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




                                                 S. Hrg. 109-827, Pt. 3
 
DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR 
                                  2007

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

                                HEARINGS

                               before the

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                                   ON

                                S. 2766

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

                               ----------                              

                                 PART 3

                    READINESS AND MANAGEMENT SUPPORT

                               ----------                              

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


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


                                                 S. Hrg. 109-827, Pt. 3

DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR 
                                  2007

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

                                HEARINGS

                               before the

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                                   ON

                                S. 2766

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

                               __________

                                 PART 3

                    READINESS AND MANAGEMENT SUPPORT

                               __________

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


         Printed for the use of the Committee on Armed Services



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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

                              ----------                              

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

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

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

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

                        Ground Forces Readiness
                             march 15, 2006

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

                    Improving Contractor Incentives
                             april 5, 2006

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

                                 (iii)


DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR 
                                  2007

                              ----------                              


                       TUESDAY, FEBRUARY 7, 2006

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

                       CONTRACTING ISSUES IN IRAQ

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

       OPENING STATEMENT OF SENATOR JOHN ENSIGN, CHAIRMAN

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

               Prepared Statement by Senator John Ensign

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

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

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

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

                              introduction

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

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

              STATEMENT OF SENATOR DANIEL K. AKAKA

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

             Prepared Statement by Senator Daniel K. Akaka

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

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

    The second report stated:

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

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

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

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

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

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

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

               Prepared Statement by Stuart W. Bowen, Jr.

                              introduction

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    SIGIR continues to support the Iraqi Inspectors General system 
since its inception in 2004. The Iraqi IGs are charged with auditing, 
investigating, and reviewing the accountability and integrity of the 
ministries, and with preventing, deterring and detecting waste, fraud 
and abuse. Although this is a new system in Iraq, and in the region, 
and will take time to function effectively, the continued development 
and progress is encouraging.
    In addition, the Board of Supreme Audit (BSA), though a holdover 
from the prior regime, is well respected by senior Iraqi officials and 
provides effective audit work across all ministries. Despite the 
hazardous environment in which we all find ourselves working, the BSA 
has expressed interest in using SIGIR's audit work in its own efforts.
    As the anticorruption efforts continue, SIGIR will audit to 
evaluate progress.
                             the way ahead
    As I have noted, 2006 is a year of transition for Iraq 
reconstruction, and of course, Congress will face key decisions. As of 
February 1, the State Department reports that 84 percent of the $18.4 
billion Iraq Relief and Reconstruction Fund is obligated, under 
contract. What remains is less than $3 billion, which we estimate will 
not permit the completion of all projects that were envisioned when the 
requirement for $18.4 billion was being determined in late 2003.
    While SIGIR has identified a Reconstruction Gap based on these 
initial requirements, and noted that water and electrical projects will 
not be completed, I reiterate that this is an observation--not an alarm 
bell.
    Our conclusions on this matter do not constitute an evaluation of 
the original list of projects. We are not saying that all of these 
problems must be finished to complete successfully the U.S. investment 
in the reconstruction of Iraq. In our view, rather than to focus the 
remaining resources on finishing up this list of projects, our 
investment in ensuring the sustainment of projects that are or will be 
completed, and efforts toward building the capacity of the Iraqis to 
take over the repair of their infrastructure will bring a much higher 
return.
    Also, among the improvements we have observed in the past year is 
the development of an integrated information management system to 
provide a more accurate picture for program management.
    I am pleased to say that the cooperation that this inspector 
general is receiving from those engaged in Iraq reconstruction is 
refreshing. When I return to Iraq later this week, I will be in regular 
contact with senior reconstruction management, including IRMO director 
Ambassador Dan Speckhard, Army Corps of Engineers Gulf Regional 
Division commander Brigadier General Bill McCoy, and Major General 
Darryl A. Scott, who recently relieved Major General John Urias, as 
Commander, Joint Contracting Office--Iraq. As well, I regularly meet 
with Ambassador Zalmay Khalilzad and the Multi-National Force--Iraq 
Commanding General, George W. Casey, Jr. Our relations are positive and 
productive and they are providing our 45 SIGIR auditors, inspectors, 
engineers and investigators in Iraq the access they need to provide 
this important oversight.
    In Washington, I met with Secretary of State Condoleezza Rice and 
Deputy Secretary of Defense Gordon England, and it is clear to me that 
they support our oversight.
                               conclusion
    We at SIGIR are vigorously carrying out the duties and 
responsibilities assigned by Congress in a very hazardous environment. 
I am proud of my staff's commitment and willingness to serve in a 
dangerous land far from their families. We will continue to ensure 
effective oversight and timely reporting, and to promote the success of 
the Iraq reconstruction plan.
    I am gratified that Congress has recognized the impact of my office 
through the extension of our tenure. On November 10, the Congress 
passed Foreign Operations, Export Financing, and Related Programs 
Appropriations Act, 2006 containing an amendment to extend the duration 
of SIGIR oversight by modifying the SIGIR termination clause to base it 
upon the level of IRRF expenditures, instead of obligations. I will 
continue to serve Congress and the Secretaries of State and Defense by 
providing rigorous oversight to prevent waste, fraud and abuse in Iraq.
    I appreciate this opportunity to participate in this important 
hearing, and I look forward to answering any questions that the 
committee may have.
      
    
    
      
    
    
      
    
    
      
    
    
      
