specific guidelines or criteria as to the
    level of performance, that would justify paying 50 percent, or
    75 percent, or even 90 percent of award fees? Should we start
    grading contractor performance on a curve? Mr. Walker?
        Mr. Walker. First, if companies are booking for financial
    statement purposes, award and incentive fees before they earn
    them, that is directly contrary to generally accepted
    accounting principles. I would want to look at their books
    pretty closely if I was the shareholder.
        Second, it could be indicative of the fact that right now,
    the award and the incentive fees are structured at present.
    They're basically determined after a period of time, not after
    the occurrence of certain events which needs to change.
        Third, if over 90 percent of the fees get paid out,
    irrespective of the outcomes, and ours is not necessarily
    representative of the entire universe, that's just based upon
    the ones we looked at for you, then I think even though
    technically, they're only supposed to be paid in certain
    circumstances, practically for a lot of reasons, most of them
    get paid. Therefore, the contractors assume they're going to
    end up getting the money unless something really bad happens.
    That is the opposite of what incentive and award fees ought to
    be.
        Incentive and award fees ought to be, you promised that you
    were going to deliver X by Y at Z cost. X meaning, not just a
    number but the capabilities. Did you do it, or not? If you did
    it, fine and you ought to be recognized and rewarded for that.
    If you did it quicker or faster, or cheaper, or better, then
    you ought to get more.
        What you're describing, Senator, is illustrative of the
    cultural problem and the divide that exists right now between
    what they are and what they should be.
        Senator Akaka. Mr. Secretary?
        Secretary Krieg. What we said in the policy memorandum we
    just sent out, it's imperative that the award fees be tied to
    identifiable interim outcomes, discreet events, or milestones
    as much as possible. Provide an example such as, timely
    completion of preliminary design review, critical design
    review. Those are points in a program that you know whether the
    program is on track or not. But clearly, you want to find from
    a schedule perspective what are the long poles in the schedule
    tent, what are the costs when you get cost criteria. So you
    want to tie it to discreet knowledge, whether it's an event, or
    an activity, or whatever. But knowledge that says, I'm going
    towards the results that I'm looking for and obviously, the
    more it's around cost, schedule, and performance, those are the
    things we care about in outcomes, the better off we are.
        Mr. Walker. I would also say, Senator, in thinking about
    more stability for program managers, you may not just want to
    think about how much time the person is there, but whether or
    not they are leaving before a certain milestone has been hit.
        Secretary Krieg. That's thinking about them in specific
    times of the program, is really what we're trying to think
    through.
        Senator Akaka. The possibility is, we could set up a
    different set of incentives by fencing off money for award
    fees, so that would not be allocated to individual programs
    until it is earned. Individual programs and contractors would
    then have to compete against each other for award fees, giving
    the DOD an opportunity to link pay to performance and reward
    top performers. What do you think about that view or that
    approach?
        Mr. Walker. Senator, if I understand your question, there
    are two aspects to it. If I understand you correctly, one is
    should award and incentive fees only be paid for positive
    outcomes? I think the answer to that is yes. Second, should
    there be a pool of money that is available potentially for
    this? Did I understand the second part, is that correct?
        Senator Akaka. That's correct.
        Mr. Walker. I think that has intellectual merit. I would
    want to study the details of it.
        Secretary Krieg. I think we are talking about the details
    of it and would like to study it. The only thing I worry about
    to our ability to discipline the system is that then, when left
    with a pool of available award fees in a budget line, that
    someone might take that budget line and say, boy that is not
    allocated to a program, therefore I can have that to pay bills
    which would then defeat the purpose if we all had the
    discipline to do that.
        So anyway, we'll be looking at it. I worry desperately
    we'll end up with the worst of both worlds with that solution
    potentially, if we don't have the discipline.
        Mr. Walker. The other thing we have to keep in mind is the
    DOD doesn't have the type of financial management systems that
    it needs. Frankly, it has difficulty right now accounting for
    supplementals. So I think we have to keep in mind the
    environment we're operating in as well. That is why I said in
    theory, things might sound good. But then, think a little bit
    more about how does it apply given the situation we're dealing
    with here.
        Senator Akaka. Thank you, Mr. Chairman.
        Senator Ensign. Senator Thune.
        Senator Thune. Thank you, Mr. Chairman. Thank you both for
    being here and showing your insights about this important
    subject and we'll have an opportunity, I think, to get better
    acquainted with some of the findings in the report. But I would
    like to pursue a couple of questions if I could.
        Secretary Krieg, one of the discussions on rollover, in
    other words moving unearned award fee from one evaluation
    period to a subsequent period or periods, seems to lack any
    incentive for the contractor to meet performance criteria
    within the specified time frame. Based on the GAO report, a
    majority of the contractors, it appears are afforded another
    opportunity for the award fee through the rollover.
        Your testimony would lead me to believe that instability is
    the major driver for average contractor performance.
        Secretary Krieg. If that is what I led, that is one of--I
    didn't mean it to be the only.
        Senator Thune. It is a factor. The question is how do we
    solve that issue of program instability and what are your
    concerns about how and when rollover is used?
        Secretary Krieg. What we said in a recent policy was that
    rollover--I didn't want to eliminate rollover entirely, but it
    should be used as an exception and not as a rule. You ought to
    have to justify why you're using it and so if there are
    externalities that drive it, you ought to have the ability to
    use it.
        Now how we do that and how we discipline the system to meet
    that policy, is clearly something we have to work on and think
    our way through to the stability. I think the key to driving
    stability is early in a program, forcing the tradeoffs between
    what you want to be able to do, requirements; what you have the
    technical maturity and capability to do acquisition; and what
    you have the resources to do, budget. If you could force
    coherent trades early in a program, and then you can drive both
    requirement stability and resource stability, in programs where
    we do that, we deliver programs on time and on budget. Where we
    let one of those three legs of the stool, or often two of them,
    move in different directions, or worse, three, because we do it
    in three, we have programs where the requirements are
    unobtainable in a reasonable time.
        We're optimistic about schedule and take on way too much
    risk, and then we shave 10 percent off of the budget in a year
    or two or three in a row. It is only a matter of time before
    that program manager is in deep trouble.
        So creating that trade space, getting people to understand
    what the investment really means, and then holding the
    stability around it, is I think the environment we're trying to
    create as we look at these programs going into the future.
    Clearly some of the programs we're dealing with now were not
    built with that kind of discipline.
        Mr. Walker. Senator, I would say there are probably three
    common denominators with regard to programs that have positive
    outcomes and there are some programs that have positive
    outcomes, unfortunately there's a lot more that don't.
        First, set realistic and sustainable basic requirements.
    Second, provide stable funding. Third, use commercial best
    practices including IT maturity before you move from design to
    development to production. If you do those three things, the
    odds are you're going to get positive outcomes and history
    shows that.
        So one of the things that I would respectfully suggest,
    this subcommittee and the full committee may want to think
    about, as well as I suggested on the House side, it's how you
    can take the six elements that I've talked about and apply them
    to the DOD. For some of them, there may be a role for Congress.
    Maybe you give the DOD more flexibility with regard to more
    stable funding if they meet certain requirements that are
    likely to generate positive outcomes. Kind of a carrot and a
    stick approach. I am happy to work with you on those issues
    because a multifaceted strategy needs to be employed in order
    to achieve the type of positive outcomes on a sustainable basis
    that I think all of us are looking for.
        Secretary Krieg. One other vector that might be
    interesting, because it's something I worry about a lot, so let
    me throw it out and let you share my worry. Norm Augustine
    wrote a book in the late 1970s called ``Augustine's Laws,'' in
    which, among other things, he played around with the notion of
    diminishing marginal return and if you stay on a certain line
    of technology, at some point along that line of technology,
    each next generation gets harder to accomplish and the next
    delta is more expensive.
        Now so far, computing power is the one of the few
    technologies that has not moved along that normal classical
    curve of diminishing marginal returns. But its cycle times are
    rapid, so that makes it hard for us to deal with many of the
    technologies we're chasing, are well out there, diminishing
    marginal return curves. So as we push at these, we've gone from
    fourth generation to fifth generation still. Each generation
    has been harder to obtain.
        The next generation along single lines of technology get
    very hard to accomplish. So, I'm trying to push the enterprise
    to think about what are those technology vectors for this next
    era of competition? What is it strategy tells us about the next
    era of technology competition? Now are they the ones we have
    been working so hard for, for the last 25 years? I'm not sure
    they are, but I can't tell you what the next set of vectors
    are. So we're doing some work to try to understand that. But I
    do believe that in many of these areas, we are really wringing
    out the knowledge curve pretty far up the line and so each
    generation is harder to accomplish.
        Senator Thune. I appreciate both answers. Mr. Chairman, I
    would yield back, but I would simply say that I hope the
    subcommittee will continue to look at the improvements that
    Secretary Krieg has talked about and the disciplines they are
    trying to put in place, that hopefully will improve upon some
    of the findings in the report, to make sure that we are getting
    the biggest bang for the taxpayer buck and the highest level of
    efficiency in many of these programs.
        It is important obviously, extremely important, to our
    national security. It's also extremely important as a matter of
    our ability to maintain fiscal discipline in the way that we
    address these issues, too. So I appreciate the hearing, the
    testimony, and look forward to following up on an ongoing basis
    with you and Senator Akaka to make sure that we are making some
    good headway. Thank you all.
        Senator Ensign. Health care is a real passion of mine. It
    is something I look at a lot of different reforms around, and
    $39 billion of the DOD's health care program is purchased from
    civilian providers, using three large performance based
    contracts. Some of the things we've been talking about and one
    of the words or statements you said, Mr. Walker, is ``best
    practices.''
        In medicine, only about half the practitioners practice
    best practices, according to some experts. Does the DOD look at
    best practices when awarding some of the fees that they award
    when it comes to health care and if not, this may be a time
    where we need to look at that because it is technology. This is
    an area where technology and pay for performance can really
    come into play.
