- DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR 2007

[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

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

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PART 3

READINESS AND MANAGEMENT SUPPORT

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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

S. 2766

__________

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
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COMMITTEE ON ARMED SERVICES

JOHN WARNER, Virginia, Chairman

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

Charles S. Abell, Staff Director

Richard D. DeBobes, Democratic Staff Director

______

Subcommittee on 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

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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.
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\1\Gang heads remain acceptable for recruits and trainees.
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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.

[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.]