    Senator Ensign. I thank all the witnesses. I want to get 
right to questioning. I want to start asking a big-picture 
question, and it has to do with competitive contracts at a 
fixed-price versus what, Mr. Bowen, you mentioned about design-
build at cost-plus type contracts.
    In Nevada, and looking at some of the projects that we've 
done on infrastructure projects in our State, we have both 
situations, as most States have. Talking to people, for 
instance, the Nevada Department of Transportation, their 
experience has been less costly, more on time, better 
experienced, basically, with the design-build concept. But it 
seems like in Iraq, that the problems have been more with the 
cost-plus type of contracts. So, would any of you like to 
comment on that general aspect and why maybe there's a 
difference of what happens over here versus what happens in a 
theater of war with those type of contracts.
    Mr. Bolton. I'll kick it off. With the design-build, and we 
were not involved in the determination on that, that was back 
during the CPA days, but I think the thought was, based upon 
what had happened after the Gulf War the first time, what 
Saddam had done to the oil fields, that the design-build was 
the approach to go. Basically, you have a prime contractor 
who'll get the right subs, and then he'll go get the job done. 
So, it was logical to assume that approach would work again. 
It's worked in other countries.
    As the CPA got into it, as they understood what was going 
on, basically, you have no infrastructure, you have no banking 
system, you have no information technology (IT) system, you 
have no financial accounting system, you have no set of laws, 
and you need to get Iraqis working. The notion on the design-
build started the change, and we saw that in the types of 
contracts that were being released and also the end efforts, 
direct contracting, as the IG has already pointed, to Iraqi 
firms and people. I think today, we have over 40 percent of the 
contracts for which we're responsible are direct with the 
Iraqis. That puts more of them to work, reduces some security 
concerns, and then it's a matter of making sure that the 
projects are done.
    Now, I've been out on a limb here because as I said, I was 
not involved with the early thinking on this, but as an 
observer looking at it, that appears to be what happened and as 
the infrastructure has grown in Iraq. So, we can have better 
accountability. We're able to move into a number of different 
modes of contracting. A lot focused on the direct to the 
Iraqis, but cost-plus, fixed-price, direct and less design type 
of contracts are there, and perhaps the IG, Stuart, would have 
more to add on that.
    Senator Ensign. Mr. Bowen, maybe you could address also, in 
the context of this, when is it appropriate if you start with 
the design-build, however you want to call it, that we did, for 
instance, with the oil fields as the example, at what point is 
it appropriate, how long into this is it appropriate to switch, 
because from what I understand, some of the way the contracting 
was done was the need for speed, the need to get things done. I 
think everybody understands that, but at what point is it 
appropriate, then, how long is long enough, I guess, is one 
question, to where you can get to this other model of 
competitive bidding?
    Mr. Bowen. I think there's a lot there. First of all, the 
design-build approach was chosen because a decision was made 
early on to rebuild the infrastructure of Iraq by executing 
very large projects. The President identified that as a 
weakness early on, and it's something we have, of course, 
changed and moved to smaller local projects that meet more 
immediate needs.
    The design-build process unfolded after the November 2003 
appropriation, $18.4 billion. There was the competitive phase 
that unfolded, and our audits looked at that competitive phase 
and found it appropriate. In other words, it was executed well. 
It did not comment on whether it was the right policy.
    The challenge of indefinite delivery, indefinite quantity 
cost-plus contracts, which is what the design-build contracts 
are, is that they empower the contractor to go forward and 
without any specifications, as opposed to a fixed-price 
contract, you don't know how much you're going to spend. You 
aim for a point where you're going to definitize, but that's a 
gradual process. They bear the risk, and the balance is they 
bear the risk of going into an environment where they don't 
know what the challenges are going to be. On the other hand, 
we've agreed to fund those contracts up to $500 million each. 
They are large-scale contracts from which task orders are 
issued.
    Now, what we didn't anticipate and where we did run into, I 
think, waste and a lot of U.S. dollars not going to actual 
bricks and mortar, was the insurgency that inhibited the 
execution of the plan. In the summer of 2003, as those who were 
in Iraq remember, people were going downtown into Baghdad and 
they weren't inhibited in their comings and goings. That 
dramatically changed as we moved into the fall and winter. In 
2004, the insurgency was in full swing since April 2004, 
excepting the 2 months immediately after last January's 
election, it has been a fundamentally-inhibiting factor to the 
execution of the reconstruction program.
    But when Ambassador Negroponte came onboard in 2004, he 
immediately began an appropriate review of how the money for 
the IRRF was allocated, and it resulted in $5.8 billion being 
moved from bricks and mortar into, what I call, direct security 
costs. That is, the funding of the standup of the Iraqi Police, 
the Iraqi Security Forces, the Iraqi Army, an appropriate 
investment, because without stabilization, you can't have 
reconstruction.
    But throughout that period, we were paying overhead for 
contractors who were in the field, yet were not engaged in 
turning dirt. January 2005, that changed. The effects of 
stabilization and from the security investment began to be 
realized. There was a period when the insurgency went down for 
a bit, and the level of construction, the pace of construction, 
dramatically increased. Last year was a year of rapid 
construction throughout Iraq and a great accomplishment. It 
doesn't change the fact that in 2004, not a lot got done. We 
now have an audit that is ongoing to look at what's called the 
administrative task orders. That's contract speak for overhead.
    Administrative task orders, some of the design-build 
contracts had them, to pay for how much it cost to keep a 
contractor in-country ready to work. So, that's going to look 
at exactly how much we spent on that. We're also looking at 
exactly the issue you raised, Mr. Chairman, and that is the 
benefits to direct contracting versus design build, and we have 
an audit looking precisely at that issue that will be out in 
our April report.
    But the bottom line is, is that the move away from design-
build has been dramatic since mid last summer. Indeed, I would 
say that over 80 percent now of contracting actions are direct 
contracting actions, and they are fixed-price contracts, and I 
think that as a result, taxpayer dollars are being spent better 
now than before.
    Senator Ensign. Thank you. Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman. Mr. 
Bowen's reports provide a breakdown of the staffing of our 
contracting function in Iraq in 2004 and 2005. According to one 
report, ``Although the PCO CA was authorized to staff 69 
contracting personnel, the onboard staff was comprised of 46 
personnel.'' I'm not sure that it is appropriate for the 
contractor employees to act as an integral element of a 
contracting office in this way.
    My concern is exacerbated by the February 2, 2006, 
Washington Post article which reports that a former contracting 
officer for the CPA in Iraq has agreed to plead guilty to 
accepting more than a million dollars worth of cash, cars, 
jewelry, and real estate in return for favoritism in the 
bidding process. According to the article, the individual 
involved was hired by a Native American company that had a 
contract to provide experts to the CPA despite a previous fraud 
conviction and was not even a Federal employee.
    I would like to ask each of you this question, is it proper 
to allow a contractor employee to act as a contracting officer? 
Would you agree that we need to exercise far greater care in 
the future in the roles that we allow contractor employees to 
play in our contracting organizations? Mr. Bolton?
    Mr. Bolton. Yes, the incident you're referring to was prior 
to my standing up with the PMO, later the PCO. To answer your 
last question there, it is not proper to have a contractor 
acting for the government. It is not part of the way we do 
business. It's not our rules. When we stood up with the PMO, I 
put a one-star in charge who was fully qualified to do that 
job. We populated that office with professionals who have the 
experience and warrants to accomplish the job, and then we 
enhanced that when the PCO stood up.
    I read the article, and I was as appalled as anybody else. 
We take very seriously the job that we do, and I must tell you 
that the vast majority, 99.9 percent of the folks who are doing 
the job over there, have the highest professional ethics, and 
do the job exceedingly well, and we take great displeasure when 
we find that someone acting on our behalf has done that in 
violation of the trust that we put into people.
    I know when I first came to this position it was my task 
within the first month to dismiss a contracting officer in 
another command, far from what we're talking about here, and 
he's now in the Federal penitentiary along with someone else. I 
do not tolerate that. The people that we put in charge, first a 
one-star and then a two-star, and the folks who surround him 
have done an excellent job. The reports that I've gotten back 
from the special IG, from the DOD IG, from the GAO, from the 
Army IG, from the DOS IG, and from the audit agencies say 
they're doing the job, and doing it well.
    Senator Akaka. General Johnson.
    General Johnson. Yes, sir. I would like to answer this from 
a couple of perspectives, first as a commander in the field. 
First of all, Senator, all of these great selfless civilians 
are volunteers, and all of them were influenced, indeed, by 
maybe what they saw on the news at night. Early on, in my 
division alone, it was very difficult to get people to want to 
volunteer to come to a place where they could make the ultimate 
sacrifice.
    So, while we have a great defense acquisition work program, 
we have a strategic workforce plan, we have talented people. 
Number one, they're volunteers, and they volunteer to come in 
harm's way. Number two, unlike a commanding general of the 
First Cavalry Division, as a commanding general of the Gulf 
Region Division or the Pacific Ocean Division, as you remember 
me from, I cannot leave my home station and say see you when I 
get back, because I still have work that I have to do back in 
the Pacific Ocean Region.
    So, all the people we were pulling together, for example, 
in my division, were volunteers that we were taking from our 
other divisions around the U.S. Army Corps of Engineers and 
other agencies who supported us, and so, we were challenged by 
that.
    To answer your question, no, it is absolutely not proper 
because that contracting officer duty is considered to be 
inherently governmental. The purpose of that job is to make 
sure that the United States Government is getting a dollar's 
worth of stuff for a dollar spent. So, no, it is not proper.
    Senator Akaka. Mr. Bowen?
    Mr. Bowen. Senator Akaka, you were reading from one of five 
audits that we've conducted regarding the wrongdoing in Hilla 
during CPA. Hilla was one of three regional offices the CPA set 
up to manage funds, reconstruction funds, throughout Iraq. The 
others were in Basra and Mosul.
    Robert Stein was the comptroller whom you referred to and 
who has now agreed to plead guilty and will be convicted and go 
to the penitentiary for a good while, and he was a bad actor 
and a man who'd been previously committed of fraud, a Federal 
felony conviction, who snuck under the radar here in the chaos 
that was the early days in Iraq and took advantage of an 
environment where there was a lot of cash. It was really a 
cash-only environment. There was no electronic funds transfer. 
There was $120 million, as we identified, in Iraqi money, 
Development Fund for Iraq (DFI) dollars that was allocated to 
that region for grants and contracts. Our audits showed that 
over $90 million of it didn't have adequate receipts or any 
documentation to substantiate its use. Almost $10 million was 
simply missing. As we got in deeper, I sent three auditors who 
spent 4 months there looking at it. We found that there were 
massive irregularities in contracting and grants, work not 
performed, and then I deployed three investigators down there. 
A result of a 9-month investigation, we now have one 
conviction. We've had three other arrests and more--the 
Department of Justice is fully engaged, and there will be more 
penalties to pay from this wrongdoing.
    The lesson here is that oversight needs to be present, on 
the ground, and aggressive, in Iraq to deter. This happens--
actually, the criminal scheme unfolded before I was appointed. 
This was in the late fall of 2003 and into the beginning of 
2004. We first became aware of it in the late spring of 2004, 
of a potential problem, and have been working on it ever since. 
The fact that deterrence worked was evidenced when we knocked 
on Robert Stein's door. When our investigators knocked on his 
door, he wasn't surprised to see us. He'd been reading our 
audits, and he knew it was a matter of time before we would 
catch him. We have 57 other investigations ongoing, and I 
expect we'll have the same reaction from some of those people 
over time as we bring them to closure.
    Senator Ensign. Just real quickly on what he was asking, 
that was the past. Do we currently have enough oversight on the 
ground? Just a quick yes or no by each one of you.
    Mr. Bowen. Yes, I think so, and let me associate my 
remarks--my agreement with Secretary Bolton's remarks. Well 
over 95 percent of the people there are giving their all to 
honor their country and service in Iraq.
    Senator Ensign. That's the way it always is.
    Mr. Bowen. It's a small group.
    Senator Ensign. That's the way I--but to prevent those 
other small percentage, you all agree, affirmatively nodding 
yes.
    Mr. Bolton. Yes.
    General Johnson. Yes.
    Senator Ensign. Thank you.
    Senator Dayton.
    Senator Dayton. Thank you, Mr. Chairman. Mr. Inspector 
General, I'm a bit surprised by your glowing summary of the 
reconstruction progress that has occurred in Iraq, it seems to 
be in significant contrast to your January 30, 2006 report, 
your quarterly report. Just to highlight a couple of those 
matters, electricity generation is lower in late November 2005 
than in March 2003, you go on to say that as a result, Iraqis 
living in Baghdad have an average of just 3.7 hours of power 
per day in early January 2006. Oil production is below prewar 
levels. Water and sanitation projects have not provided even 
half the Iraqis or, I'm sorry, before the war, half the Iraqis 
had access to water, affordable, drinkable water. November 
2005, only 32 percent had access. As Chairman Warner said this 
morning and Senator Levin also, the failure to make adequate 
progress on these reconstruction projects has a direct bearing 
on the safety of the lives of our troops as well as the success 
of their mission and the overall mission.
    So, the deficiencies and the failures that have been 
identified by your own analysis, and then by others 
specifically, have a direct bearing on our support for our 
troops and their ability to complete their mission and come 
home safely and alive to their families.
    We have attempted, because of the failure of this committee 
to exercise aggressive oversight, and I don't refer to your 
subcommittee, Mr. Chairman, but to the full committee, to look 
into these contracting procedures and open public hearings. The 
Democratic Policy Committee has attempted to do so. I regret 
that it has had to be under the auspices of something 
associated with just one party. It should be by this committee. 
But in the absence of that, this has been necessary. It's been 
accused of focusing on Halliburton, Kellogg Brown and Root 
(KBR) exclusively, and it has certainly given them a primary 
attention in part because according to the information I have, 
they have now 52 percent, over half, of the total contract 
value of the contracts in Iraq with the DOD and also because--
and I hope that we could have a chance to hear from the DCAA. 
It has now identified $1 billion, $474 million either 
questioned costs or unsupported costs by KBR as a result of the 
contracts that has been awarded most of which are sole-source 
contracts to date.
    Mr. Chairman, if I take the figures that I have here about 
the contracts funded in Iraq of about $25.4 billion by the DOD, 
and if Halliburton has half of those, that figure, $1.4--almost 
$1.5 billion has been questioned, that's about 10 percent 
roughly, and maybe you could refine that for me, Mr. Secretary, 
but about 10 percent of the total costs that have been billed 
by Halliburton and paid have been questioned subsequently by 
the DCAA.
    Just taking, for example, one contract, the Restore Iraqi 
Oil (RIO) contract, which again, as we described earlier, is 
vital to its reconstruction. Under this contract, the Army 
issued 10 task orders worth about $2.5 billion. The DCAA 
questioned over 10 percent of those contracts, found that they 
weren't supported of their costs on which the audit--which were 
not considered acceptable, and yet at the same time, Mr. 
Secretary, the contract, the RIO contract, was awarded on a 
sole-source basis despite the PARK staff person primarily 
responsible, writing a note herself on the contract before she 
submitted it to you because she didn't think it was appropriate 
to award that for 2 more years on a sole-source basis with a 3-
year option. That was the recommendation on her part.
    I guess it was ignored or at least rejected by you because 
you did sign it, and it's my information that in December 2003, 
when the DOD auditors preliminarily concluded that Halliburton 
was charging excessive amounts for fuel imports from Kuwait and 
Iraq the same time, just days later, the Department granted 
Halliburton a special waiver releasing the company from 
providing certified costs and pricing data from its Kuwaiti 
fuel contractor.
    Specifically, December 11, 2003, DCAA auditors held a press 
conference announcing that their draft audit had found 
Halliburton had billed for as much as $61 million in excess of 
costs to import gasoline from Kuwait into Iraq. The auditors 
indicated that Halliburton has not demonstrated: They did an 
inadequate subcontract pricing evaluation prior to the award of 
the--rather than cooperate with this audit, Department 
officials took the opposite action. They granted Halliburton a 
waiver that eliminated Halliburton's responsibility to provide 
any cost and pricing data from its Kuwaiti subcontractor. This 
seems to me to be the opposite of what you've asserted, that 
these are controls that have been established and that they're 
being improved.
    In fact, it indicates the opposite, that these contracts 
have been awarded on a sole-source basis without a competitive 
bid, and then they haven't even, after that point, been 
monitored properly. When there have been variances, they're 
granted waivers so that they don't have to be held accountable. 
Could you respond, sir?
    Mr. Bolton. The first contract that you referred to was 
before my watch, and that doesn't solve the problem here today. 
It's the only sole-source contract that I've been able to find, 
the RIO contract to which you're referring, a 1-year base with 
2-year extension. We did grant a 1-year extension. That is up 
in May of this year. No decision's been made as to whether or 
not to exercise the option for the third year.
    With regard to the others, there seems to be a mix of 
LOGCAP and RIO contracts here, and I would have to separate 
those out. The only other sole-source contract that I'm aware 
that is taking place--and by the way, we've not done any in the 
PCO, they've all been competitive, was to Lucent, and that was 
to complete a first-responder network so that we could provide 
the right security for the elections. That's the only other 
sole-source that I'm aware.
    All the others to which you refer, we have had the audits 
reports. We've had the lawyers take a look at it. We've done 
our own in terms of looking at the definitization of those 
contracts and the task orders and so forth.
    Senator Dayton. Mr. Secretary, the audits have been 
performed, but the Department and the Army Corps have evidently 
ignored the audit findings. Another example, and my time is up, 
but let me just say and ask for a response. On December 31, 
2004, the DCAA issued a flash report alerting the Department 
about significant deficiencies in Halliburton's cost-estimating 
system. It goes on to elaborate on some of their other 
financial weaknesses. Based on the flash report, auditors sent 
a second memo on January 13, 2005, warning that Halliburton 
could not adequately estimate its costs for work in Iraq. On 
January 16, 2004, just 3 days after that memo was sent, the 
second one of a flash warning about Halliburton's deficiencies, 
the Army Corps of Engineers awarded Halliburton a new $1.2 
billion contract to restore and operate the oil infrastructure 
in the southern half of Iraq, an infrastructure which we now 
learned is failing to be revived at an acceptable rate.
    In response to questions about why the Corps disregarded 
the auditor warnings, an Army spokesman stated we have our own 
internal audit process, and we haven't turned up any serious 
wrongdoing or major problems. So, what's the point of having 
audits if they're just ignored and these contracts are awarded 
anyway?
    Mr. Bolton. I think that last sentence or two is very 
important, that we had our folks go and take a look, and they 
could not find and justify what had been alleged, and I have to 
rely upon them. They're the experts, I'm not in that area.
    With regards to the others, which go to task orders 59 and 
later on, the 80 series, we actually put a team together in the 
government and went through and definitized those by March of 
that year, and there were monies withheld because I could not 
find the documentation to substantiate that.
    Senator Dayton. I'll return to this as soon as the opening 
of the second round of questioning, Mr. Chairman.
    Senator Ensign. Senator Reed.
    Senator Reed. Thank you very much, Mr. Chairman, and thank 
you, gentlemen. Senator Dayton pointed out some of the overall 
shortfalls in reconstruction, which you illustrate in your 
report, Mr. Bowen, reduction from prewar energy levels, potable 
water, also crude oil production, which is critical to the 
economy. I think it raises a question, which the chairman also 
raised about the overall strategy we have, and let me try to 
break it up into pieces. We have lost some of that $18 billion 
on security costs, we have diverted some of the $18 billion 
into smaller projects, we get more bang for the buck, which 
leaves the question: Do we have enough money still there or in 
the pipeline to finish these major projects, bring oil 
production up to levels that are at least prewar--water, 
electricity? Can you make that assessment?
    Mr. Bowen. You addressed several issues there, but first, 
let me address the prewar versus current output question, and 
it's a challenge just to look at prewar and current because a 
lot happened in the interim. Prewar in electricity, the number 
was about 4,500 megawatts. It is now below 4,000, 3,900. As a 
matter of fact, the latest is down. It dropped again. It's down 
to about 3,700. But last summer, it was at 5,300, so we were 
800 megawatts above prewar at the end of last July. What 
happened? What happened is that a focused insurgency began 
targeting the infrastructure, and they have repeatedly hit the 
Baiji Baghdad powerline. It resulted--they just hit it Monday, 
and we had an all-day blackout in Baghdad as a result of that. 
This is an insurgency that is insidious and carefully planned, 
and their focus continues to be on infrastructure: oil.
    Look at last September. They launched a series of attacks 
last September. We were above prewar in July in oil output. 
Those attacks in September pushed us now well below. There's 
just no getting around the fact that the investment in security 
that was done in 2004 has been borne out in experience in 2005, 
and that is this is an aggressive insurgency. It's going to 
take time to suppress. Before it's suppressed, they will 
continue to hit the infrastructure, some of which we've built, 
like the Al Fatah pipeline and river crossing.
    Senator Reed. Right.
    Mr. Bowen. It's a RIO project. Indeed, when we address in 
our latest report, and we have some real concerns about how 
that unfolded. The history of that project is not a good one, 
but the current history is defined by it being one of the most 
dangerous places to work in Iraq right now. It's now working, 
the money that's being spent on the Al Fatah Pipeline River and 
Canal Crossing Project. It's moved from KBR to Parsons 
International Joint Venture. It's one of several in the oil 
sector, punitive steps that PCO has taken with respect to KBR. 
They have been under a cure notice for well over half of last 
year because of their poor cost accounting.
    The bottom line is, to answer several of the issues that 
you've raised, is that we are not going to produce as much of 
infrastructure as we wanted at the beginning because of the 
security issue. We've moved $5.8 billion out of bricks and 
mortar into security. The reasons for that have been borne out 
in experience.
    However, in the next 3 months, we're going to see two 
electrical generation facilities come online. The Al Fatah 
project is almost done. In April, the Erbil water treatment 
facility will come online. It will provide potable water to a 
million Kurds in Erbil, the largest city in the north. So, over 
the next 6 months, as long as we can suppress the insurgency 
and keep them from knocking out what we're providing, we're 
going to see those numbers come back up to numbers that we saw 
last summer.
    Senator Reed. That's a very valuable explanation, and I 
appreciate it very much. But a lot of the presumptions about 
the progress that Iraq would make was based upon a notion of it 
going above prewar levels, oil production particularly, et 
cetera. The question I have is, given this insurgency, and 
you're absolutely right, they're extremely bright, and they've 
figured out a way to impede our efforts in Iraq by attacking 
its infrastructure. There are currently discussions though, 
that we're going to essentially stop our reconstruction efforts 
at the $18 billion mark, that we're essentially going to say 
okay, we've put in $18 billion, it hasn't been spent entirely 
because they had to protect security, infrastructure projects 
have been delayed.
    Are you comfortable with essentially stopping and leaving 
with maybe prewar levels, maybe a little better in a situation 
in which this is so critical to the protection of our troops 
and the advancement of our mission?
    Mr. Bowen. Senator Reed, you're right. Reconstruction can't 
stop. The World Bank said it's going to cost $56 billion to 
bring it up to operational levels, and that assumed our 
investment, the $20 billion, would all be spent on 
infrastructure. We now know that that number has to be moved up 
a little bit before we're going to get there.
    The Iraqi economy is going to have to get on track with oil 
production to generate revenue to fund the continued recovery. 
This is a long-term relief and reconstruction program that they 
will manage, right--we have a new government now that will be 
around for 4 years. We've had three governments in 18 months. 
It's extremely difficult to have coordinated reconstruction and 
recovery in that environment. The stability--the political 
stability--we hope is beginning to take place. The security 
situation needs a lot of attention on the ground there, and 
it's getting it.
    As we see the security situation and the political 
government situation stabilize, I think we'll see a more rapid 
progress on the infrastructure front, but is $18 billion enough 
to get the job done? No, but it's a start.
    Senator Reed. Thank you very much, Mr. Bowen. Thank you, 
Mr. Chairman.
    Senator Ensign. Senator Levin.
    Senator Levin. Thank you, Mr. Chairman. The total 
shortfalls in terms of reconstruction of various component 
parts of the economy are: electricity generation--10 percent 
below prewar levels; oil production--20 percent below prewar 
levels; and potable water--30 percent below prewar levels. Now, 
the factor that you just referred to, I believe, Mr. Bowen, I 
think it was you, or it may have been Secretary Bolton, has to 
do with the difficulty of security.
    Mr. Bowen. That's right.
    Senator Levin. But there are other factors that have gone 
into this besides the insurgency. You, Mr. Bowen, have called 
the gap here a reconstruction gap, and you've pointed out 
corruption, fraud, mismanagement, and waste that have plagued 
the reconstruction efforts. So, the security problem is 
obviously a massive problem, and that is hopefully being 
addressed in a number of ways. But what this subcommittee is 
looking into is the question of waste, mismanagement, fraud, 
and corruption. I assume that is the focus in any event, and it 
is a pretty chaotic picture that you painted for us in your 
reports. What I'd like to do is take one project and talk about 
it, and that project is called the Al Fatah project which is a 
river crossing for a pipeline and where your report goes into 
some detail about a $75 million task order for that river 
crossing for a pipeline.
    Here's what your report tells us: First, the project failed 
because subsurface geologic conditions made it impossible to 
carry out the project design. These conditions were identified 
by a consultant before the work commenced, but neither the Army 
Corps of Engineers nor KBR acted on the consultant's 
recommendation to perform additional research and surveys that 
would have prevented the failure. Now, that's just one flaw, 
number one. Why was that not done?
    Mr. Bowen. I don't have an answer as to why that wasn't 
resolved.
    Senator Levin. Okay, do any of the other witnesses here 
know why that survey was not done that was identified by the 
consultant as being necessary?
    General Johnson. Sir, I'm not familiar with the specifics 
of that surveyor, but I can tell you that a survey was done.
    Senator Levin. All right. Secretary Bolton.
    Mr. Bolton. Nothing to add.
    Senator Levin. Okay, now a subject matter expert for the 
CPA recognized that KBR had limited experience. This is in your 
report, now. I am just quoting from your report. KBR had 
limited experience in this type of project and advised that the 
project would probably fail because design restrictions 
provided no flexibility to accommodate site conditions, but KBR 
refused to conduct design reviews requested by the subject 
matter expert. Do you know why they refused? Why were they 
allowed to refuse? Were they permitted to refuse under the 
contract? What can you tell us about that?
    Mr. Bowen. This was under the RIO contract early on, I 
don't know why KBR was allowed to continue, but eventually, 
they were discontinued, and the project was given to Parsons 
International Joint Venture (PIJV).
    Senator Levin. But why were they, at that time, allowed to 
proceed when they did not do what the expert called in said 
that they needed to do, which was to accommodate the site 
conditions? Who is responsible? Who is accountable?
    Mr. Bowen. The Corps of Engineers was the project manager.
    Senator Levin. Okay, now let me ask the Corps, do you know 
why it was that they were allowed to proceed without doing the 
design changes to allow for the site condition to be taken into 
account?
    General Johnson. Senator Levin, you ask me a difficult 
question because I don't know that there were site conditions 
that required them to not proceed.
    Senator Levin. All right.
    General Johnson. I can tell you why KBR was doing the work, 
and if you recall the time line, KBR was there doing task force 
RIO missions, primarily earlier, to put out the fires that we 
saw in Operations Desert Shield/Desert Storm, and they did 
that. The design-build construction contractors were not in 
theater at the time we started Al Fatah.
    Senator Levin. All right, but the question here is that why 
was there not enough flexibility to accommodate the site 
conditions as found? Do you know why?
    General Johnson. Sir, I don't.
    Senator Levin. But did you respond to the IG's report on 
this? Did you disagree? Did you file a disagreement with that 
report on that point?
    General Johnson. Sir, I don't know that we did. I don't 
know that we recognized that as an issue for the Gulf Region 
Division and because it was prior to the standup of the Gulf 
Region Division, but I think Southwest Division and the U.S. 
Army Corps Headquarters probably responded to that comment.
    Senator Levin. Did they respond to the comment? What was 
their comment, Mr. Bowen?
    Mr. Bowen. They didn't respond specifically to that issue.
    Senator Levin. Okay. According to this report of yours, the 
Gulf Region Division responded concurring with the report 
without----
    Mr. Bowen. They concurred with the overall report.
    Senator Levin. All right.
    Mr. Bowen. They didn't respond to that specific issue, but 
I've had follow-up discussions with General McCoy out there, 
and he wants to discuss it in more detail when I arrive.
    Senator Levin. Shall I finish this now? My time is up.
    Senator Ensign. Go ahead.
    Senator Levin. It's one subject. The Corps of Engineers 
awarded KBR a firm fixed-price contract with no performance 
requirements on this one. There are no performance requirements 
on this task order, is that correct?
    Mr. Bowen. This was, again, a RIO contract, a task order 
under the prewar overall RIO program.
    Senator Levin. How could there be no performance 
requirements? That's your report.
    Mr. Bowen. Yes, well----
    Senator Levin. How do you issue a task, or what is it, just 
dig holes? Then it says you don't have to--according to your 
report, I'm just quoting your report here.
    Mr. Bowen. Yes.
    Senator Levin. I'm just trying to figure it out here. The 
only performance requirement in the subcontract was to attempt 
to drill holes on a daily basis. There was no requirement that 
the subcontractor complete any holes.
    Mr. Bowen. I think that was presumed in the contract. 
That--what happened at Al Fatah--actually, there was a fairly 
famous video during the war of the destruction of the bridge. 
It was a pipe, a transfer pipe. It's the primary transfer pipe 
in the north to the Baiji refinery of crude, and it actually 
went underneath the bridge. It was not a subsurface pipe, and 
it was taken out during the war. It was decided shortly 
thereafter to try--rather than put it--rebuild it under the 
bridge, to drill underneath the river crossing right there. 