        The government to a great degree can help drive the private
    sector in this regard, because we spend so much money now in
    health care and DOD is one of those purchasers of health care
    that could help drive the idea of best practices. It saves
    money and you end up with better outcomes, once again.
        Mr. Walker. First let me say, Mr. Chairman, that it is my
    understanding that none of the contracts within our sample
    dealt with health care contracts. Second let me say, that the
    United States does not have a set of national practice
    standards for health care. I personally believe it's critical
    that we move to develop such a set of national practice
    standards. They should be developed by the physicians and not
    by the government.
        Senator Ensign. We had better be very careful of how we
    adopt them by the government because we are so slow to change
    with technology. As a health care practitioner, I'll tell you
    that government will react way too slowly and we can adopt what
    the colleges adopt.
        Mr. Walker. Exactly. That's what I'm talking about.
        Senator Ensign. But we had better change as quickly as they
    do.
        Mr. Walker. That is right. I think we need to be relying
    upon an authoritative body, that is more in tune with the
    market. I will say this and you know this, but given your
    background, depending upon where you live in this country, the
    type of procedure that will be performed on you for the same
    malady can be very different, with very different cost, and
    very different outcomes.
        We spend 50 percent more of our economy on health care than
    any other country on Earth and yet we have below average life
    expectancy for an industrialized nation, above average infant
    mortality, above average medical error rates, and the only
    thing we're number one on in health care is not a good thing
    and that's obesity.
        I like your concept of how can we move to embrace the
    concept of national practice standards. What can the government
    do? I would respectfully suggest this isn't just DOD, it's the
    entire Federal Government, it's Medicare, it's what can we do
    to encourage the development of these. Because I think the
    potential for reducing cost, improving quality, and reducing
    litigation is significant. But it's much beyond this.
        Senator Ensign. No question. I was just asking in the
    context of DOD.
        Secretary Krieg. Rather than me going on a long explanation
    of what the TRICARE managed care support contracts are, I would
    be happy to arrange Dr. Winkenwerder to come over here. We have
    gone through this process over the last 4 or 5 years, in
    defining a new approach, going to the market, putting out three
    regional contracts that have both an administrative fee side
    and a health performance side. My sense is--although my sense
    is that that transition went fairly well and I think we're
    fairly pleased with the results to date.
        Senator Ensign. Are there lessons to learn from that when
    it comes to being able to apply to other parts of the DOD? In
    other words, if it's not worked well there, the best practice
    is a separate issue, but if it has worked well, are there
    lessons we can apply to other parts of the DOD?
        Secretary Krieg. In contracts for weapon systems, that may
    be a reach in services, which is an area we are trying to work
    at, defining contract services and understanding them, there's
    probably more similarity. Although, if we were to bundle all
    services to three regional contracts, I think we would hear a
    lot about that, too. But I think in understanding how they made
    the transition vehicle types, how they measure performance, I
    think it is more like the services side of the business which
    we're working on, than the weapons side. But I don't think
    about whether there is a broader link.
        Senator Ensign. Senator Akaka.
        Senator Akaka. Thank you, Mr. Chairman. Contractor pass
    throughs has been a huge problem, too. Senator Levin and I have
    concerns about this, too. Let me give you an example. On
    Monday, May 20, 2006, the Washington Post published a front
    page story titled, ``Multiple Layers of the Contractors Drive
    Up Cost of Katrina Clean Up.'' The article described the
    process in which work was done and the work was passed down
    from a prime contractor to a subcontractor, to another
    subcontractor, with each company charging the government for
    profit and overhead before finally reaching the company that
    would actually do the work. In each case, the Army Corps of
    Engineers paid a prime contractor $1.75 per square foot to nail
    plastic tarps onto damaged roofs in Louisiana. The prime
    contractor paid another company 75 cents per square foot to do
    the work. That subcontractor paid a third company 35 cents per
    square foot to do the work and that subcontractor paid another
    company 10 cents per square foot to do the work. The result was
    that the taxpayer was stuck paying $1.75 a square foot to do
    work that only cost 10 cents a square foot.
        Unfortunately, pass through charges of this kind are not
    limited to disaster relief contractors.
        Mr. Walker and Secretary Krieg, would you agree that
    Federal agencies should not be paying excessive pass through
    charges of this kind to companies that are not doing any of the
    work on the project? I would just suggest that after you answer
    that, that I look forward to working with you to address this
    issue.
        Mr. Walker. Senator, I'll start first. We do work across
    the entire Federal Government, including work in conjunction
    with Hurricane Katrina. The example that you give has to do
    with the Department of Homeland Security (DHS) contracting
    activities. I think it is also an example of how when the
    government gets into a situation where it has time-critical
    contracting that has to be done due to a contingency event.
    That contingency event could be Iraq or it could be Hurricane
    Katrina. We need to do a much better job of anticipating based
    upon threat- and risk-based scenarios. Frankly, it's easier for
    natural disasters than it is in other things, to anticipate
    what the government's needs might be to engage in competitive
    contracting in advance, that can be updated periodically, and
    where we can issue task orders if and when these needs arise.
        We also need to be doing more prepositioning on a domestic
    front as we do in the military. One of the reasons that that
    happened and the reason you give, is because the government is
    behind the eight ball. You have a situation where there is a
    critical need, where people are entering into expedited
    contract arrangements. In some cases, they're entering into
    contracting arrangements that under current acquisition laws,
    they do not have to engage in competitive bidding and in some
    circumstances it may not make sense. All the more reason why we
    need to be engaging in precontracting activities.
        Now the answer to your question in the normal course is
    obviously, we shouldn't be paying $1.75 for something that the
    direct cost is 10 cents. One of the things we need more
    visibility over is, how many layers, how many players, how many
    margins are in here?
        I would also respectfully suggest, and I don't want this to
    be a reflection of the people in the DOD, because I think you
    have great people in the DOD, if you had 20 percent fewer
    layers and silos in the DOD, you'd be 50 percent more
    productive.
        Just like in contracting, the more layers, the more
    players, the more you're going to pay for one thing and maybe
    the less you're going to get. Now that is not intended to
    comment on the quality of DOD, they're great people trapped in
    bad systems and organized structures. But we have way too many
    layers, too many players, and too many hardened silos in that
    organization and it's not the only one, by the way.
        Secretary Krieg. Great people trapped in bad systems.
    That's what my wife says about me every day. [Laughter]
        We have a lot work. We have a piece of work underway, a
    collective piece of work underway to understand contingency
    contracting that has been an item of interest. An item of
    interest in this committee, we're pretty committed to it. I
    think we are planning to have some thoughts together this
    summer.
        So we'll be glad to come talk to you as we learn in our own
    thinking about looking at lessons learned from Iraq and
    Afghanistan, and try to translate that into how do you manage
    contingencies in contracting and balance between having lots of
    people sitting around waiting for something to happen, and
    being able to surge on a moment's notice. So, we're thinking
    through how you do that.
        Senator Akaka. Let's work on that issue.
        Mr. Walker. If I can clarify one thing, Senator Akaka. Take
    GAO as an example of what I am talking about. We eliminated a
    layer of management at GAO, we didn't lay off anybody, we
    redeployed them. We went from 35 organizational units to 13. We
    went from 16 footprints to 11 and we laid off very few from
    those 5 offices, nobody at headquarters, and our outcomes today
    are double because we have great people, but we had too many
    layers, too many silos, and too much process.
        I remember one of the things I found out and I'll leave it
    at this, I had the opportunity, which I really appreciate, to
    participate in Capstone which was for new flag officers several
    years back. One of the things that I found out was, at that
    time, I don't know what it is today, that in order to activate
    and deploy 10 reservists, over 20 units in the DOD had to sign
    off on it, approve it, not for your information, over 20 units.
    If you just flowcharted a few of DOD's decision processes, it
    would be illuminating. Again, they're great people and I think
    we could get a lot more, if we had a lot fewer layers and a lot
    fewer silos to deal with. Because the more layers you have, the
    more silos you deal with, the more turf battles and the more
    people feel they need to take time to try and add value or
    justify their existence from some different perspective.
        Secretary Krieg. To that point, I have a project underway
    that once a program manager declares he's ready for a milestone
    decision, it takes him about 9 to 12 months to get to my table,
    to a DAB meeting. So, we have a piece of work to do a lean
    Sigma 6 kind of analysis of his data, adding 9 to 12 months
    worth of value to the program when it comes out the other side
    and what do we need to do to change it.
        So in my little world, I'm working that as well. But I
    agree, much of that is a reaction to there was a problem
    somewhere before, so we write a rule that says we will create a
    mechanism to ensure that that problem never happens again.
    Then, every system has to go through that rule on its way up,
    even if it's not relevant and we have to change the way we
    think about that if we're going to be successful.
        Senator Ensign. There is too much ``cover your back'' after
    rulemaking. There is ``cover your back'' rulemaking that is
    typical with bureaucracies, which would lead me to my final
    question and that is, you have the small contractors, defense
    contractors out there, and you have large ones and business is
    very akin to government in that it tends to develop
    bureaucracies. The larger they get, the more bureaucratic.
        I've read some of Bill Gates' stuff and looking at how he
    has tried to fight that but yet, they've become big and kind of
    cumbersome now. Obviously, that was one of his keys to
    competing against IBM when they first came about. Knowing that
    when the DOD looks at contractors and the ability to meet the
    needs and developing new products, has anybody studied small
    contractors' versus large contractors' performance, the ability
    to meet some of these criteria, innovativeness, those types of
    things? I realize some things have to be done by big
    contractors, but I'm just wondering overall, has anybody at DOD
    or GAO done a comparison throughout, a fairly objective overall
    look at the matter, the size, and all of that?
        Mr. Walker. We haven't. Obviously to the extent you're
    talking about major systems, you wouldn't be talking about
    subcontractors and the degree of complexity obviously, would be
    a lot of different too, to the extent you're talking about
    certain components versus others. I don't know about the DOD.
        Secretary Krieg. Let me take that one for the record and
    see what I can find, even if it is not a direct answer, if I
    could find relevant pieces of work.
        [The information referred to follows:]