What it turned out was that the consistency of this soil, the 
substrata there, proved impossible to successfully drill the 
horizontal project.
    Senator Levin. With no flexibility to do something 
different as we discovered that?
    Mr. Bowen. Eventually they did. It's now been that the----
    Senator Levin. Not eventually, at the time, we were 
drilling holes which were not accomplishing their purposes.
    Mr. Bowen. Right, yes, they were drilling into sand, and it 
wasn't working. That's correct.
    Senator Levin. We were paying them to do that?
    Mr. Bowen. We were paying that, and that gets back to a 
larger issue that I identified earlier, answering the 
chairman's question, and that is when you pursue a 
reconstruction program based on cost-plus Indefinite Delivery, 
Indefinite Quantity (IDIQ) contracts, you've agreed to bear the 
cost of getting the job done, almost whatever that would be.
    We've had issues in Iraq where subcontractors simply failed 
at some level in the course of carrying out a project and that 
we've had to pay for it and it ultimately pushes the cost of 
the overall contract up.
    Senator Levin. That's not getting the job done. We're 
paying their----
    Mr. Bowen. I'm just helping explain why there have been 
some cost overruns in certain instances, and this is an example 
of one.
    Senator Levin. Cost overruns I understand, but I don't 
understand paying someone when you're not accomplishing a job. 
To me, that's the Corps here, and then I'll--my time's way 
overdue. How do we enter into that kind of a contract where 
you're paying somebody where there's no requirement that you 
even complete the holes which are being dug, no flexibility to 
change the design, paying for something which is not 
accomplishing a purpose? How does the Corps justify that?
    General Johnson. Sir, you're absolutely right. We didn't do 
that. Here's the way I understand Al Fatah, and I wish I had 
the numbers and I was prepared to discuss the details of the 
project. But I remember this project because every project has 
a cost, a scope, and a course of schedule. The scope was to 
repair the pipe so it would be secure because through this pipe 
flowed, literally, thousands or millions of liters of crude, 
and it was like it would cost a dollar, I got the numbers 
wrong, but it would cost you a dollar to repair the pipe, but 
in less than 6 months, you were going to generate enough 
revenue from the flow of this crude so the benefit cost ratio 
was tremendous.
    Now, when you're executing this, of course, you're trying 
to do what the scope of the project set out to do. The 
flexibility would have been in discovering, at some time, and 
it's really--we do the quality assurance. We're concerned about 
connecting the pipe, and if you're drilling and the drill's not 
making the holes that we expect it to make, that's kind of 
engineering. I thought KBR knew what they were doing. They 
didn't have the success we wanted them to have, but I'm telling 
you, we did--we were not paying them to just drill holes, we 
were paying them to repair that pipe so we could get crude 
flowing through it so that we could generate the revenues we 
were expecting from crude to help people in Iraq.
    Senator Levin. That was the purpose? They didn't 
successfully carry out that mission, but we paid them anyway.
    General Johnson. Sir, we didn't have a choice. It was the 
nature of the contract. We've learned from that.
    Senator Levin. Thank you, Mr. Chairman.
    Mr. Bowen. KBR failed and lost the project.
    Senator Ensign. Let me try to put this in a little bit of 
bigger context because the purpose, Senator Levin brought up 
the purpose for this hearing. Yes, it is some of the things 
that he talked about, but it's also--it's a bigger purpose, and 
that is to learn from what was done wrong, to try to help use 
the dollars that we have, not only in our current situation, 
but in future situations, to do it better, and that's why I 
asked the fundamental question at the beginning.
    When we have these, we had a situation set up where KBR was 
there because of previous contracts that were bid, but they 
would be on the ground. Now, they come in, and it's a no-bid 
sole-source type of a situation. It gets to the point we know 
that there are going to be problems in that, in that situation. 
They're inevitable. I don't know that there's any way to not 
have those. Maybe there is. Maybe we need to figure out 
something, but those were the rules of the game going into 
this.
    A question that needs to be answered is how long. In other 
words, with a project like this of an emergency nature so much 
that it should not have been bid out. How much faster should 
have all these projects been bid out?
    The IG's office said that 80 percent of these things are 
now no longer being sole-sourced. Should it be 100 percent, or 
is 80 percent good? That's part of the purpose of these 
hearings that we're trying to get at. Some of the things that 
I've heard, and I've just sat back just listening to some of 
the things about oil contract, the oil, amount of oil produced 
and potable water and power in the country. The fact is that it 
is correct. Some of these contracts were done, done well, got 
power running, got oil up, but we do have this small thing 
called the insurgency going on, and that has hurt our efforts. 
That's the reality. It's a war zone, and we have to reflect. We 
have to adjust in what it's doing in that war zone. So, I don't 
think that an issue needs to be made of, this particular, 
millions of barrels of oil a day is not what it was prewar when 
in fact, we had it higher than prewar levels at one point. If 
it wasn't for the insurgency, it'd be even higher than that 
today and the same thing with power generation and on and on.
    The point of this hearing, because that just gets into 
politics, should be is, how can we do it better? How can we 
help the military, and how can the IG help the military? How 
can we hold accountable those who did things wrong? I think we 
need to figure out if contractors did something wrong, and 
especially if they did something wrong knowingly, instead of 
just waste, they actually got into the fraud-type of aspects, 
how do we prevent them from contracting into the future? At 
what level of abuse do we set? Then I think Congress has to 
look at that.
    That's really the purpose of this hearing is to look at the 
bigger picture for how we improve so we are using those 
dollars, that $18 billion and on and on, how we are using those 
in a better way, being better stewards of the taxpayers' 
dollars.
    So, with that, I just have a couple other questions along 
those lines. What additional mechanisms and authorities are 
needed to oversee contracting in major contingencies like Iraq 
or in the future?
    Mr. Bolton. If I can respond to that, when I was given the 
task of setting up the PMO and the PCO, I went to the Army 
historian, and I asked her to take a look at what we had done 
in Japan post-World War II with MacArthur, and Europe, the 
Marshall Plan, and Korea and even back to the Spanish-American 
War, how did we go about doing this, and what we had done over 
the last almost 2 years now is to grow into that scenario. The 
special IG, when they first visited me, really sparked my 
interest. I've been an IG, so I think I understand some of 
their role. But what really sparked my interest was, to your 
point, Mr. Chairman, the fact that we're actually going to do 
some lessons learned. We're going to pull that information out. 
We're going to put it into a body of work, and we're going to 
learn from this. I've read the first draft, and I think it's 
moving in the right direction.
    I think Senator Akaka also spoke to this. When we look at 
what we're doing here, and all the questions that have been 
asked are absolutely spot-on right questions, the people who 
were involved in the early days, whether it was the Office of 
Reconstruction and Humanitarian Assistance (ORHA) or the CPA, 
the PMO and now the PCO and Iraq Reconstruction Management 
Office (IRMO) and all the other good, dedicated Americans, 
trying to do the very best, looking at a situation and trying 
to figure out what should we do. We are looking with the 
benefit of 20/20 hindsight here.
    But as surely as we're sitting here, there will be another 
group of folks somewhere else in the world faced with the same 
challenge. Now, how do we make it better? First of all, I think 
it's not just DOD nor DOS. We have learned as we've gone on 
here that this is an interagency-type of operation. It involves 
those agencies and Congress to figure out how do we make this 
better for the folks who are going to be sitting there, a lot 
of them volunteers, trying to execute this mission.
    I believe if I take Stuart's report on lessons learned and 
I look at it, it's a good first start, and we're going to offer 
some comments to him. I think what we need to do is take the 
questions that you've all asked this afternoon and sit down and 
really do a red team. Let's suppose that we're facing another 
insurgency. Let's suppose that we're going into a country 
that's not had an infrastructure that amounts to a hoot for 30 
years where the people haven't been trained how to maintain 
this for 30 years, that doesn't have a banking system, that's 
filled with corruption. How are we going to function in that 
country and figure out what tools, what legislations have to be 
changed, what rules and regulations in the department, but most 
importantly, how our people are trained and experienced to work 
in that environment.
    That's what we're pushing on our side and to the point, 
starting about 2 years ago, we took our contingency 
contractors, and we put them into military formations. We call 
them modularity in the Army. They're in the various brigades 
there, and their job is to train to be ready to go into the 
theater and perform their function. That's a first step. We 
have a lot more to do in terms of program managers and other 
folks go along with this and then to benefit from all the 
things that we're talking about today.
    Senator Ensign. Any other comments?
    General Johnson. Sir, I would just add this is sort of like 
a relay race and when you're in a relay race, I can talk about 
that. I've actually done that. One of the key things is when do 
you let go of the baton? For the guy that's grabbing it, when 
do you grab it? I say this is like a relay race because not 
only were we learning how to evolve and transform into this 
within the DOD, but we were trying to do it across departments 
as we transitioned from DOD to DOS. There's some things that we 
know now that we did not know before.
    For example, we did not know that it would be important, 
for when the DOS took over, to be able to hold back some of the 
commitment of these funds so that as you elected the new Iraqi 
Government there would be some incentive there to inspire that 
new Iraqi Government to come along with what it was and we were 
proposing for them to do. We did not know that. We kind of 
thought this wheel would just keep moving in spite of the fact 
that I was the guy on the ground when DOD was in charge with 
PMO and when the DOS was on the ground with PCO.
    I think as you see the development of the doctrine of 
counterinsurgency warfare, as you see the national security 
directive where the DOS takes a lead for reconstruction and all 
things reconstruction, as you see us discuss about planning for 
phase zero, and phase four at the same time, I think you see 
we're beginning to at least talk about what we've learned. Then 
the next test, as the secretary said, will be the next time we 
do this, how will we execute it. I think we're learning, and 
we'll continue to learn.
    Mr. Bowen. The President signed in December NSPD-44 which 
lays out a new framework for executing relief, reconstruction, 
and stabilization operations and places the locus of 
decisionmaking for that within the DOS's new office to manage 
that.
    Secretary Rumsfeld signed a parallel complimentary 
directive in November. So, planning for contingency operations 
is moving to a new level and specifically contracting, 
developing appropriate contracting changes that will enable 
successful operations in the future are underway. Now, it's 
important to think about reconstruction and stabilization. It 
seems to me that we pursued reconstruction before stabilization 
was present. The World Bank has done several studies that show 
that investing in reconstruction before a nation, a society, is 
reasonably stable doesn't provide a good return on that 
invested dollar.
    I think our invested dollar now is returning better than it 
did 2 years ago. Even though we still have a fair way to go 
before we can call Iraq stabilized, even reasonably so. But you 
were asking for a concrete suggestion as well, and when I met 
with General Casey regarding contracting and talked about the 
problems that we've faced through the variety of contracting 
entities over there, and that is one problem, there have been 
so many, U.S. Agency for International Development (USAID), 
DOS, Joint Contracting Office Iraq (JCCI), there hasn't been a 
consolidation of it. So that's one, try to remember to 
consolidate contracting in a contingency operation so you don't 
stovepipe it and lose track of who's building what where.
    But two, and more importantly, how to make it happen 
better. All of them operate under the Federal Acquisition 
Regulations (FAR). That is an effective check on potential 
improper practices in a peacetime environment.
    But in a wartime environment, perhaps there needs to be a 
streamlined FAR. General Casey said that it would help him 
immensely if there could be a contingency operation FAR 
developed that would help contracting officers get the job 
done, still comply with safeguards, required safeguards, but 
not have to be burdened when you're outside Fallujah trying to 
build a school and under fire, you shouldn't have to post on 
Federal Business Operations for 30 days, I mean that sort of 
thing.
    The truth is, I think that makes sense. I think the FAR has 
within it the tools that can make that happen, but they're 
cumbersome to pull out, to create a supplement that identifies 
how to get the job done in a contingency operation. That would 
be a great way for Congress to help contracting officers in 
contingency operations.
    Senator Ensign. Excellent answers, thank you.
    Senator Akaka.
    Senator Akaka. As I noted in my opening statement, the 
SIGIR reported that one of the reasons for contracting problems 
was our failure to adequately staff and equip our acquisition 
organizations.
    In addition to the audit reports that I quoted in my 
opening statement, Mr. Bowen provided us with a draft lessons-
learned document which makes many of the same points about 
chronic understaffing and frequent turnover in the acquisition 
office. That report indicates that these problems were 
identified more than 2 years ago by a DOD contracting 
assessment team. The DOD assessment team found that the 
contracting function was grossly understaffed even before 
Congress appropriated $18 billion for Iraqi reconstruction and 
was completely inadequate to handle the added load.
    Mr. Bowen, if this problem was identified way back in 2003, 
why was it never adequately addressed, and why have we 
continued to provide inadequate staffing and resources to our 
acquisition organizations in Iraq?
    Mr. Bowen. I think that our Human Capital Management report 
points out that CPA was understaffed and particularly in 
contracting. Colonel Tony Bell showed up on the ground in the 
summer of 2003, and there were three people in his office for a 
while. That eventually grew to 40 by 9 months later and is now 
at around 160 in Joint Contracting Command Iraq (JCCI). So, 
understaffing at the beginning was a severe impediment to 
effectively ensuring that safeguards were continually met. 
Understaffing is not as big an issue today as turnover. Part of 
our contracting lessons-learned seminar included not just a 
visit with the government side, but we also had a day-long 
seminar with contractors who are operating in Iraq to try to 
get feedback about how their interactions with the contracting 
were, and their biggest concern was the turnover in contracting 
officers and the lack of institutional knowledge being 
maintained. Each Service has a different length of stay 
assignment in Iraq. Some are 2 months, the Air Force has 2 or 3 
months, the Army a year, Marines 6 months. As a result, you had 
this constant flow-through of contracting officers.
    A lesson-learned from that is to try and identify a core-
contracting contingent that will go and stay and execute until 
the job's done. As a result, we have this continuing experience 
of steep learning curves among contracting officers and I think 
it's better now than it's been since the start, but it was a 
rough start.
    General Johnson. If I could add to that----
    Senator Akaka. Secretary Bolton and General Johnson, at our 
previous hearing on Iraq contracting in May 2004, your 
counterparts, that's Assistant Secretary Tina Ballard and 
General Carl Strock, assured us that acquisition personnel 
would be moved into the theater as needed and would be 
sufficient to provide oversight of all DOD contracting 
activities. My question is, why wasn't this done? Mr. Bolton?
    Mr. Bolton. Two comments, that was early 2004, we just 
stood up the PMO, for which I was responsible, later the PCO, 
and the comments that the IG has just commented on, we started 
to take a look at that. Tony Bell worked for me, Colonel Bell. 
When I sent him over there responding to a request from CPI, I 
asked him please tell me what you need, and we'll go out to 
find that. We then, through my deputy, Ms. Ballard, went out to 
start looking for volunteers to start building this office, and 
it grew from what Tony had to what eventually General Seay had. 
The PCO has been 25 people plus some administrative help from 
seven contractors and one military type, and they essentially 
have done most of the contracting activity.
    Every time I talk to them, which is on a weekly basis, and 
I look at the figures too, we run about 80 to 85 percent, if 
we're lucky, in terms of percent filled, what do you need from 
us, and whatever that is, we try to provide it.
    Second part, we are asking to put people in there who are 
coming from a group of people who are already short across the 
entire Federal Government, not just DOD. In a Federal Times 
article about 3 or 4 months ago, we're short in the Federal 
Government by 1,500-2,000 contracting officers. The folks I 
have, they're great people, but in a couple years, about half 
of them are gone because they're retiring, and so, we're out 
trying to recruit. The simple factor here is that there aren't 
a whole lot of folks that you can draw from to do this 
particular function. They're just short. I'm fortunate to have 
the civilians which we rotate every 6 months. That helps with 
the learning curve because they were there a few months ago, 
they understand, they've been talking to the folks on a weekly 
basis because we put them in the home office back here in 
Washington. That helps with the learning curve, and they're up 
on the issues. They're all volunteers, and they love doing 
this, going back and back.
    My concern is down the road, where do I get all of these 
people? So, the lesson to learn here is to try to figure out 
how you put this all into formation to begin with, which I 
alluded to earlier. We, on the Army side, are doing, by putting 
them into the modular forces. Two, the bigger issue is how do 
you attract, recruit, train, and retain this type of expertise 
when you're short across the entire Federal Government.
    Senator Akaka. General Johnson?
    General Johnson. Sir, I think the secretary said it best. 
We did respond. I stood up the division in January 2004. At the 
time, we're providing people to--trying to stand up our 
division headquarters. We're all over the country of Iraq, 
we're not just in one location. We had one district in Basra, 
one in Baghdad, and one north up in Mosul. We were providing 
some contracting volunteers to PMO. We can do better.
    Additionally, and as I stated before, while our number one 
priority is for the global war on terror, the same U.S. Army 
Corps division of people are drawn to 90 other countries around 
the world. We were doing this before the global war on terror. 
Today, we have a priority of effort down in the New Orleans 
area. We have about 2,700 people deployed down there. The same 
kind of people we need to do contracting officer 
responsibilities and engineering responsibilities in Iraq are 
the same type of people that we need down in New Orleans and 
the Gulf Coast area. So, we have to keep at this each and every 
day, and you've been very helpful as Congress.
    One of the big challenges I had when I first got there was 
a civilian could work a 12-hour day, and for me, that's a half-
day schedule. Still, after about 3 months, they would be over 
their pay cap because we were working extremely long days. We 
were in a combat zone. We were trying to get things going. You 
raised that pay cap to allow us to get more people to come 
overseas and be willing to make the sacrifice and be paid. I 
think there may be a time where we'll have to look at this, and 
there may have to be some special incentives for folks that 
have contracting officer capabilities.
    Senator Akaka. Thank you, Mr. Chairman.
    Senator Ensign. Senator Dayton.
    Senator Dayton. Mr. Chairman, I have to express my strong 
objection to your characterization in your recent remarks of 
these lines of questioning as flowing toward politics. I'm 
deeply offended by that. I was State Auditor in Minnesota, and 
every time I raised something, I was accused of politics. I 
don't want to be an apologist for an administration. I don't 
want to be an unfair critic. I want the facts to speak for 
themselves. When I see the lack of even interest in your 
raising these questions and pursuing them, anytime anybody 
wants to have a colloquy in the Senate floor about the 
influence of politics into questioning the prosecution of this 
war and those who have ignored the problems or apologized for 
them to the detriment of our own Armed Forces because as I've 
said before, and I'll tell you, my motivation isn't politics. 
My motivation is as a citizen this morning.
    I was at Camp Shelby in Mississippi 10 days ago, there were 
2,600 Minnesotans that are being trained to go over to Iraq. I 
looked at those faces, and I thought some of them are probably 
not going to come back. Some of them will probably die over 
there. Some of them will come back without limbs. Those will be 
Republicans, Democrats, Independents, it doesn't matter who 
they are, they're Americans. When things aren't done properly 
over there, sure there's an insurgency, sure there are things 
blown up. But when the electricity ticks up in July of last 
year, according to the reports I have, for the first time since 
prewar, and residents of Baghdad only have 8 hours of day and 
night of electricity under that generation, they're really 
unhappy about that.
    I was in Iraq with the ranking member, the chairman, and 
others on this committee in July 2003. It was 115 degrees every 
day. With no electricity, that means no air conditioning, no 
refrigeration and no running water and sanitation in some 
places. Does that fuel the insurgency? Does that mean, as I've 
read the Washington Post today, that when some group of 
Americans goes out on a convoy 200 yards away from their base 
camp and get blown up and die that these things don't matter? 
They do.
    So, when I hear nothing but apologies for this stuff and 
glossing over, and then I'm accused of playing politics as I 
raise the questions, I find it deeply deeply offensive.
    I would ask you, Mr. Secretary, going back to my line of 
questioning before, and I hope this hearing record will be kept 
open for a week because I have a lot of questions that I can't 
have time to ask here. But let me just ask you this, you said 
you got a contrary report from some audit source in your 
department regarding this RIO 2 contract and following up on 
your questions raised with the DCAA. What is the relationship 
of DCAA to your office, to DOD? Is that a credible auditing 
entity?
    Mr. Bolton. I use them all the time, just as I use the 
other auditing folks.
    Senator Dayton. So, if they--and we're talking now here not 
about the operational side of these contracts, but the 
financial accounting, if they come up with a finding that over 
10 percent of the contract costs were, whether it's Halliburton 
or anybody else, I don't care but 10 percent of them are, what 
are they called, questioned or unsupported, is that within the 
normal tolerance of deviation in terms of defense contracting?
    Mr. Bolton. I think it doesn't matter to me what the 
deviations are. What matters to me is that they raise the 
concern. In that particular case--and the only thing I really 
approved was the option. The contract was set before I came 
aboard. I was asked to take a look at the option. I asked my 
staff, both legal and professional, should we exercise this 
given all the concerns that were there, and the answer was yes. 
I said fine.
    Now, if we don't exercise this, and since you need this and 
it bears upon as you've just said, Senator Dayton, whether or 
not we're going to get our troops out of there in a timely 
fashion, if we complete this right now, how long will it take, 
and what will happen? The answer was one I didn't like. Taking 
all into account, is it legal? Have we done the right things? 
By the way, we have a special group now to go take a look at 
that particular contractor and the issues that you just raised 
on where is the documentation and so forth. They worked through 
all of that, but after I'd signed the piece of paper. I thought 
it was the wise thing to do at the time.
    Now, can I be second-guessed on it? Absolutely. Can I be 
taken to task with it? Absolutely. You should, but I think we 
made the right decision at the time.
    Senator Dayton. Sir, going back again, the DCAA on December 
31, 2004, issues a flash report, I assume, as a function of 
these questioned and unsupported costs in the previous 
Halliburton contracts and then repeats that again just 2 weeks 
later, and then 3 days after that second one is issued, the 
Army Corps of Engineers awards Halliburton a new $1.2 billion 
contract to restore and operate the oil and infrastructure in 
the southern half of Iraq, January 16, 2004. We talk about 
lessons-learned. I don't see many lessons being learned in that 
process, and what I said earlier in my previous round of 
questioning and quoted here why the Corps disregarded the 
auditor warnings and that there's an Army spokesman not 
identified saying we have our own internal audit process, we 
hadn't turned up any serious wrongdoing or major problems, then 
that's quite a variance from what DCAA is planning of over 10 
percent of variance. How do you reconcile those?
    Mr. Bolton. The way I reconcile is to break it up. In the 
first part, I did take that seriously. That's why we set up a 
team to look at all the task orders that were open and to close 
those and find out where we had documentation to pay and where 
we didn't have documentation to pay. As a result, Halliburton, 
or actually KBR, was not paid for portions that we could not 
justify.
    With regard to the second, I think we're referring to the 
next option on the RIO contract, which the Army Corps of 
Engineers took a look at and said it's appropriate to do this. 
To me, those are two separate things, granted on the same 
contract, but actions were taken.
    Senator Dayton. My time is up, but I'll follow up with, if 
I may, some written questions and ask for responses for the 
hearing record. I'm also told that on August 16, 2004, the Army 
declined to withhold 15 percent of Halliburton's payments 
because of these unsupported costs. Again, in February 2005, 
DOD approved a final waiver of the 15-percent withholding 
provision for Halliburton. I'm also told that there was a 
purging or retraction or redaction of all DCAA's audits when 
the RIO contract was submitted to the International Advisory 
and Monitoring Board. I'm not sure whether, and maybe these are 
incorrect, but that's the information that I've been given 
here, and I guess I'll ask for a formal response to those.
    Mr. Bolton. Yes, sir, please.
    The last one I'm not familiar with, Senator Dayton. The one 
on the 15--but we do have a FAR proviso that if we have not 
definitized, that wouldn't hold up to 15 percent. I did ask for 
a waiver. I can't grant that waiver. That's done at the Office 
of the Secretary of Defense, one of his Under Secretaries, sir.
    Here's the problem that was presented to me. We can stop 
that 15 percent. Given the cash flow problem with that 
particular company, that burden would fall upon the subs. We're 
talking about subs who are providing food and water to the 
soldiers who are in action. The subs couldn't bear that 
responsibility. They financially couldn't do it, so they were 
going to stop. You can only imagine what the headlines would 
read if I withheld that money from that prime contractor, and 
the subs could not provide water, food, and sanitation for our 
fighting troops over there. So, I asked for a waiver from the 
Office of the Secretary of Defense and then promised him that I 
would definitize that within a certain amount of time, which I 
did.
    Senator Dayton. My time has expired. Thank you. Thank you, 
Mr. Chairman.
    Senator Ensign. Thank you.
    Senator Levin.
    Senator Levin. Mr. Secretary, on that issue when you say 
you definitize it, does that mean that some part of the 
questioned amounts were recovered?
    Mr. Bolton. Yes, sir, what that means when we definitize on 
most of these, not most, but some of these contracts where we 
have task orders, we do a competitive. We select a contractor, 
and we tell him we're not sure what environment you're going to 
work, but when you get there, we'll have a pretty good idea, 
and then we'll ask for your rough estimate. Then as you do the 
work, we will go ahead and definitize what did you really do, 
what do we really want, and how much should it really cost us 
and so forth. So, that's what we did. We took that task order, 
the big one----
    Senator Levin. Gotcha.
    Mr. Bolton. --that does all the dining halls and----
    Senator Levin. Gotcha.
    Mr. Bolton. --water and so forth.
    Senator Levin. My question is somewhat different. I am not 
talking then about the definitized function, I am talking about 
where the DCAA questioned the claim of the contractor, KBR. 
Apparently, about $1 billion out of the $10 billion, roughly, 
was questioned by the DCAA. Of that $1 billion, how much of 
that was recovered by the Army?
    Mr. Bolton. I don't have exact figures. I'll take that for 
the record. My recollection is that we were able to definitize 
most of it, so we're talking a few hundred million dollars, we 
could not verify, and therefore, we didn't pay them.
    Senator Levin. So that perhaps it would be a couple hundred 
million dollars of the billion that was questioned by the DCAA, 
which ultimately, we refused to pay to the contractor.
    Mr. Bolton. Yes, sir. I'll get you the exact numbers
    [The information referred to follows:]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    4. Senator Ensign. Mr. Bowen, what is KBR's current role in that 
project?
    Mr. Bowen. The U.S. Army Corps on Engineers would be able to 
provide accurate information on the current status. However the 
justification for the original contract stated that the requirement was 
restricted to a sole-source due to the necessity that a contract be 
immediately available upon direction to implement the Contingency 
Support Plan (CSP), in case armed conflict with Iraq occurred before a 
competition could be conducted. The execution of the CSP would see to 
the repair and continuity of operations of the Iraqi oil 
infrastructure. USACE emphasized that complete familiarity with the CSP 
and access to proprietary essential elements was necessary to maintain 
and implement the CSP. In addition, because the CSP was and remains 
classified, any other contractor would require substantial time to 
assure appropriate facilities and personnel clearances to enable their 
review of the CSP. On the other hand, KBR already had a cadre of 
individuals cleared for the plans classified aspects. As such, KBR, the 
developers of the CSP under a previously competitively awarded 
contract, became the only contractor to satisfy the requirement for the 
immediate execution of the CSP. As required by U.S.C., title 41, 
section 253, the Assistant Secretary of the Army (Acquisition, 
Logistics, and Technology) approved the award of the sole-source 
contract on February 28, 2003.
    The Justification and Approval document for contract DACA63-03-D-
0005 contained a signed statement from the contracting officer that the 
contract was a cost-plus-award fee, IDIQ contract and that cost would 
be continuously monitored to ensure that they were fair and reasonable 
and properly allocated. According to the Administrative Contracting 
Officer (ACO), fair and reasonable cost determinations would be made 
upon definitization of each task order.
    Ten task orders were issued under IDIQ contract DACA63-03-D-0005. 
Initially, the task orders were funded with U.S. Army Operations and 
Maintenance funds. However, beginning September 2003, the Program 
Review Board (PRB) voted to fund some of the task orders with DFI 
funds. Task Orders 0001 through 0004 and part of Task Order 0005 were 
funded using U.S. Army Operations and Maintenance funds. Task Order 
0005 was also funded with Iraqi seized and vested funds, as well as DFI 
funds. Task Orders 0006 through 0010 were funded with DFI funds. From 
September 2003 to March 2004 the PRB voted to provide, on a 
reimbursable basis, nearly $1.4 billion of DFI funds for the 
procurement and distribution of fuel products and Iraqi oil 
infrastructure restoration.
    The statements of work for Task Orders 0005, and 0007 through 0010, 
provide support for Iraq oil restoration and for fuel distribution. 
Specifically, the effort required under these task orders was to repair 
fuel products distribution systems, procure, import, and distribute 
refined products (liquid products) and gas products (mixtures of 
propane and butanes referred to as LPG) in order to meet the domestic 
demand for fuels for commercial and private use within Iraq. In 
addition, the contractor was to monitor fuel demand and availability as 
necessary to prevent localized or large-scale fuel shortfalls.
    The statement of work for Task Order 0006 provides for restoration 
of essential oil infrastructure. Specifically, the effort required was 
intended to support actions necessary to: restore the pipeline crossing 
the Tigris River; install 50 kilometers of pipeline from Kirkuk to the 
Tigris River; and install emergency back-up generation capability at 
various locations.
    Mr. Bolton. (Mr. Bolton is answering per agreement with the Office 
of the SIGIR.)
    KBR currently has no role in the well work-over project that was 
transferred to PITV as Task Order 22 under their northern oil sector 
contract number W9126G-04-0002.
                                 ______
                                 
               Questions Submitted by Senator Carl Levin
                                  kbr
    5. Senator Levin. Secretary Bolton and General Johnson, Marie 
deYoung, a former Army captain who worked for KBR in Kuwait, told the 
Senate Democratic Policy Committee (DPC) on September 10, 2004 that KBR 
paid $1.1 million a month for fuel trucks obtained through a company 
called La Nouvelle, when it could have obtained the same trucks 
directly from the vendor (without the middleman) for $200,000 a month. 
Ms. deYoung also told the DPC that KBR received two equally acceptable 
bids to build an ice factory--and chose the company that bid $3.4 
million instead of the company that bid $450,000. Have you looked into 
these allegations? If so, what is the Army's response?
    Mr. Bolton and General Johnson. The situation concerning fuel 
trucks that Ms. deYoung describes was, in fact, discovered during a 
routine records check and reported by KBR, and has been investigated by 
the Army Criminal Investigation Command.
    In February 2003, a KBR employee (Mr. Mazon) was given the job of 
soliciting bids from potential subcontractors to supply fuel tanker 
trucks at a U.S. military airport in Kuwait for a 6-month period (March 
through August 2003.) Mr. Mazon received at least two bids--one from an 
unnamed company for approximately $1.9 million and another from a 
company called La Nouvelle for nearly $1.7 million.
    In March 2005, Mr. Mazon was indicted by an Illinois grand jury for 
fraudulently inflating both bids before the contract was awarded, more 
than tripling them to $6.2 million for the unnamed company and $5.5 
million for La Nouvelle. La Nouvelle then won the contract on the basis 
that it had submitted the lower bid. The indictment also accused Mr. 
Mazon of receiving a $1 million payment from La Nouvelle executed as a 
false promissor note to make the payment appear to be a loan.
    On March 16, 2005, Mr. Mazon was arrested in Georgia and charged 
with four counts of major fraud and six counts of wire fraud. He waived 
his right to appear before an Atlanta court the next day and was sent 
to Rock Island, Illinois, (where the United States Army Field Support 
Command is based) to be tried in Federal court. A pretrial conference 
is set for September 2006. The trial is to take place in October 2006.
    KBR voluntarily withheld billing until they completed an internal 
review. DCAA also reviewed all LaNouvelle related billings.
    The allegations concerning selection of a subcontractor for the ice 
plants are under review. We have requested additional information and 
an update will be provided when the information becomes available.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    21. Senator Levin. Secretary Bolton and General Johnson, did Ms. 
Greenhouse in fact play a leading role in the creation and negotiation 
of the DBA insurance pilot program at the Army Corps of Engineers?
    Mr. Bolton and General Johnson. Ms. Greenhouse was the program 
manager and key advocate for DBA pilot program. The pilot program was 
tasked to the USACE by the Office of the Under Secretary of Defense for 
Acquisition, Technology, and Logistics. The pilot program is modeled on 
the DBA contract already in place at the DOS. The USACE HECSA 
Contracting Office was the office within USACE that was tasked with 
soliciting and awarding the actual contract.
    Ms. Greenhouse played a lead role in conducting an industry forum 
on the pilot program. She provided industry with information about the 
pilot program and responded to industry questions. She also prepared 
draft answers to questions raised by industry that were reviewed by 
HECSA contracting professionals and legal staff. In addition, Ms. 
Greenhouse provided the HECSA Contracting Office with a draft statement 
of work and draft evaluation criteria for the contract action which 
were also reviewed and revised by the HECSA contracting and legal 
staff. However, the draft solicitation consisted of the solicitation 
developed and utilized by the DOS in awarding their DBA contract with 
the HECSA Contracting Office modifying the DOS solicitation as required 
to support the pilot program. Ms. Greenhouse reviewed and commented on 
these revisions. The contracting action itself, however, was handled by 
the professionals at HECSA who issued the solicitation, developed the 
source-selection plan, and awarded the contract. While Ms. Greenhouse's 
efforts certainly contributed to the successful award of the pilot 
contract, the HECSA staff, which continues to administer the DBA 
contract today, played a significant role in this mission.
                                 ______
                                 