        The Department of Defense (DOD) has not conducted a formal
    comparison of small contractor performance versus large contractor
    performance. DOD does keep timely, pertinent past performance data in
    its Past Performance Retrieval System, a web-enabled Government-wide
    application.

        Senator Ensign. The reason I asked that, is that we have
    some really impressive defense contractors in my State. They
    blow me away, some of the things that they bring to us and some
    of the technology that they bring to us. They may have
    difficulties with the acquisition policies of DOD because
    they're small and they have trouble getting through the layers
    when they have better answers for less money, than some of the
    big guys and they bring those to us and we look at those.
    Sometimes, we're not earmarking, but what we're doing is just
    put you folks together with them to say hey, take a look at
    this, because that's the only way that we can get them through
    the system to some of the places.
        I would like you all to look at that in general because a
    lot of innovation, they come through the big companies. Don't
    get me wrong. A lot of innovations from a lot of wonderful
    people working out there in the big companies as well. But some
    of the innovative small companies need to be looked at and
    that's part of a reason I ask this. When we're looking at
    acquisition reform, this is something that needs to be looked
    at, where small companies can get to the table, as well as the
    big companies.
        Mr. Walker. This morning, Chairman Hunter of the House
    Armed Services Committee talked about his challenge concept and
    there are pros and cons to it. But basically what you're saying
    is, especially in technology which ends up frankly changing so
    rapidly and in many cases, technology is not coming from the
    big companies and sometimes it's coming from the smaller
    companies. Then when and to what extent there can be a
    mechanism, whereby that can be considered an appropriate
    circumstances on a plug and play approach, but that also means
    you have to change how you enter into your contracts. I think
    that needs to be thought through. Because on the one hand, it
    may be good to provide a mechanism for that. But you need to
    determine whether or not you will end up having to pay
    termination fees, and what kind of impact that would have on
    whether or not people are willing to bid and what they are
    willing bid. I think you just have to think through it. But I
    understand where you are coming from and I think it is
    meritorious, especially if we can nail down some of these
    requirements and stick with them for a period of time and
    therefore, you have more players that theoretically might be
    able to meet the need because you are talking about something
    that is a more well-defined technology, rather than something
    you're trying to build and create from ground base zero.
        Senator Ensign. Senator Akaka.
        Senator Akaka. Thank you, Mr. Chairman. I have a last
    question here for Secretary Krieg and it has to do with
    acquisition workforce. At our hearing on Iraq contracting
    earlier this year, I asked the witnesses about reports that our
    contracting workforce in Iraq was severely understaffed.
    Secretary Bolton at that time said that part of the problem is
    that--and I'm quoting him, ``we're short in the Federal
    Government by 1,500 to 2,000 contracting officers. The folks I
    have, they're great people, but in a couple of years about half
    of them are gone because they are retiring. The simple fact
    here, is that there aren't a whole lot of folks that you can
    draw from to do this particular function. They are just short.
    The bigger issue is how do you attract, recruit, train, and
    retain this kind of expertise when you're short across the
    entire Federal Government.''
        Secretary Krieg, do you agree with Secretary Bolton's view,
    that we are more than 1,000 contracting officers short of what
    we need?
        Secretary Krieg. I'm not going to comment on the specific
    one because I don't know the context in which he was answering,
    but I will tell you as I told you in the first hearing we had
    over in the other committee, that I view the workforce and the
    future of the workforce to be my number one goal. If I lose
    sleep over something at night, other than what Mr. Walker may
    publish the next day, it is that the acquisition workforce,
    which is the intellectual property by which we manage results,
    is aging; and two, it needs to change its skill sets over time.
    Therefore, as Mr. Walker said this morning, that it's aging.
    It's a risk and an opportunity because where you want it to be
    in the future, is not where it's been. So if we can
    comprehensively think through the problem, I told you I'd be
    working on a strategy.
        We have actually started to get the demographics in. We
    have 135,000 in the workforce now. We know where they are by
    acquisition type, whether they are program management,
    contracting, et cetera, where they are in service. We're
    starting to understand their ages. The average age is 48 and
    change. Eighty percent of them are civilians, 60 percent of the
    civilians are in the old--what is it?
        Mr. Walker. Civil Service Retirement System.
        Secretary Krieg. The old retirement program and, therefore,
    you know that crowd at some point, there is a sum of their age
    and years of service, at which point it becomes very logical
    for them to leave. So, we're trying to put together a
    comprehensive look at the demographics by function and by
    department. I understand the skills and understand the skills
    competencies for each, and understand what is the recruiting,
    retention, and skills development approach that we together
    ought to put into this government to be able to transform and
    take advantage of this opportunity to create the kind of
    workforce we want for the future. So I am very committed to
    that and that is one I'm really concerned about.
        Senator Akaka. I'm glad to hear that.
        Senator Ensign. Excuse me, Senator Akaka, I have to leave.
    I will turn the gavel over to you, if you'll just excuse the
    witnesses. I want to thank both of you. It's been a wonderful
    subcommittee hearing and I appreciate both of your expertise,
    openness, and candidness. Thank you, Senator Akaka.
        Senator Akaka [presiding]. My question is, will you work
    with us to do this because this is a problem, not only in this
    case, but throughout the Federal Government workforce and I
    have been working with Senator Voinovich on this, on our
    Subcommittee on Oversight of Government Management, the Federal
    Workforce, and the District of Columbia of the Committee on
    Homeland Security and Governmental Affairs, and this is a huge
    problem. So in speaking with people like you, I've been asking
    that they work with us and work together in developing
    initiatives to attract, recruit, train, and retain the
    workforce expertise that we're going to need.
        Secretary Krieg. The answer is yes, and gladly, and we'll
    need all of your help in doing it.
        Senator Akaka. Thank you very much and this concludes our
    hearing. The hearing is adjourned.
        [Questions for the record with answers supplied follow:]
                   Questions Submitted by Senator John Ensign
                        space-based infrared radar-high
        1. Senator Ensign. Secretary Krieg, in the December 2005 report,
    the Government Accountability Office (GAO) disclosed that unlike most
    award-fee structures, the Space-Based Infrared Radar-High (SBIRS-High)
    development contract called for an award fee of up to 20 percent.
    Because of continued cost and schedule growth, the SBIRS-High program
    has been restructured. What steps have been taken with the current
    program to tighten award-fee payments to the contractors?
        Secretary Krieg. In 1996 at contract award, the award fee pool was
    20 percent. However, the contractor also agreed to a `corporate
    commitment' pool calculated at approximately 8 percent of the contract
    value. The corporate commitment pool was distributed across key program
    events and a dollar value assigned to completion of those events on a
    defined schedule. If the event did not occur by the agreed date, then
    the government could assess part or all of the corporate commitment
    value (assigned to that particular event) to be applied to the work
    necessary to complete the event. For example, due to the delay in
    Increment 1 Initial Operational Capability, the corporate commitment
    pool was assessed $32 million. As part of the 2002 restructure, the
    corporate commitment clause was removed and the overall fee percentage
    reduced. Since 2002, all new work added to the contract is negotiated
    with 12 percent fee or less. All of the cost variances on the contract
    have been added with no additional fee. The amount of award fee that
    could be earned (excluding the fee on unexercised sustainment
    activities) is approximately $180.2 million and the cost of the
    remaining work is $2.14 billion. The effective value of the `to go'
    award fee is around 9 percent.
        The program office again restructured the award fee plan in
    conjunction with the 2004 Over Target Baseline re-plan. The award fee
    plan is broken into two major areas. The first area, Program Execution
    Performance (PEP), incentivizes the contractor to effectively manage
    program execution through disciplined management and system engineering
    processes, while performing to the program cost and schedule
    constraints. The goal is to motivate behaviors that lead to program
    success. The PEP fee periods are 6 months long. The award fee plan
    defines the criteria that guide the government's assessment of the
    contractor's performance during each period. Included in this is the
    identification of no more than 12 critical events with `entrance' and
    `exit' criteria scheduled to occur in the period. Completion of these
    events in compliance with the specified criteria forms the basis of the
    government's assessment for that 6-month period.
        A key element of the 2004 revision is the separation of sustainment
    support from the development effort. The plan now defines distinct PEP
    evaluation criteria for both activities. These evaluation criteria
    refine the ability of the system program office to incentivize the
    contractor's behavior. This assessment of the contractor's overall
    performance is the foundation of award fee earned and is a monetary
    motivation for the contractor to contain costs as well as meet the
    requirements of the contract.
        The second major area is Mission Success Incentive (MSI). The
    purpose of the MSI area is to reward delivery of quality systems that
    meet specified functional, performance, and interface requirements and
    that provide operational capabilities to the warfighter and
    intelligence communities. The award fee plan contains 11 events that
    represent the successful delivery of a capability to the warfighter.
    Since some of these capabilities can only be demonstrated after a
    number of satellites have operated successfully in orbit, this is an
    on-orbit incentive.