             Questions Submitted by Senator Daniel K. Akaka
                          iraq reconstruction
    22. Senator Akaka. Mr. Bowen, we have been working on Iraqi 
reconstruction for roughly 3 years now. Yet, in that short period of 
time, we appear to have assigned responsibility for that effort to at 
least a dozen different defense agencies and components. For example, 
in 2003, acquisition functions for Iraqi reconstruction were performed 
by the Office of Reconstruction and Humanitarian Assistance, the Task 
Force Restoration of Iraqi Oil, the Army Corps of Engineers-Commander 
Southwestern Division, the Defense Contracting Command-Washington, the 
CPA Project Management Office, the Office of the Under Secretary of 
Defense for Acquisition, Technology, and Logistics, and the Tank and 
Automotive Command. In 2004, acquisition functions were performed by 
the Army Corps of Engineers-Gulf Regional Division, the Air Force 
Center for Environmental Excellence, the Project Contracting Office, 
the Iraq Reconstruction Management Office, and the Joint Contracting 
Command-Iraq. This list doesn't even include the many non-defense 
agencies and components that have participated in the effort. In your 
view, what impact have these constant changes in our acquisition 
structures for Iraq reconstruction had on our ability to conduct the 
mission?
    Mr. Bowen. SIGIR audits and quarterly reports have commented on the 
negative results of the lack of coordination and control of the various 
organizations. It is challenging to maintain effective or efficient 
continuity of operations as roles and responsibilities change between 
offices and personnel.
    In addition, SIGIR's audit on Challenges Faced in Carrying Out Iraq 
Relief and Reconstruction, SIGIR 05-029, identifies some of the impact. 
We also just announced a review on identifying the roles and 
responsibilities of those responsible for IRRF. Further, SIGIR's 
Lessons Learned Initiative will review many of the issues brought about 
by the changing roles and authorities in the reconstruction effort in 
Iraq. The recently released Lessons Learned Report on Human Capital 
Management (previously provided to the committee) touches on this 
issue.

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

    24. Senator Akaka. Secretary Bolton, would you agree that we would 
have been much better off with a single, coherent organization to 
manage the acquisition process?
    Mr. Bolton. Yes. The size, extent, and complexity of the 
contracting support effort we are experiencing in our stabilization and 
reconstruction operations in Iraq are unprecedented. We have been 
learning valuable lessons for improving our current contracting and 
acquisition support structure, as well as how to better plan for 
similar operations in the future. One of these valuable lessons is the 
necessity to design our Service and Other Government Agency contracting 
organizations and operations to facilitate rapid conditions-based 
integration during stabilization and reconstruction operations. This 
will more readily enable a transition from the service-based 
contracting organizations that are necessary during early stages of 
combat operations to a single, joint contracting organization with the 
transition to stabilization and reconstruction operations, as we did 
when the combatant command established the Joint Contracting Command--
Iraq/Afghanistan.
                                 ______
                                 
               Questions Submitted by Senator Mark Dayton
                          bunnatine greenhouse
    25. Senator Dayton. Secretary Bolton and General Johnson, after you 
received the March 2, 2004, letter from Ms. Greenhouse, did you 
authorize Ms. Greenhouse's removal as the USACE Principal Assistant 
Responsible for Contracting (PARC)?
    Mr. Bolton and and General Johnson. Ms. Greenhouse was removed from 
her position in the Senior Executive Service as the PARC at the USACE 
effective August 27, 2005, and placed in a GS-15 position. Her removal 
was required by title 5, Code of Federal Regulations, section 359.501, 
because she had received two final performance ratings of less than 
fully successful during a 3-year period. The two performance ratings 
were for the rating periods ending September 30, 2002, and December 31, 
2003. As required by Army regulations, both of these ratings were 
reviewed by me and by the Assistant Secretary for Manpower and Reserve 
Affairs.
    Ms. Greenhouse was initially notified that she would be removed 
from her position effective November 3, 2004. However, Acting Secretary 
of the Army Brownlee suspended the removal action after receiving a 
letter from Ms. Greenhouse's attorney containing allegations of 
contracting irregularities in the USACE and contending that she was 
facing removal because of her attempts to ensure that fair and open 
competition exists in government contracting. On July 14, 2005, the 
Secretary of the Army decided, after review, to allow the removal 
action to proceed based on his conclusion that the removal action was 
based on Ms. Greenhouse's performance and not because of any 
allegations of contracting irregularities she may have made.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR 
                                  2007

                              ----------                              


                        THURSDAY, MARCH 2, 2006

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

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

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

       OPENING STATEMENT OF SENATOR JOHN ENSIGN, CHAIRMAN

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

               Prepared Statement by Senator John Ensign

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

              STATEMENT OF SENATOR DANIEL K. AKAKA

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

             Prepared Statement by Senator Daniel K. Akaka

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

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

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

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

               Prepared Statement by Hon. Philip W. Grone

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

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

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

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

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

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

                         housing revitalization
    At the outset of this administration, the President and Secretary 
Rumsfeld identified elimination of inadequate family housing and 
revitalizing housing, largely through privatization, as a central 
priority for the Department. An aggressive target of 2007 was 
established to meet that goal. The administration has relied on three 
pillars to improve housing thereby, enhancing the quality of life for 
our servicemembers: (1) Provide the basic allowance for housing (BAH) 
at zero-out-of-pocket expense for the average servicemember living in 
private sector housing (achieved in 2005, now maintaining); (2) 
Privatization of family housing, where feasible; and, (3) Military 
Construction funding for all other domestic and all overseas locations. 
Sustaining the quality of life for our military families is vital to 
recruitment, retention, readiness, and morale.
    Through the expanded use of the privatization authorities granted 
under the Fiscal Year 1996 Military Housing Privatization Initiative, 
the Department has achieved the elimination of inadequate housing at 
U.S. based installations where those authorities apply. The fiscal year 
2007 budget funds elimination of all inadequate domestic family housing 
by 2007, and eliminates remaining inadequate houses overseas by 2009.
    The Department relies on a ``community first'' (private sector) 
policy to provide quality housing to its members and their families. 
Only when the private market demonstrates that it cannot supply 
sufficient levels of quality, affordable housing does the Department 
provide housing to our military families; first through the use of 
privatization, and where that is not feasible through government-owned 
and leased housing. For example, in the absence of privatization 
authorities overseas, we address our housing needs there through 
military construction and leasing.
    To ensure the Department is making the best investment decisions 
when determining the appropriate level of housing, the government 
provides a single and consistent methodology for calculating its 
housing requirement. This methodology was introduced in January 2003 
and is being utilized extensively by the Services. Currently, 75 
percent of military families living in the continental United States, 
Alaska, and Hawaii receive Basic Allowance for Housing (BAH) (with 60 
percent living in the local community, and 15 percent in privatized 
housing). An additional 22 percent of our military families are 
provided government-owned housing and 3 percent live in leased housing.
    The Department has skillfully used privatization to more quickly 
eliminate inadequate housing and to provide additional housing where 
shortfalls existed. As of January 2006, the Department has awarded 56 
privatization projects. This includes over 118,000 military family 
housing units, which is a 30-percent increase since January 2005. DOD 
policy requires that privatization yield at least three times the 
amount of housing as traditional military construction for the same 
amount of appropriated dollars. The 56 awarded projects have permitted 
the Department, in partnership with the private sector, to provide 
housing for about $1 billion in military construction investment. The 
same level of construction activity would otherwise have required over 
$14 billion if the traditional military construction approach was 
utilized. This reflects an average ratio of over 14 to 1, well 
exceeding program expectations.
    Additionally, the private sector's cumulative contribution to the 
56 awarded deals totals over 90 percent of the $15 Billion in total 
project costs. Prudent business practice requires the private sector to 
be committed to each project with a significant financial investment in 
the project's ultimate success. The Services have funded the remaining 
$1 billion in development costs primarily through equity investment or 
government direct loans. (The Total Project Funding graph (Enclosure 1) 
depicts the cumulative total contribution of the private sector and 
government.)
      
    
    
      
    The Department's privatization plans in the fiscal year 2007 budget 
will ultimately result in the privatization of 87 percent of its 
domestic family housing inventory, or roughly 186,000 units privatized 
by the end of fiscal year 2007. By the end of fiscal year 2006, we will 
have privatized 153,000 housing units. The overall goal is to privatize 
89 percent of the domestic housing inventory or about 195,000 housing 
units by the end of fiscal year 2010.
    For fiscal year 2007, the Department requests $4.081 billion in new 
budget authority for family housing construction and operations and 
maintenance:

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

    Funding to support the privatization of family housing is 
programmed and budgeted in the family housing construction 
appropriations and is transferred to the DOD Family Housing Improvement 
Fund (FHIF) when the privatization projects are executed. The fiscal 
year 2007 construction account requests a total of $154 million in 
funding for privatization. This amount, anticipated to be transferred 
to the FHIF during fiscal year 2007 along with $261 million in 
previously appropriated construction funds. This $415 million will be 
used to finance the privatization of approximately 32,377 units.
                          competitive sourcing
    The Department of Defense continues to strongly support the 
President's Management Agenda Initiative for Competitive Sourcing. 
Introducing private sector competition into commercial functions 
performed by the Department improves business efficiency and reduces 
cost to the taxpayer. Public/private competitions using the procedures 
of OMB Circular A-76 have demonstrated substantial savings whether the 
in-house or private sector wins the competition. During the fiscal 
years 2000 through 2005, the Department completed 848 such competitions 
encompassing about 87,018 positions. These competitions will have 
resulted in over $10 billion in savings (cost avoidance) over the life 
of the resulting performance periods, normally about 5 years. The 
Department currently has an additional 2,800 positions undergoing 
competition and expects to increase competitions in fiscal year 2006.
    These new competitions use the procedures of the revised OMB 
Circular A-76, which evaluates public and private proposals 
concurrently using the Federal Acquisition Regulations. As the 
Department's designated Competitive Sourcing Official (CSO), my office 
is working to improve the competition process. For example, 
competitions that used to take up to 48 months to complete should now 
be completed in as little as 12 months. Such improvements will reduce 
stress on our workforce and will make savings available earlier to 
reinvest in priorities for our war fighters.
             utilities privatization and energy management
    The Department seeks to reduce its energy consumption and 
associated costs, while improving utility system reliability and 
safety. To that end, DOD developed a comprehensive energy strategy and 
issued updated policy guidance incorporating the new provisions and 
goals of the Energy Policy Act of 2005. This strategy will continue to 
optimize utility management by conserving energy and water usage, 
improve energy flexibility by taking advantage of restructured energy 
commodity markets when opportunities present themselves, and modernize 
our infrastructure by privatizing deteriorated and outdated utilities 
infrastructure where economically feasible.
    DOD, as the largest single energy consumer in the Nation, consumed 
over $2.97 billion of facility energy in fiscal year 2005. Conserving 
energy and investing in energy reduction measures makes good business 
sense and frees up resources for higher DOD priorities, such as 
readiness and modernization. Our program includes investments in cost-
effective renewable energy sources or energy efficient construction 
designs, and aggregating bargaining power among regions and the 
Services to achieve more effective buying power.
    The Department's efforts to conserve energy are paying off. In 
fiscal year 2005, military installations reduced consumption by 3.3 
percent despite a 6-percent increase in the cost of energy commodities 
from fiscal year 2004. With a 28.3-percent reduction in standard 
building energy consumption in fiscal year 2005 from a 1985 baseline, 
the Department fell just short of the 2005 and 2010 facility energy 
reduction goals stipulated by E.O. 13123 (see Energy Progress Chart, 
Enclosure 2). This is mostly attributable to the lapse of Energy 
Savings Performance Contract (ESPC) authority in fiscal year 2004. 
Energy conservation projects accomplished through ESPC contracts 
typically account for more than half of all facility energy savings. 
However, with ESPC authority reauthorized in the fiscal year 2005 
National Defense Authorization Act and extended for an additional 10 
years in the Energy Policy Act of 2005, DOD has launched an aggressive 
awareness campaign and is well on its way to meeting the new goals 
established in the Energy Policy Act of 2005. DOD reduced energy 
consumption in energy intensive and industrial facilities by 21.6 
percent from the 1990 baseline, exceeding the 20-percent goal of E.O. 
13123 (See Energy Progress Chart, Enclosure 3).
      
    
    
    
    
      
    DOD has significantly increased its focus on purchasing renewable 
energy and developing resources on military installations. The 
Department has increased the use of Energy Conservation Investment 
Program (ECIP) funds for renewable energy projects from $5 million and 
$11 million in fiscal year 2003 and fiscal year 2004, respectively, to 
$13 million in fiscal year 2005, $17 million in fiscal year 2006, and 
$17 million in fiscal year 2007. The fiscal year 2007 program for ECIP 
also contains $2.6 million in hydrogen fuel cell projects. The 
Department easily exceeded the E.O. 13123 renewable energy goal of 2.5 
percent in fiscal year 2005. The Department's total renewable energy 
purchases and generation accounted for 8.3 percent of all electricity 
use. Also, while E.O. 13123 did not articulate a specific water 
reduction goal, the Department has saved an impressive 28.3 percent 
since the fiscal year 2000 baseline year.
    To improve utility systems, the Department has reaffirmed its 
preference to modernize military utility systems through privatization. 
The DOD Utilities Privatization Program has made solid progress over 
the past 2 years. The Services have greatly simplified and standardized 
the solicitation process for obtaining industry proposals. Of 2,601 
utility systems serving the DOD, the Department has privatized 512 
systems. When taken together with the 736 systems that were already 
owned by other entities, that reflects a significant portion of systems 
serving the Department that benefit from private sector ownership. Over 
475 additional systems are currently under evaluation as each Service 
and the Defense Logistic Agency continue aggressive efforts to reach 
privatization decisions on all systems.
                        environmental management
    The Defense Department continues to lead in every aspect of 
environmental management. The Department is proud of and committed to 
its environmental program in support of the global basing mission. 
Developing natural infrastructure capacity tools and models for 
installation planning and sustainment is a priority.
Environmental Management Systems
    DOD is implementing environmental management systems (EMS) as 
required by Executive Order 13148 at all appropriate facilities, except 
for six installations affected by hurricane Katrina. This 
transformation embeds environmental management as a systematic process, 
fully integrated with mission planning and sustainment and is essential 
for continued successful operations at home and abroad. Implementing 
EMS will help preserve range and operational capabilities by creating a 
long-term, comprehensive program to sustain capability while 
maintaining healthy ecosystems.

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

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

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

    Senator Ensign. Secretary Eastin.