        2. Senator Ensign. Secretary Krieg, what is the current award-fee
    pool for the program; please break down the pools of money available
    for each grading period and what safeguards will be put in place to
    ensure that we are only pay fee for product?
        Secretary Krieg. There are two major elements to managing the
    SBIRS-High award: PEP and MSI. The attached tables show the pools
    available by grading period (for the PEP-related award fee) and by
    event (for the MSI-related award fee).
        For the PEP element (Table 1), the safeguards to ensure that we are
    only paying fee for product include the identification of no more than
    12 critical events with `entrance' and `exit' criteria scheduled to
    occur in the period. Completion of these events in compliance with the
    specified criteria forms the basis of the government's assessment for
    that 6-month period. The PEP award-fee plan incentivizes the contractor
    to effectively manage program execution through disciplined management
    and system engineering processes, the achievement of entrance and exit
    criteria, all while performing to the program cost and schedule
    constraints.
        For MSI (Table 2), the award fee plan contains 11 events that
    represent the successful delivery of a capability to the warfighter.
    Since the MSI fee is tied directly to delivery of capability, it
    directly provides safeguards to ensure we are paying fee for product.
    The MSI element of the award fee rewards delivery of quality systems
    that meet specified functional, performance, and interface requirements
    and that provide operational capabilities to the warfighter and
    intelligence communities. Since some of the capabilities can only be
    demonstrated after a number of satellites have operated successfully in
    orbit, this is an on-orbit incentive. Note that two of the events, E1
    (Integrated Training Suite (ITS)) and E2 (Interim Mission Control
    Station Back-up (IMCSB)), are complete.
        Table 2 includes a number of acronyms that are defined below:
        HEO--Highly Elliptical Orbit
        MP3 TES--Multi-mission Mobile Processor Theater Event System
        GEO--Geosynchronous Earth Orbit
        GM3P--Geosynchronous Multi-mission Processor
        GM3P TES--Geosynchronous Multi-mission Processor Theater Event
    System
        IMCSB--Interim Mission Control Back-up
        MCS--Mission Control Station
        MCSB--Mission Control Station Back-up

                             nunn-mccurdy breaches
        3. Senator Ensign. Secretary Krieg, do you believe a program should
    be terminated if it has a Nunn-McCurdy breach?
        Secretary Krieg. Not necessarily. Nunn-McCurdy unit cost reporting
    tracks unit costs which can increase as a result of directed quantity
    reductions, or from the cost delta associated with the addition of
    capabilities related to approved technology insertions. More
    frequently, Nunn-McCurdy breaches are the result of overly optimistic
    baseline estimates or unanticipated technical challenges. However,
    through the required certification review, we may determine that the
    breached program is essential to national security and there are no
    less costly alternatives. The Department takes these Nunn-McCurdy
    certifications very seriously, and each breached program is evaluated
    on a case-by-case basis. If any program does not meet the specific
    certification criteria, it will not be certified and therefore will be
    either restructured as necessary to make it certifiable or terminated.
    I believe that Nunn-McCurdy unit cost reporting has been an effective,
    long-term cost control mechanism and we welcome the improvements
    recently made by this committee in the National Defense Authorization
    Act (NDAA) for Fiscal Year 2006.

        4. Senator Ensign. Secretary Krieg, are there any changes you would
    like to recommend to the law?
        Secretary Krieg. We have been working with your staff on a couple
    of refinements. One is to clarify the definition of original baseline
    estimate as the intended Milestone B estimate. Another was to remove an
    unintended requirement to submit continuous quarterly Selected
    Acquisition Reports (SARs) for programs with ``significant'' Nunn-
    McCurdy breaches (i.e., greater than 30 percent to the original
    baseline estimate). A formal legislative proposal has been drafted for
    these refinements. There is one additional change I would like you to
    consider. The new Nunn-McCurdy law permitted a one-time reset of the
    original baseline estimate for those programs with pre-existing
    ``critical'' breaches (i.e., greater than 50 percent to the original
    baseline estimate). There were 25 Department of Defense (DOD) programs
    in this category. However, there was no similar ``grandfathering'' for
    the 11 DOD programs with pre-existing ``significant'' breaches to their
    original baseline estimate. This group includes mature programs such as
    Advanced Threat Infrared Countermeasure/Common Missile Warning System
    (ATIRCM/CMWS) and Joint Primary Training System (JPATS) (sitting at 49
    percent and 47 percent, respectively) above their original baseline
    estimates, which are facing ``critical'' certification-level breaches
    going forward. Nunn-McCurdy certifications are resource-intensive
    reviews and would not be, in these cases, a productive expenditure of
    time. Therefore, I request that the original baseline estimates for the
    programs with pre-existing ``significant'' breaches be reset as well.

                     defense acquisition challenge program
        5. Senator Ensign. Mr. Walker, the Defense Acquisition Challenge
    Program was established to provide an opportunity for nontraditional
    contractors to offer technologies and capabilities as alternatives to
    existing programs. What are the benefits and challenges to such a
    program?
        Mr. Walker. Historically, the DOD has experienced problems in
    bringing technologies out of the lab environment and into real use.
    There are a variety of reasons for this. For example, at times,
    technologies do not leave the lab because their potential has not been
    adequately demonstrated or recognized. In other cases, acquisition
    programs--which receive the bulk of DOD's funding in research,
    development, testing, and evaluation of technology--are simply
    unwilling to fund final stages of development of promising technology,
    preferring to invest in other aspects of the program that are viewed as
    more vital to success. Other times, they choose to develop the
    technologies as part of development programs, rather than rely on DOD
    labs to do so--a practice that brings cost and schedule risk since
    programs may well find themselves addressing problems related to
    technology immaturity that hamper other aspects of the acquisition
    process. In addition, it is challenging just to identify and pursue
    technologies that could be used to enhance military operations given
    the very wide range of organizations inside and outside DOD that are
    focused on technology development and the wide range of capabilities
    that DOD is interested in advancing.
        The Defense Acquisition Challenge Program--one of several
    relatively small programs within DOD that are designed to enhance the
    transition of new technologies to the warfighter--allows any person or
    activity outside or inside DOD to offer alternative technology
    solutions. Thus, potential benefits may come in the form of cost-saving
    innovations that would have otherwise been ignored by acquisition
    programs as well as expansion of the defense supplier base since anyone
    can submit a proposal. It is not known, however, the extent to which
    these benefits are being realized. We reviewed the Challenge Program
    last year along with two other transition programs. The Challenge
    Program had not completed any of the 30 projects it had funded at the
    time of our review, so we could not assess outcomes. We concluded,
    however, the program had a disciplined and structured process for
    selecting and managing projects. Further, the program had encountered
    few problems managing and overseeing projects. Some projects appeared
    to offer cost-saving innovations. For example, one project was funding
    a small business to test and evaluate a new sapphire dome and optics
    for the Rolling Airframe Missile to resolve operational deficiencies in
    certain weather conditions. Another project was funding the test and
    evaluation of a database that will simulate the vibration or shock of
    various machine guns in order to test new accessories for the guns.
    This project alone is expected to save almost $780,000 per year in
    ammunition costs.
        However, we also pointed out that program officials had some
    initial difficulties processing the large number of proposals it
    received during its first two solicitation cycles. Program officials
    were planning to limit the scope of future solicitations to high
    priority needs in an effort to reduce the number of proposals and to
    better target program funding. We also found that the program had
    limited measures to gauge individual project success and return on
    investment. Lastly, given its relatively small size, a program like the
    Challenge Program can only offer marginal solutions to DOD's overall
    transition dilemma. Less than $30 million was spent on the Challenge
    Program in fiscal years 2003 and 2004, whereas DOD spends about $9
    billion annually on applied research and advanced technology
    development and tens of billions more on advanced component development
    and prototypes. As such, the Challenge Program cannot be expected to
    single-handedly overcome transition problems or even to play a
    significant role in expanding the field of suppliers.

        6. Senator Ensign. Mr. Walker, how does the performance of small
    contractors compare to large contractors on defense acquisition
    programs?
        Mr. Walker. Our prior work has found that smaller suppliers have a
    high potential to introduce novel solutions and innovations into
    weapons acquisitions. However, we have not performed a detailed
    assessment of the performance of small contractors versus large
    contractors.
                                     ______

                   Questions Submitted by Senator John McCain
                           award/incentive/fixed fees
        7. Senator McCain. Secretary Krieg, in the 1980s, DOD used fixed-
    price contracts, and suppliers who could not stay on schedule and on
    budget got penalized. Current contracts rely much more heavily on award
    and incentive fees. The recent GAO report on DOD's use of award and
    incentive fees concludes that DOD has not used these fees to achieve
    the outcomes it desires. What actions are you taking to address this
    problem?
        Secretary Krieg. In collaboration with the military departments we
    recently established a group to review the recommendations of GAO. As
    part of its review I have asked the group to identify new ways to
    utilize award fees and incentive fees to maximize their effectiveness
    within the DOD. We responded to some of the recommendations in our
    policy memo on ``Award-Fee Contracts'' issued on March 29, 2006, and
    will be addressing the others shortly.

        8. Senator McCain. Mr. Walker, in the GAO report and in your
    statement, you referred to DOD's use of award and incentive fees as a
    waste of taxpayer dollars. You also indicate that the existence or
    application of a well-developed and well-implemented monetary incentive
    alone does not determine the overall success or failure of an
    acquisition. Since you have stated that award and incentive fees are a
    waste of taxpayer dollars, why would your report recommend their
    continued use?
        Mr. Walker. DOD can only improve its acquisition outcomes by taking
    a comprehensive approach to fixing its acquisition problems. While
    DOD's current award-fee practices waste taxpayer dollars by paying out
    award fees regardless of acquisition outcomes and giving contractors
    opportunities to earn initially unearned or deferred fees, properly
    structured monetary incentives can play a positive role in helping to
    address DOD's longstanding acquisition problems. Specifically, award
    and incentive fees must be structured to ensure that the government is
    paying contractors for meeting or exceeding cost, schedule, and
    performance goals. This is just one of six steps that the executive
    branch and Congress need to take to address fundamental problems in the
    acquisition system. Specifics on the other steps follow:

             There must be a reconciliation of the ``Big A,'' that is a
            reexamination of the entirety of DOD's acquisition process
            including requirements setting, funding, and execution. Wants
            must be distinguished from needs, while taking into account the
            resources that are likely going to be available to fund those
            needs. This has never been done. It requires tough choices and
            it requires decisions both within the Department and by
            Congress.
             DOD must set realistic and sustainable requirements, which
            are informed by systems engineering and what is realistically
            possible given what DOD is trying to accomplish and the
            resources it has.
             DOD and Congress must take steps to provide funding stability
            to programs that have gone through the ``Big A'' reconciliation
            and that have realistic and stable requirements.
             DOD must use commercial best practices including making sure
            the appropriate level of technology, design, and production
            knowledge is demonstrated before moving forward into the next
            phase of a program. DOD decision makers need to enforce
            existing policies related to these practices.
             DOD must move to more streamlined and simplified contracting
            approaches that better balance cost and risk and that are
            focused on achieving desired outcomes: cost, timing, and
            performance.

        9. Senator McCain. Secretary Krieg, according to the GAO report,
    the cost of the F-22's development has increased by over $10 billion
    since it began, the program has been delayed by over 2 years, and the
    cost of each aircraft has increased. At the same time, the DOD has paid
    the contractor over 90 percent of the available award fee or almost
    $850 million. Those award-fee numbers would lead someone to believe
    that this is a very successful program. Award fees are supposed to be a
    mechanism that provides feedback to the contractor. What message are
    you sending to contractors when you pay this amount of money for this
    level of performance?
        Secretary Krieg. Contractors should not earn award fees where
    performance is less than satisfactory. Recent legislation proposed in
    Congress stated that ``It is the sense of Congress that award and
    incentive fees should be used to motivate excellent contractor
    performance and that such fees should not be awarded for below-
    satisfactory performance.'' I wholeheartedly support this tenet. This
    is reflected in our new policy titled, ``Award Fee Contracts'' issued
    on March 29, 2006, in support of pertinent recommendations found in GAO
    Report 06-66, titled ``Defense Acquisitions: DOD Has Paid Billions in
    Award and Incentive Fees Regardless of Acquisition Outcomes.''

        10. Senator McCain. Secretary Krieg, exactly, what performance are
    you paying for?
        Secretary Krieg. In some cases we are paying award fees for less
    than satisfactory performance and that has to stop. Contractors should
    not be rewarded for marginal or unsatisfactory performance. Our policy
    of March 29, 2006, clarifies the DOD's position. It states specifically
    that ``Performance that is less than satisfactory is not entitled to
    any award fee.''

        11. Senator McCain. Secretary Krieg, I'm trying hard to understand
    how the way these award fees have been used is helping the DOD to get
    the outcomes it wants. First, we sign a cost-plus contract that puts
    most of the risk for these major development programs on the
    government. Next, we offer the contractor the chance to earn an award
    fee on top of having their costs reimbursed. Then, when a program
    experiences problems and I think it is fair to say they almost always
    do, the contractor can still earn millions of dollars in award fees for
    helping to correct the issues which they are partially responsible for
    creating. Please explain to me how anyone can consider this to be an
    effective way of doing business.
        Secretary Krieg. First, generally we utilize cost type and award-
    fee contracts in high risk development contracts. In these types of
    contracts, it is appropriate for the government to share the risk with
    industry. Therefore, GAO also recommended that the Department ensure
    that award-fee structures are motivating excellent contractor
    performance by only paying award fee for above satisfactory
    performance. While the purpose of an award-fee arrangement is to
    motivate excellent contractor performance, the existing guidance on
    award-fee arrangements envisions paying award fees on a graduated scale
    since the guaranteed base fee typically is less than 3 percent.
    Therefore, it is reasonable to award some portion of the award fee pool
    for satisfactory and good performance. For this reason, we only
    partially concurred with this recommendation. We revised DOD's policy
    on award fees on March 29, 2006, such that contractors earn the
    preponderance of the award fee by providing excellent performance, but
    that less than excellent performance that still is satisfactory should
    earn a portion of the award fee.

        12. Senator McCain. Secretary Krieg, what strategies does the
    private sector use to incentivize their business partners?
        Secretary Krieg. Strategies for business partnership incentives in
    the private sector start with relationships. Typically, relationships
    are built, for example, through market opportunities, program
    experience, and competency gaps. From my experience, we build business
    cases for partnerships, for example, that identify incentives to
    provide compelling market entry opportunities, to enhance contract
    performance, or to bridge respective competencies such that there is a
    multiplier effect of having versus not having the business partnership.
        Business incentives become a part of a business case. Examples of
    business incentives are summarized as follows:

              1. Higher profit
              2. Reduced quality control oversight
              3. Shared best practices
              4. Lower mutual total cost

        These incentives, for example, are realized as a result of
    demonstrating consistent on-time product delivery, fewer product
    defects, and best practice implementation over periods of time.
    Business incentives can be structured for different levels of
    performance resulting in the motivation to maximize performance.
    Measurement periods are typically utilized on a continuous basis, with
    the downside for loss of incentives, if/when there is an interruption
    of the performance.
        Sharing and implementing best practices in the private sector
    provide significant payoff due to having a horizontal impact for the
    company versus any singular program or functional area. Use of Lean
    Six-Sigma practices that are fully endorsed by executive leadership can
    provide a culture of continuous learning and proactive process
    improvement. Although the terminology characterizing performance may
    change from time to time, the fundamentals of private sector
    performance (shareholder value, cash flow, earnings, and market share)
    will improve.