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

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

               Prepared Statement by Hon. Keith E. Eastin

                              introduction

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

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

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

         Reducing cost and generate savings which can be 
        reinvested
         Optimizing military value
         Advancing the Army Modular Force Initiative
         Accommodating the rebasing of overseas units
         Enabling the transformation of both the Active and 
        Reserve components as well as rebalancing the forces
         Contributing to joint operations
Integrated Global Presence and Basing Strategy (IGPBS)
    IGPBS will relocate over 50,000 soldiers and their families from 
Europe and Korea to the United States over the next 5 to 6 years. These 
moves are critical to ensure Army forces are properly positioned 
worldwide to respond in support of our National Military Strategy. The 
majority of the moves/restationing actions are incorporated within the 
BRAC budget, but IGPBS also includes intratheater moves. These include 
moves within Korea relocating units from north of Seoul to Camp 
Humphreys; within Germany from numerous installations to our major hub 
at Grafenwoehr/Vilseck, and moves from Germany to Italy to support the 
standup of a full Airborne Brigade Combat Team in Vicenza.
Army Modular Force
    The fiscal year 2007 budget includes projects to ensure that our 
facilities continue to meet the demands of force structure, weapons 
systems, and doctrinal requirements. As of fiscal year 2006, we have 
funded 93 percent of the military construction requirements for the 
Stryker Brigade Combat Teams, including National Guard requirements in 
Pennsylvania. Remaining construction funding for both the active Army 
and Army National Guard will be requested in future budget requests.
    The Army Modular Force (AMF) initiative transforms the Army from 
units based on the division organization into a more powerful, 
adaptable force built on self-sufficient, brigade-based units that are 
rapidly deployable. These units, known as Brigade Combat Teams (BCTs), 
consist of 3,500 to 4,000 soldiers. BCTs increase the Army's combat 
power while meeting the demands of global requirements without the 
overhead and support previously provided by higher commands.
    New facility requirements for transforming units are being 
provided, where feasible, through the use of existing assets. Where 
existing assets are not available, the Army is programming high-
priority projects to support soldiers where they live and work. The 
Army is requesting $242 million in fiscal year 2007, to support BCTs. 
The remaining AMF requirements will be addressed in future budgets.
BRAC 2005 Implementation Strategy
    The Army will execute BRAC 2005 by implementing interrelated events 
starting with realignment of the operational forces of the active Army, 
both inside and outside the United States, at installations DOD-wide, 
capable of training modular formations at home station. The Army will 
create Joint and Army Training Centers of Excellence to enhance 
coordination, doctrine development, training effectiveness, and improve 
operational and functional efficiencies.
    The Army will transform the Reserve components by realigning and 
closing facilities to reshape the command and control functions and 
force structure and to create Joint or multi-functional installations. 
The Army will close 387 Army Reserve and National Guard facilities and 
build 125 new multi-component Armed Forces Reserve Centers distributed 
throughout the United States and Puerto Rico. The new Armed Forces 
Reserve Centers will improve the readiness and ability of Reserve and 
National Guard units to train, alert, and deploy in support of current 
and future contingency operations, including homeland defense. In 
addition, the Army will disestablish 10 Army Reserve Regional Readiness 
Commands and establish 4 Regional Readiness Sustainment Commands and 6 
new deployable warfighting units.
    In the United States, the Army will consolidate four Installation 
Management Agency regions into two and also consolidate the 
Installation Management Agency, Army Community and Family Support 
Center, and the Army Environmental Center in San Antonio, Texas.
    The Army will partner with DOD to consolidate DOD Research, 
Development, Test, and Evaluation organizations to enhance support of 
DOD transformation and Joint Operations and realign or close 
installations to co-locate headquarters with subordinate commands or to 
station organizations with their service counterparts to provide 
responsive, quality, and cost-effective medical and dental care. 
Finally, the Army will transform materiel and logistics operations by 
realigning or closing installations to integrate critical munitions 
production and storage, manufacturing, depot-level maintenance, and 
materiel management to enhance joint productivity and efficiency and to 
reduce cost.
BRAC 2005 Budget
    The Army will apply all the necessary resources to accomplish the 
BRAC 2005 mission. In fiscal year 2006, the Army will execute over $865 
million to initiate both BRAC and IGPBS, and begin required National 
Environmental Policy Act actions for all BRAC 2005 requirements. The 
Army will begin planning and design for projects in fiscal years 2006, 
2007, and 2008, and begin construction of 10 projects in fiscal year 
2006. The Army will execute $3,608 million to continue actions for BRAC 
2005 requirements in fiscal year 2007.
Prior BRAC
    In 1988, Congress established the Defense Base Realignment and 
Closure Commission to ensure a timely, independent, and fair process 
for closing and realigning military installations. Since then, DOD has 
successfully executed four rounds of base closures to reduce 
infrastructure and align the military's infrastructure to the current 
security environment and force structure. Through this effort, the Army 
estimates approximately $10.7 billion in savings through 2006--more 
than $900 million annually from previous BRAC rounds.
    The Army is requesting $51.3 million in fiscal year 2007 for prior 
BRAC rounds ($6.2 million to fund caretaking operations of remaining 
properties and $45.1 million for environmental restoration). In fiscal 
year 2007, the Army will complete environmental restoration efforts at 
two installations, leaving eight remaining BRAC installations requiring 
environmental restoration.
    To date, the Army has spent $2.5 billion on BRAC environmental 
restoration. We have disposed of 229,129 acres (89 percent of the total 
acreage disposal requirement of 258,607 acres), with 29,478 acres 
remaining to dispose of at 15 installations.
                             the way ahead
    To improve the Army's facilities posture, we have undertaken 
specific initiatives or budget strategies to focus our resources on the 
most important areas--Range and Training Lands, Barracks, Family 
Housing, and Workplaces.
    Range and Training Lands. Ranges and training lands enable our Army 
to train and develop its full capabilities to ensure our soldiers are 
fully prepared for the challenges they will face. Our Army Range and 
Training Land Strategy supports Army transformation, and the Army's 
Sustainable Range Program. The Strategy identifies priorities for 
installations requiring resources to modernize ranges, mitigate 
encroachment, and acquire training land.
    Barracks. Providing safe, quality housing is a crucial commitment 
the Army has made to its soldiers. We owe single soldiers the same 
quality housing that is provided to married soldiers. Modern barracks 
are shown to significantly increase morale, which positively impacts 
readiness and quality of life. The importance of providing quality 
housing for single soldiers is paramount to success on the battlefield. 
The Army is in the 14th year of its campaign to modernize barracks to 
provide 136,000 single enlisted permanent party soldiers with quality 
living environments. The new complexes meet DOD ``1+1'' or equivalent 
standard by providing two-soldier suites, increased personal privacy, 
larger rooms with walk-in closets, new furnishings, adequate parking, 
landscaping, and unit administrative offices separated from the 
barracks.
    Family Housing. This year's budget continues our significant 
investment in our soldiers and their families by supporting our goal to 
have contracts and funding in place to eliminate inadequate housing at 
enduring installations by fiscal year 2007 in the U.S. and by fiscal 
year 2008 overseas. For families living off-post, the budget for 
military personnel maintains the basic allowance for housing that 
eliminates out-of-pocket expenses.
    Workplaces. Building on the successes of our family housing and 
barracks programs, we are moving to improve the overall condition of 
Army infrastructure by focusing on revitalization of our workplaces. 
Projects in this year's budget will address requirements for 
operational, administration, instructional, and maintenance facilities. 
These projects support and improve our installations and facilities to 
ensure the Army is deployable, trained, and ready to respond to meet 
its national security mission.
Leveraging Resources
    Complementary to these budget strategies, the Army also seeks to 
leverage scarce resources and reduce our requirements for facilities 
and real property assets. Privatization initiatives such as the 
Residential Communities Initiative (RCI), Utilities Privatization, and 
build-to-lease family housing in Europe and Korea represent high-payoff 
programs which have substantially reduced our dependence on investment 
funding. We also benefit from agreements with Japan, Korea, and Germany 
where the Army receives host nation funded construction.
    In addition, Congress has provided valuable authorities to utilize 
the value of our non-excess inventory under the Enhanced Use Leasing 
program and to exchange facilities in high-cost areas for new 
facilities in other locations under the Real Property Exchange program. 
In both cases, we can capitalize on the value of our existing assets to 
reduce unfinanced facilities requirements.
    The Army is transforming military construction by placing greater 
emphasis on installation master planning and standardization of 
facilities as well as planning, programming, designing, acquisition, 
and construction processes. Looking toward the immediate future, we are 
aggressively reviewing our construction standards and processes to 
align with industry innovations and best practices. In doing so, we 
expect to deliver quality facilities at lower costs while meeting our 
requirements more expeditiously. By encouraging the use of manufactured 
building solutions and other cost-effective, efficient processes, the 
Army will encourage non-traditional builders to compete. Small business 
opportunities and set-aside programs will be addressed, as well as 
incentives for good performance. Work of a repetitive nature coupled 
with a continuous building program will provide the building blocks for 
gaining efficiencies in time and cost.
                         military construction
    The Army's fiscal year 2007 budget request includes $7.63 billion 
for Military Construction appropriations and associated new 
authorizations, Army Family Housing, and Base Realignment and Closure.
      
    
    