        13. Senator McCain. Secretary Krieg, what changes do you have in
    store given GAO's findings?
        Secretary Krieg. We have already made changes based on GAO's
    recommendations. Our policy on award-fee contracts issued on March 29,
    2006, provides guidance to the acquisition workforce on the proper use
    of award fees ``rollover'' and linking award fees to outcomes. We are
    evaluating how to best track and collect data to evaluate the
    effectiveness of award- and incentive-fee arrangements.

        14. Senator McCain. Secretary Krieg, fixed-price contracts shift
    the risk to the contractor and incentivizes the contractor to increase
    the reliability of the system components. What do you think the
    Department can do to return to more common use of fixed-price
    contracts?
        Secretary Krieg. Most of DOD contracts are fixed-price contracts.
    We utilize cost-type contracts for such things as complex development
    requirements. We are evaluating ways to reduce risks, such as
    increasing technical maturity in programs, which, over time, should
    support greater use of fixed-price contracts.

        15. Senator McCain. Secretary Krieg, please comment on the
    following contractor incentives and tell me if or to what degree they
    are implemented by DOD:

             Use long-term contracts to provide a more stable
            production base;
             Be aggressive in eliminating poor performers;
             Reduce administrative oversight of these best-value
            producers;
             Establish a ``fast track'' for contractor selection by
            providing precise requirements, prescreening contractors,
            publicizing intent to award on initial proposals and reducing
            award extensions;
             Publicize the ``best value'' producers; and
             Reward small/disadvantaged business development with
            an additional 1-percent profit.

        Secretary Krieg. The answer to each of your questions follows:

             Use long-term contracts to provide a more stable
            production base;

                     Answer: When they are specifically authorized
                    by Congress, we can utilize multi-year contracts to
                    provide program stability.

             Be aggressive in eliminating poor performers;

                     Answer: DOD has established a Past Performance
                    Information Retrieval System (PPIRS) to capture
                    contractor past performance information on contracts
                    that meet various dollar thresholds. Pursuant to
                    statute past performance is a mandatory source
                    selection criteria. PPIRS is used to assist in
                    evaluating contractor past performance in source
                    selections.

             Reduce administrative oversight of these best-value
            producers;

                     Answer: DOD, especially DCMA, has taken a
                    ``risk-based'' approach to both pre- and post-award
                    contract administration.

             Establish a ``fast track'' for contractor selection by
            providing precise requirements, prescreening contractors,
            publicizing intent to award on initial proposals and reducing
            award extensions;

                     Answer: DOD has made progress in advising of
                    our intent to award on initial proposals and utilizing
                    contractor past performance in source selection. In
                    addition, in September 2004 the Department established
                    a Joint Rapid Acquisition Cell (JRAC) to enhance the
                    flow of material to meet immediate warfighter needs and
                    to serve as the focal point in the exercise of DOD's
                    statutory Rapid Acquisition Authority (RAA) to respond
                    to combat emergencies.

             Publicize the ``best value'' producers;

                     Answer: DOD Past Performance data base, PPIRS,
                    includes performance information, good and bad, on
                    contractors supporting the Department.

             Reward small/disadvantaged business development with
            an additional 1 percent profit.

                     Answer: DOD Weighted Guidelines (profit
                    calculation methodology) allows for consideration of a
                    contractors support of Federal socio-economic programs
                    under the ``Performance Risk Factor.''

        16. Senator McCain. Secretary Krieg, these incentives were
    recommended in 1989 by Robert B. Costello, Under Secretary of Defense
    for Acquisition. How do you account for the Department's apparently
    spotty implementation of these recommendations?
        Secretary Krieg. DOD has largely implemented these recommendations.

        17. Senator McCain. Mr. Walker, in the GAO report and your
    statement, you mentioned that award-fee evaluations are generally time-
    based rather than event-based. Please explain what you mean by this and
    why this may not be an effective practice.
        Mr. Walker. On award-fee contracts, DOD personnel (usually members
    of an award-fee evaluation board) conduct periodic evaluations of the
    contractor's performance and recommend the amount of fee to be paid for
    that period. The frequency of evaluation periods can be based on
    specific dates or milestones. For most DOD award-fee contracts in our
    study population, evaluation periods were time or calendar based. In
    other words, evaluations were conducted and fees paid on a quarterly,
    semiannual, or annual basis. Only an estimated 10 percent of DOD award-
    fee contracts in our study population used event-based award-fee
    evaluations, which are conducted after the completion of program
    milestones or scheduled for the anticipated completion date for program
    milestones.
        Time-based award-fee evaluations of contractor performance on
    weapon system development programs that can last a decade or more may
    not generate meaningful information about progress. Adopting event-
    based award-fee evaluations would be a logical extension of DOD's new
    award-fee policy. In its March 2006 policy memo on award fees, DOD
    recognized the benefit of moving toward more outcomes-based award-fee
    criteria. To do so, the memo stated that it is imperative that award
    fees be tied to identifiable interim outcomes, discrete events, or
    milestones, as much as possible, and offered as examples milestones
    such as timely completion of preliminary design review, critical design
    review, and successful system demonstration.

                            lead systems integrators
        18. Senator McCain. Mr. Walker, in 2002 then-Under Secretary of
    Defense for Acquisition, Pete Aldridge, expressed concern that the DOD
    had backed too far from program management and allowed lead system
    integrator (LSI) to assume too much responsibility in the largest
    acquisition programs. Mr. Aldridge said that ``The interests of prime
    contractors--the need for short-term profit--is fundamentally different
    than the needs of the Pentagon that is charged with maintaining long-
    term national security, and the preserving means to produce the
    sophisticated tools of war.'' Mr. Aldridge advocated wresting total
    management oversight of programs from prime contractors. Since 2002,
    the LSI concept has been implemented more and more, not less. The
    Army's Future Combat System (FCS) is one example. Is it your view that
    the LSI concept reduces government visibility and oversight, and
    reduces contractor accountability?
        Mr. Walker. The degree of visibility the government has in any
    program with an LSI designated as the prime contractor depends on how
    the oversight mechanism is structured through the contract between the
    government and the LSI. In the FCS program, the Army, with few
    exceptions, is expected to be involved in all major program decisions.
    The Army and the LSI are each represented on the program's integrated
    project teams, which manage, among other things, the development of the
    individual FCS platform systems. Furthermore, the Army reviewed and
    agreed to decisions made by the source selection boards that the LSI
    conducted to competitively award major subcontracts for key systems and
    subsystems of the complete FCS. The Army also reviews the selection of
    lower tier subcontracts. While we know that the Army has a number of
    oversight mechanisms in place in the FCS program, we have not yet
    evaluated them to know how well they are working. Presumably, the
    quality of oversight mechanisms provides insight into how accountable
    the LSI may be to the Army in the FCS program.
                                 accountability
        19. Senator McCain. Secretary Krieg, what are your thoughts
    regarding accountability and do you believe that including the
    combatant commanders and the Service Chiefs in the process will improve
    accountability?
        Secretary Krieg. To include combatant commanders and the Service
    Chiefs as much as possible in the process, will not only increase the
    Department's ability to meet warfighter needs but will, from an
    accountability perspective, provide direct responsibility and therefore
    accountability for meeting mission needs. In particular, we need to
    include combatant commanders and Service Chiefs in the trade-off
    discussions regarding balancing among cost, schedule, and performance
    expectations at key points in the program. Working with the Vice
    Chairman of the Joint Staff and the Resource Community, we are
    experimenting with bringing the three key decision points in a program.
    In addition, I welcome the participation of Service Chiefs and
    combatant commanders at Defense Acquisition Board meetings and they
    attend occasionally as warranted.

        20. Senator McCain. Mr. Walker, in the GAO report and your
    statement, you briefly described the personnel who generally make up
    the award-fee boards. I understand that program office personnel may be
    in the best position to offer input on the contractor's performance,
    but since they may have a vested interest in presenting the program in
    its best light, are they the most appropriate officials to be
    recommending how much fee the contractor should earn?
        Mr. Walker. Independence is a key factor for ensuring the integrity
    of the award-fee process. Award-fee boards on major weapons programs
    are generally made up of personnel from the program office, which as
    you point out may be in the best position to offer input on contractor
    performance. However, our past reports have shown that programs are
    incentivized to suppress bad news and to continually produce optimistic
    estimates--largely due to continual funding competition. Moving towards
    more outcomes-based award-fee criteria that reflect cost, schedule, and
    performance goals helps to address this issue. Using these types of
    award-fee criteria in combination with fee determining officials who
    are independent from programs, would provide a more objective and
    transparent basis for award-fee decisions.

        21. Senator McCain. Secretary Krieg, if contractors perform, they
    should be awarded. If they fail, they should be penalized. Mr. Walker
    in his statement says that the DOD fails to wield the stick as well as
    the carrot. The National Aeronautics and Space Administration (NASA)
    has proposed penalizing nonperformers with ``negative fees.'' Not only
    would the nonperforming contractor lose the fee, but they would lose
    the maximum fee that they could have earned. So for example, if it were
    a contract with a 15-percent maximum earned fee potential, and they
    only earned 7 percent, not only would they have to give back the 7
    percent that they earned to the government, but they would also have to
    give back an additional 8 percent, so they would have to pay the
    government a negative fee. What do think about the negative fee
    concept?
        Secretary Krieg. We have been in contact with NASA regarding its
    recent initiatives in the award-fees area. We will follow-up to see if
    there are applications that could be incorporated by DOD in our policy.

        22. Senator McCain. Secretary Krieg, does DOD have anything like
    it? If not, why not?
        Secretary Krieg. No. Generally we do not take punitive measures
    against contractors.

                              general acquisition
        23. Senator McCain. Mr. Walker, I noticed that the programs you use
    as examples in both the report and your statement have been rebaselined
    (and thus avoided a Nunn-McCurdy violation)--in the case of the F-22,
    14 times. What does this say about the soundness of the business cases
    that DOD uses to justify these systems?
        Mr. Walker. It is a strong indication that the business case at the
    outset of the program was not sound. GAO has recommended for many years
    that DOD spend more time up front before starting a major acquisition
    program to balance requirements with available resources. This means
    DOD needs to do its ``due diligence'' to ensure a match of requirements
    with resources--mature technologies, feasible designs based on systems
    engineering, highly confident cost estimates, and sufficient funding to
    develop and deliver the system to the warfighter when needed. If a
    match is not achieved, trades are necessary and should include
    reductions to the requirements. However, often times the warfighter is
    reluctant to reduce requirements and programs move forward with
    impossible goals.
        The F-22 and other major acquisition programs that have experienced
    poor cost and schedule outcomes did not do a good job at making this
    match. They started system development with immature technologies and
    designs that were not shown to be feasible based on sound systems
    engineering. In the case of programs like F-22, B-2, Crusader,
    Comanche, and others the result has been programs out of control
    resulting in substantially higher costs, late deliveries or
    cancellations, limited or no recapitalization of legacy systems, and
    then the need to begin the next recapitalization sooner than expected--
    a highly inefficient use of limited taxpayer dollars. We have found in
    our recent work that DOD continues to start programs before this match
    has been achieved and the cost and schedule outcomes so far continue to
    be bad. Programs like FCS, Joint Strike Fighter (JSF), Aerial Common
    Sensor, Global Hawk, Expeditionary Fighting Vehicle, and others are
    experiencing significant growth in development costs and slippages in
    schedule. DOD needs to stop this cycle of inefficiency by following the
    intent of acquisition policy and best practices that are anchored in
    incremental and knowledge-based acquisition precepts.
        GAO is not alone in its concerns. The Defense Acquisition
    Performance Assessment report in December 2005 highlights similar
    concerns and recommendations as past GAO reports.

        24. Senator McCain. Secretary Krieg, in the 2006 Defense
    Authorization Law, Congress instructed the Pentagon to report on every
    program that costs at least 50 percent more than initial projections.
    The provision was designed to tie programs to their original cost
    estimates, rather than updated cost and schedule baselines. The
    Pentagon has been allowed to change its baseline without invoking the
    penalty. For example, the Army's Boeing-led FCS program hasn't
    triggered an official breach despite a $161 billion cost estimate that
    is more than double its original baseline estimate. What plans do you
    have in place to ensure programs are held to their original baseline
    figures instead of allowing the current practice of rebaselining?
        Secretary Krieg. The Department is fully implementing the NDAA for
    Fiscal Year 2006. Program managers will continue to report unit cost
    information quarterly to OSD on the status of both the current
    Acquisition Program Baseline (APB) and the original APB, to include
    significant and critical breaches, through our existing internal
    reporting process. I am stressing how important the original baseline
    is, especially as programs proceed through Milestone B and establish
    their original baseline, and I discourage rebaselining, except for
    usual reasons, which must be approved by me (or the Milestone Decision
    Authority). In addition, each quarter, as part of our SAR reporting to
    Congress, we list any programs that have been rebaselined and the
    reasons for such rebaselining, including milestone approvals.
    Furthermore, in accordance with section 804 of the NDAA for Fiscal Year
    2006, in January 2007 the Department will submit a report on the
    acquisition status of each major defense acquisition program whose unit
    costs has exceeded the original APB by 50 percent or more. I am
    committed to making the original baseline the standard for our
    acquisition programs.

        25. Senator McCain. Secretary Krieg, how do you plan to implement
    this new amendment to Nunn-McCurdy specifically as it applies to the
    FCS and F-22 programs?
        Secretary Krieg. The new Nunn-McCurdy amendment will be applied
    equally across all programs. In the specific cases of the FCS and F-22,
    both reported unit cost increases of more than 50 percent against the
    original APB in the December 2005 SAR. In accordance with the new
    provisions, both were given revised original baselines equal to their
    current APBs as of the date of enactment of the statute (i.e., January
    6, 2006). No certification was required, although the Secretary of
    Defense must provide to the congressional defense committees within 1
    year of enactment: (1) an assessment of the costs to be incurred to
    complete the program if the program is not modified; (2) an explanation
    of why the costs of the program have increased; and (3) a justification
    for the continuation of the program notwithstanding the increase in
    costs.

        26. Senator McCain. Mr. Walker, DOD loses credibility with
    contractors when requirements and numbers of units to be purchased
    change. At one time, the Air Force was going to purchase 750 F-22s.
    Now, at $300 million a copy for procurement and development costs, it
    can afford only 180. Once the F-22 was an air-to-air fighter. Now it's
    a multi-role aircraft. Turbulence in requirements and purchase size
    incentivizes contractors to pad their cost estimates. By my logic, the
    government must be a smarter buyer if it wants higher quality
    producers. How do you recommend improvement in the DOD's requirements
    process?
        Mr. Walker. We generally believe that DOD's weapons acquisition
    problems cannot be solved without looking at the entirety of DOD's
    acquisition process and making deep-seated changes to program
    requirements setting, funding, and execution in addition to changing
    how DOD views success, and what is necessary to achieve success. At
    present, DOD's requirements process generates so many highly complex
    programs resulting in more demands than the fiscal resources can
    support. Once too many programs are approved, the budgeting process
    exacerbates the problem. This is further compounded as program costs
    rise demanding more funds than originally budgeted. Because the budget
    can no longer fund all the programs, the Department often elects to
    stretch out the schedules and cut quantities to keep as many of these
    programs alive. Areas in the requirements process that we have reported
    on in the past and have suggested improvements to the process include:

              ensuring the warfighter need exists and can best be met with
            chosen concept (all alternatives have been examined),
              establishing a strategy that involves time phased
            requirements for meeting the warfighters needs,
              maintaining flexibility in requirements up to program start
            so trades can be made in order to match requirements with
            resources in formulating the business case,
              establishing and putting in place controls to ensure
            requirements can be met with mature technologies,
              constraining individual program requirements by working
            within available resources and by leveraging systems
            engineering, and
              ensuring that the workforce is capable of managing
            requirements trades, source selection, and knowledge-based
            acquisitions.

        We are currently examining how to improve the DOD's requirement and
    budgeting process.

        27. Senator McCain. Secretary Krieg, I understand that there is a
    difference between GAO and the JSF Program Office on the percentage of
    the award fee that has been paid. GAO has adjusted its percentage to
    reflect money that was initially unearned and rolled over and is still
    available to be earned. The report mentions that this money is put into
    a reserve award-fee pool, which could be as high as $90 million. How
    does the DOD intend to use this money?
        Secretary Krieg. The JSF Program typically places unearned fee in a
    reserve award-fee pool. The Government is under no obligation to make
    any of the reserve award-fee pool available to the contractor. However,
    the Fee Determining Official may decide it is in the Government's best
    interest and in support of the objectives of the contract to: (1) add
    the reserve award-fee pool to the overall award-fee pool; (2) make the
    reserve award-fee pool available to target improvement in an area not
    currently identified; or (3) apply it to basic contract costs as
    required. Experience shows use of award fee is an effective tool to
    motivate the contractor. Planned uses of the funding currently in the
    reserve award-fee pool have not yet been determined. Those decisions
    will be made over time based on assessment of issues or challenges that
    emerge during contract execution.

        28. Senator McCain. Secretary Krieg, will it be used to fix the
    problems that the contractor is in part responsible for creating?
        Secretary Krieg. The decision on that has not been made yet. The
    JSF Program has the option to use unearned fee in a future incentive
    pool, or to use it for a non-fee related purpose. Those decisions are
    made over time based on assessment of the optimum uses of funding based
    on contract execution status and issues.

                                     budget
        29. Senator McCain. Mr. Walker, you have repeatedly raised the
    issue of fiscal imbalance in the Federal Government. In November, your
    managing director for acquisition issues highlighted how these
    imbalances could affect DOD. Tough choices will need to be made. What
    progress has been made in making these hard decisions?
        Mr. Walker. The progress on this front is limited as DOD has not
    rationalized wants from needs. To illustrate, the projected cost of
    DOD's top five programs in fiscal year 2001 was about $291 billion. In
    2006, it was $550 billion. A primary reason why budgets are growing is
    that DOD is undertaking new efforts that are expected to be the most
    expensive and complex ever. Moreover, it is counting on these efforts
    to enable and support the transformation of military operations.

              The Army, for example, is undertaking the FCS program to
            enable its combat force to become lighter, more agile, and more
            capable. FCS is comprised of a family of weapons, including 18
            manned and unmanned ground vehicles, air vehicles, sensors, and
            munitions, which will be linked by an information network.
            These vehicles, weapons, and equipment will comprise the
            majority of the equipment needed for a brigade combat team in
            the future. When considering complementary programs, projected
            investment costs for FCS are estimated on the order of $200
            billion. Affordability of the FCS programs depends on two key
            assumptions. First, the program must proceed without exceeding
            its currently projected costs. Second, FCS has expected large
            annual procurement costs beginning in 2012. FCS procurement
            will represent 60 to 70 percent of Army procurement from fiscal
            years 2014 to 2022. As the Army prepares the next defense plan,
            it will face the challenge of allocating sufficient funding to
            meet increasing needs for FCS procurement in fiscal years 2012
            and 2013. If all the needed funding cannot be identified, the
            Army will have to consider reducing the FCS procurement rate or
            delaying or reducing items to be spun out to current Army
            forces.
              At the same time, the Air Force is undertaking two new
            satellite programs that are expected to play a major role in
            enabling FCS and other future systems. The Transformational
            Satellite Communications System, which is to serve as a
            linchpin in DOD's future communications network, and space
            radar, which is focused on generating volumes of radar imagery
            data for transmission to ground-, air-, ship-, and space-based
            systems. Together, these systems are expected to cost more than
            $40 billion. The Department has also been focused on
            modernizing its tactical aircraft fleet. These efforts include
            the JSF aircraft program, currently expected to cost more than
            $200 billion, and the Air Force's F-22A Raptor aircraft,
            expected to cost more than $88 billion.
              Concurrently, the Navy is focused on acquiring new ships and
            submarines with significantly advanced designs and
            technologies. These include the Virginia class submarine,
            expected to cost about $80 billion, and the DDG-51 class
            destroyer ship, expected to cost some $70 billion, and the
            newer DD(X) destroyer program, which is focused on providing
            advanced land attack capability in support of forces ashore and
            to contribute to U.S. military dominance in the shallow coastal
            water environment. The Navy shipbuilding plan requires more
            funds than may reasonably be expected. Specifically, the plan
            calls for shipbuilding funds to double by 2011 and stay at high
            levels for years to follow.

        30. Senator McCain. Mr. Walker, in particular, how do the QDR and
    the fiscal year 2007 budget address these hard decisions?
        Mr. Walker. The Quadrennial Defense Review (QDR) and fiscal year
    2007 budget are clear indications that the Department wants everything
    they were proposing before and more. Neither documents lay out a long-
    term, resource-constrained, investment strategy. In fact, the gap
    between wants, needs, affordability, and sustainability seems to be
    greater than ever. Hard choices are necessary now, particularly given
    the Department's long-term fiscal and management challenges.

        31. Senator McCain. Secretary Krieg, you've been in the job over 6
    months now and the fiscal year 2007 budget, I assume, is the first one
    to bear your mark. We all enjoy policy discussions, but budgets reflect
    the true decisions, the real philosophy. How would you characterize
    your ``mark'' on this budget?
        Secretary Krieg. I agree with you that budgets reflect decisions of
    DOD and, as I've stated in other testimony, we're working exceedingly
    hard to more closely integrate and align our decision processes.
    Budgeting is one of those processes. Although individuals can, and do
    make substantive contributions to a budget, the result is the product
    of extensive collaboration resulting in a balanced recommendation from
    the Secretary to the President. Success is not measured in terms of
    organizations or program winners and losers, but by how effectively we
    enhanced DOD's capabilities and contribution to national security. An
    example of this collaborative outcome in the budget is what we did with
    the Joint Tactical Radio System program. It was not easy, but we
    brought all the stakeholders together and crafted a governance
    structure and restructured program that we believe creates much better
    conditions for successful program execution. Similarly we made some
    hard choices with respect to funding levels for chemical-biological
    defense and chemical demilitarization, the DD(X), and SBIRS-High, among
    others. I hope my ``mark'' is getting us better at doing the right
    analysis with the right information and stakeholder involvement to get
    better outcomes, and balancing among cost, schedule, and performance in
    problem choices over time.

                                weapons systems
        32. Senator McCain. Secretary Krieg, what is different about it in
    the area of weapon system investments compared with the past?
        Secretary Krieg. The QDR analysis concluded that most of our weapon
    systems remain relevant and the budget reflects these conclusions. We
    continue to focus our investment strategy on providing those
    capabilities that warfighters tell us they need.

        33. Senator McCain. Secretary Krieg, what changes were you
    personally involved with?
        Secretary Krieg. The budget recommendations forwarded to the
    Secretary and ultimately to the President were the result of a
    collaborative process that involved not only myself, but all the
    relevant stakeholders and decisionmakers of the DOD.

        34. Senator McCain. Secretary Krieg, what philosophy or beliefs do
    you believe they represent?
        Secretary Krieg. I think these changes represent a commitment to
    providing our men and women in uniform a balanced set of capabilities
    they need in a timely and efficient manner. The enemy we face demands
    an agility in our business practices that heretofore had been missing.
    We're making great progress in the right direction.

        35. Senator McCain. Secretary Krieg, can one assume that the major
    programs that have not been altered now enjoy your full support?
        Secretary Krieg. As noted earlier, budgets reflect the decisions of
    the DOD which I support. However, I continually review our programs,
    and as circumstances and conditions change, I am willing to reevaluate
    our portfolio and make appropriate adjustments.

                 quadrennial defense review execution roadmaps
        36. Senator McCain. Secretary Krieg, in January, the Deputy
    Secretary of Defense commissioned the ``2005 Quadrennial Defense Review
    Execution Roadmaps'' and assigned you, along with the Chairman of the
    Joint Chiefs of Staff, the lead on the ``DOD Institutional Reform and
    Governance'' panel. The panel will provide guidance on implementation
    of new acquisition policies, procedures, and processes and will explore
    options for a ``portfolio-based approach'' to defense planning,
    programming, and budgeting. In your testimony you note the Defense
    Acquisition Performance Assessment and QDR identified an initiative on
    the need to have ``considerably greater integration among the
    requirements, budgeting, and acquisition communities'' which would lead
    to reductions in technical and schedule risks, stable long-term
    funding, and setting requirements in recognition of technology
    readiness. How will you achieve integration of these communities and
    the outcomes you list here?
        Secretary Krieg. Our focus is squarely on the customer--the joint
    warfighter and delivering the capabilities they need to be successful.
    They face an enemy today that forces them to be flexible and agile.
    Similarly, DOD's business practices and processes need to be just as
    flexible and agile. The first step in integrating these communities--
    acquisition, requirements, and budgeting--is building consensus among
    the DOD's senior leadership we've termed the ``governance layer.'' I am
    actively engaged in that effort in an open, transparent process with a
    lot of frank discussions. We are also building a common capability
    ``lexicon,'' and creating authoritative shared data so we all operate
    on the same set of facts. The next step is to develop and implement an
    appropriate process that brings together the respective interests of
    the communities in such a manner that allows DOD to make better
    informed investment decisions. We are experimenting this year with a
    number of approaches and portfolios to learn what works best. I think
    we are building the right foundation and are on the right track. We
    look forward to working with this committee and Congress to review the
    results of those experiments and process changes over time.

        [Whereupon at 4:49 p.m., the subcommittee adjourned.]