                   military construction, army (mca)
    The Active Army Fiscal Year 2007 Military Construction budget 
request is $1,982,432,000 for authorization and $2,059,762,000 for 
authorization of appropriations and appropriation. These projects will 
provide the infrastructure necessary to ensure continued soldier 
readiness and family well-being.
    Soldiers as our Centerpiece Projects. The well-being of our 
soldiers, civilians, and families is inextricably linked to the Army's 
readiness. We are requesting $934 million or 46 percent of our MCA 
budget for projects to improve well-being in significant ways.
    The Army continues to modernize and construct barracks to provide 
enlisted single soldiers with quality living environments. This year's 
budget request includes 24 barracks projects to provide improved 
housing for 5,450 soldiers and new barracks in support of major 
stationing moves. With the approval of $840 million for new barracks in 
this budget, 89 percent of our requirement will be funded at the 
``1+1'' or equivalent standard.
    We are requesting the second increment of funding, $135 million, 
for four previously approved, incrementally funded, multiple-phased 
barracks complexes. In addition, we are requesting full authorization 
of $408 million for an incrementally funded brigade complex, but only 
requesting $102 million in appropriations for this project in fiscal 
year 2007. Our plan is to award this complex subject to subsequent 
appropriations, as single contracts to gain cost efficiencies, expedite 
construction, and provide uniformity in like facility types. The fiscal 
year 2007 budget also includes a $26 million physical fitness center, 
which incorporates a child development center, and eight additional 
child development centers for $68 million. This will provide more than 
1,800 child spaces to allow soldiers to focus on their missions, 
knowing their families are being provided for.
    Overseas Construction. Included in this budget request is $526 
million in support of high-priority overseas projects. In Germany, we 
continue our consolidation of units to Grafenwoehr as part of our 
Efficient Basing--Grafenwoehr initiative. This is our fifth and next to 
last year of funding. Funding requested this year will bring us to 89 
percent funded for this initiative. This initiative allows us to close 
numerous installations as forces relocate to the U.S. and within Europe 
saving base support and enhancing training. In Korea, we are again 
requesting funds to further our relocation of forces on the peninsula. 
This action is consistent with the Land Partnership Plan agreements 
entered into by the U.S. and Republic of Korea Ministry of Defense. Our 
request for funds in Italy is IGPBS related and relocates forces from 
Germany to Vicenza to create a full Airborne BCT as part of the Army's 
transformation to a modular force. The Airborne BCT complex also 
includes new barracks to house 570 soldiers. Additional locations in 
Germany will close as construction is completed.
    Current Readiness Projects. Projects in our fiscal year 2007 budget 
will enhance training and readiness by providing deployment and 
maintenance facilities, brigade complexes and headquarters, other 
operational and administration facilities, and an overseas Forward 
Operating Site base camp for $34.8 million that will provide a brigade 
(minus)-sized operational facility to support rotational training, 
allow for increased U.S. partnership training, and promote new military 
to military relationships.
    We will also construct a battle seminar facility, combined arms 
collective training facilities, shoot houses, digital multipurpose 
training ranges, and purchase land to support collective training. 
These facilities will provide our soldiers realistic, state-of-the-art 
live-fire training. We are requesting a total of $613 million for these 
high-priority projects. We are also requesting the second and final 
phase of funding of $13 million for a defense access road.
    Army Modular Force Projects. Our budget supports transformation of 
the Army to a modern, strategically responsive force. Our budget 
request contains $276 million for five brigade complexes and other 
facilities. Additionally, there are eight child development centers, 
and new barracks to house 1,130 soldiers in support of the Army Modular 
Force.
    Other Support Programs. The Fiscal Year 2007 MCA budget includes 
$192 million for planning and design of future projects. As executive 
agent, we also provide oversight of design and construction for 
projects funded by host nations. The fiscal year 2007 budget requests 
$21 million for oversight of approximately $800 million of host nation 
funded construction for all Services in Japan, Korea, and Europe.
    The fiscal year 2007 budget also contains $23 million for 
unspecified minor construction to address unforeseen critical needs or 
emergent mission requirements that cannot wait for the normal 
programming cycle.
               military construction, army national guard
    The Army National Guard's Fiscal Year 2007 Military Construction 
request for $473,197,000 (for appropriation and authorization of 
appropriations) is focused on Current Readiness, Transformation, and 
other support and unspecified programs.
    Current Readiness. In fiscal year 2007, the Army National Guard has 
requested $161 million for eight projects to support current readiness. 
These funds will provide the facilities our soldiers require as they 
train, mobilize, and deploy. Included are four maintenance facilities, 
two training projects, one Readiness Center, and an Armed Forces 
Reserve Center.
    Army Modular Force. This year, the Army National Guard is 
requesting $234 million for 32 projects in support of our new missions. 
There are 12 projects for the Stryker Brigade Combat Team initiative, 8 
for our Army Division Redesign Study, 7 Range projects to support the 
Army Range and Training Land Strategy, and 5 Aviation Transformation 
projects to provide facilities for modernized aircraft and change unit 
structure.
    Other Support Programs. The Fiscal Year 2007 Army National Guard 
budget also contains $57 million for planning and design of future 
projects and $21 million for unspecified minor military construction to 
address unforeseen critical needs or emergent mission requirements that 
cannot wait for the normal programming cycle.
                  military construction, army reserve
    The Army Reserve's Fiscal Year 2007 Military Construction request 
for $166,487,000 (for appropriation and authorization of 
appropriations) is for Current Readiness and other support and 
unspecified programs.
    Current Readiness. In fiscal year 2007, the Army Reserve will 
invest $125.1 million to construct five new Army Reserve Centers and 
two Armed Forces Reserve Centers; and invest $13.7 million to construct 
a general purpose warehouse--for a total facility investment of $138.8 
million. Construction of the seven Reserve Centers will support over 
3,800 Army Reserve soldiers and civilian personnel. In addition, the 
Army Reserve will invest $5.2 million to construct three training 
ranges, which will be available for joint use by all Army components 
and military services.
    Other Unspecified Programs. The Fiscal Year 2007 Army Reserve 
budget request includes $19.5 million for planning and design for 
future year projects and $3.0 million for unspecified minor military 
construction to address unforeseen critical needs or emergent mission 
requirements that cannot wait for the normal programming cycle.
                army family housing construction (afhc)
    The Army's fiscal year 2007 family housing request is $594,991,000 
(for authorization, authorization of appropriation, and appropriation). 
It continues the successful Whole Neighborhood Revitalization 
initiative approved by Congress in fiscal year 1992 and our Residential 
Communities Initiative (RCI) program.
    The fiscal year 2007 new construction program provides Whole 
Neighborhood replacement projects at five locations in support of 538 
families for $241.8 million using traditional military construction.
    The Construction Improvements Program is an integral part of our 
housing revitalization and privatization programs. In fiscal year 2007, 
we are requesting $180.1 million for improvements to 1,084 existing 
units at 4 locations in the United States and 3 locations in Europe, as 
well as $156.8 million for scoring and direct equity investment in 
support of the privatization of 1,615 units at 5 RCI locations.
    In fiscal year 2007, we are also requesting $16.3 million for 
planning and design for future family housing construction projects 
critically needed for our soldiers.
    Privatization. RCI, the Army's Family Housing privatization 
program, is providing quality, sustainable housing and communities that 
our soldiers and their families can proudly call home. This highly 
successful program is a critical component of the Army's effort to 
eliminate inadequate family housing in the United States. The fiscal 
year 2007 budget request of $156.8 million provides equity investment 
to privatize housing at two installations and revise development plans 
to build new housing at three previously privatized installations.
    We are leveraging appropriated funds and Government assets by 
entering into long-term partnerships with nationally recognized private 
sector real estate development/management and homebuilder firms to 
obtain financing and management expertise to construct, repair, 
maintain, and operate family housing communities.
    The RCI program currently includes 43 installations with a 
projected end state of over 82,000 units--over 90 percent of the family 
housing inventory in the United States. The Army has privatized over 
60,000 homes through December 2005, and by the end of fiscal year 2007, 
we will have privatized housing at 36 installations with an end state 
of more than 76,000 homes.
                 army family housing operations (afho)
    The Army's fiscal year 2007 family housing operations request is 
$676,829,000 (for appropriation and authorization of appropriations), 
which is approximately 53 percent of the total family housing budget. 
This account provides for annual operations, municipal-type services, 
furnishings, maintenance and repair, utilities, leased family housing, 
demolition of surplus or uneconomical housing, and funds supporting 
management of the Military Housing Privatization Initiative.
    Operations ($125 million). The operations account includes four 
subaccounts: management, services, furnishings, and a small 
miscellaneous account. All operations subaccounts are considered ``must 
pay accounts'' based on actual bills that must be paid to manage and 
operate family housing.
    Utilities ($106 million). The utilities account includes the costs 
of delivering heat, air conditioning, electricity, water, and 
wastewater support for family housing units. While the overall size of 
the utilities account is decreasing with the reduction in supported 
inventory, per-unit costs have increased due to general inflation and 
the increased costs of fuel.
    Maintenance and Repair ($205 million). The maintenance and repair 
(M&R) account supports annual recurring projects to maintain and 
revitalize family housing real property assets. Since most Family 
Housing operational expenses are fixed, M&R is the account most 
affected by budget changes. Funding reductions result in slippage of 
maintenance projects that adversely impact soldier and family quality 
of life.
    Leasing ($215 million). The leasing program provides another way of 
adequately housing our military families. The fiscal year 2007 budget 
includes funding for 12,091 housing units, including existing Section 
2835 (``build-to-lease''--formerly known as 801 leases) project 
requirements, temporary domestic leases in the United States, and 6,387 
units overseas.
    RCI Management ($26 million). RCI management program provides 
operating funds for the privatization of military family housing. RCI 
costs include pay and travel of Army personnel, selection of private 
sector partners, environmental studies, real estate surveys, 
consultants to assist with developing and implementing projects, and 
oversight and analyses of the privatized housing portfolio.
                       operation and maintenance
    The Fiscal Year 2007 Operation and Maintenance budget includes 
$2.384 billion in funding for Sustainment, Restoration, and 
Modernization (S/RM), $30.6 million for demolition, and $6.396 billion 
in funding for Base Operations Support (BOS). The S/RM and BOS accounts 
are inextricably linked with our Military Construction programs to 
successfully support our installations. The Army has centralized the 
management of its installations assets under the Installation 
Management Agency to best utilize this funding.
    Sustainment, Restoration, and Modernization (S/RM). S/RM provides 
funding for the Active and Reserve components to prevent deterioration 
and obsolescence and restore the readiness of facilities on our 
installations.
    Sustainment is the primary account in installation base support 
funding responsible for maintaining the infrastructure to achieve a 
successful readiness posture for the Army's fighting force. It is the 
first step in our long-term facilities strategy. Installation 
facilities are the mobilization and deployment platforms of America's 
Army and must be properly maintained to be ready to support current 
missions and future deployments.
    The second step in our long-term facilities strategy is 
recapitalization by restoring and modernizing our existing facility 
assets. Restoration includes repair and restoration of facilities 
damaged by inadequate sustainment, excessive age, natural disaster, 
fire, accident, or other causes. Modernization includes alteration or 
modernization of facilities solely to implement new or higher 
standards, including regulatory changes to accommodate new functions, 
or to replace building components that typically last more than 50 
years, such as foundations and structural members.
    Base Operations Support. This account funds programs to operate the 
bases, installations, camps, posts, and stations for the Army 
worldwide. The program includes municipal services, government civilian 
employee salaries, family programs, environmental programs, force 
protection, audio/visual, base communication services, and installation 
support contracts. Army Community Service and Reserve component family 
programs include a network of integrated support services that directly 
impact soldier readiness, retention, and spouse adaptability to 
military life during peacetime and through all phases of mobilization, 
deployment, and demobilization.
                  homeowners assistance fund, defense
    The Army is the DOD Executive Agent for the Homeowners Assistance 
Program (HAP). This program provides assistance to eligible military 
and civilian employee homeowners by providing some financial relief 
when they are not able to sell their homes under reasonable terms and 
conditions as a result of DOD announced closures, realignments, or 
reduction in operations when this action adversely affects the real 
estate market. For fiscal year 2007, HAP will maintain a baseline 
program. The fiscal year 2007 baseline program will be sustained with 
prior year unobligated funds and revenue from sales of acquired 
properties. The HAP baseline program assistance will be continued for 
personnel at installations that are impacted by non-BRAC DOD closure or 
realignment activities resulting in adverse economic effects on local 
communities.
                                summary
    Mr. Chairman, our fiscal year 2007 budget is a balanced program 
that supports our soldiers and their families, the global war on 
terrorism, Army transformation, readiness, BRAC 2005, and DOD 
installation strategy goals. We are proud to present this budget for 
your consideration because of what this $7.63 billion fiscal year 2007 
budget will provide for our Army:

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

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

    Senator Ensign. Thank you.
    Secretary Penn.

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

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

                  Prepared Statement by Hon. B.J. Penn

    Mr. Chairman and members of the subcommittee, I am pleased to 
appear before you today to provide an overview of the Department of 
Navy's shore infrastructure.
    The Navy-Marine Corps team continues to operate in a complex, 
uncertain, and threatening global security environment. We must 
capitalize on our strengths as a rotational, forward-deployed, surge-
capable force if we are to meet the challenges of a new era. We 
demonstrated our capabilities last year as we continued efforts to win 
the global war on terror while responding to major natural disasters, 
the Indonesian Tsunami and Hurricane Katrina, while continuing recovery 
efforts from Hurricane Ivan in 2004. We have a well skilled, highly 
motivated military, civilian, and contract workforce; with the help of 
this committee, we must provide them the necessary tools to accomplish 
the mission.
                       hurricane recovery efforts
Hurricane Ivan
    Ivan ravaged the Florida panhandle in mid-September 2004, damaging 
570 housing units, 850 structures, and destroying 100 buildings across 
Naval Air Station (NAS) Pensacola and NAS Whiting Field. A facilities 
task force, led by Rear Admiral Shear, worked rapidly to restore 
critical mission capabilities and initiated the deliberate planning 
required to restore both bases.
    As we look back, the Hurricane Ivan recovery is a tremendous 
success story. In parallel with initial recovery actions, we sought not 
simply to rebuild, but to reshape our facilities footprint to improve 
operational effectiveness, consolidate functions, and eliminate on-base 
excess capacity. Using the Navy Ashore Vision 2030 as a guiding vision 
and other strategic host and tenant planning documents, we project an 
overall 900,000 square foot reduction, along with reduced operating and 
maintenance costs, and efficiency improvements such as consolidating 
like functions from damaged facilities, and relocating destroyed 
facilities to more storm resistant locations.
    The Fiscal Year 2005 Disaster Supplemental provided $468 million in 
operations and maintenance (O&M) and $139 million military construction 
funds for our recovery efforts. We have obligated all O&M funds, and 
five of the eight planned construction projects. We plan to award the 
remaining three construction projects by May 2006. Despite additional 
damage from Hurricane Katrina, NAS Pensacola and Whiting Field are 
fully mission capable.
Hurricane Katrina
    Hurricane Katrina and subsequent storms severely impacted seven 
major bases, destroying buildings, rendering thousands homeless, and 
effectively shutting down operations for weeks while recovery began in 
earnest. Less than 20 percent of the 1,160 buildings across the seven 
affected bases escaped damage. Using techniques developed after 
Hurricane Ivan, we were prepared to promptly initiate recovery actions 
to ensure mission requirements were met while being good stewards of 
taxpayer funds.
    The Department of Navy has received $1.5 billion in O&M funds, of 
which $853 million provided immediate facility and base support needs. 
Over 60 percent of these funds have been obligated to date. We have 
received an additional $411 million in military construction to support 
34 construction projects. We expect to award all of these construction 
projects by the end of this fiscal year and I am confident that our 
facility execution is on pace to meet requirements and support recovery 
efforts.
    The administration recently requested a fourth Supplemental for 
Hurricane Recovery, which included $43 million in O&M and $78 million 
military construction. These funds will replace collateral equipment, 
complete facility repairs, and provide military construction funds at 
Naval Air Station Joint Reserve Base, Belle Chase, LA; Construction 
Battalion Center, Gulfport, MS; and John C. Stennis Space Center, MS. 
This supplemental request also includes important fund transfer 
authority that will allow us to more effectively use available funds as 
we continue recovery efforts.
Task Force Navy Family
    The devastation to our infrastructure wrought by the recent spate 
of hurricanes has also left a wide swath of devastation in the personal 
lives of our military, civilian, retirees and their families as they 
tackle their own recovery efforts. The Navy established Task Force Navy 
Family immediately after the hurricane to provide personalized 
assistance to help our Navy family members return to a sense of 
normalcy. A case manager helps family and service members on all 
aspects of personal recovery, from securing accommodations, replacing 
vital documents, filing insurance claims, or reuniting with their pets. 
As we transition Task Force Navy Family functions into our existing 
Navy personnel support architecture, we will continue to help each 
member and family through this time of crisis until all needs are met.
                  the navy's investment in facilities
    The Department of Navy's shore infrastructure is a critical factor 
in determining our operational capabilities and shaping our security 
posture. It's where we train and equip the world's finest sailors and 
marines, while developing the most sophisticated weapons and 
technologies. The Department of Navy manages a shore infrastructure 
with a plant replacement value of $180 billion on 4 million acres. Our 
fiscal year 2007 shore infrastructure budget totals $10.3 billion, 
representing about 8 percent of the Department of Navy's fiscal year 
2007 request of $127 billion.
    The Base Operating Support request of $5.0 billion, excluding 
environmental, comprises the largest portion of the Navy's facilities 
budget request. This account funds the daily operations of a shore 
facility, e.g., utilities, fire and emergency services; air and port 
operations; community support services; and custodial costs.
      
    
    
      
    Our request for fiscal year 2007 of $5.0 billion reflects a $321 
million increase from the enacted fiscal year 2006 level. This change 
is due in part to pricing changes as well as transfer of Norfolk and 
Portsmouth Naval Shipyards to mission funding.
    Fiscal year 2007 military construction request of $1.2 billion is 
the same as the enacted fiscal year 2006 level. The request includes 
$48 million for Navy and Marine Corps Reserve construction efforts. 
This level of funding keeps us on track to eliminate inadequate 
bachelor housing, and provides critical operational, training, and 
mission enhancement projects.
    While our fiscal year 2007 Family Housing request of $814 million 
is about the same as fiscal year 2006 enacted level of $808 million, 
there are substantial changes within the account: construction funds 
increase, including seed funds for Navy and Marine Corps privatization, 
and O&M funds decline as Government-owned inventory falls by 4,820 
homes due to privatization.
    Sustainment, Restoration, and Modernization (S/RM) includes 
military construction and operation and maintenance funds. Our fiscal 
year 2007 request of $1.7 billion represents only the amount of S/RM 
funded with O&M, and is $192 million below the enacted fiscal year 2006 
level due to efficiencies.
    Our $897 million environmental program at active and Reserve bases 
is comprised of operating and investment appropriations, which combined 
are $31 million below the fiscal year 2006 enacted level. Most of the 
reduction is due to reduced shipboard procurement needs and not 
continuing one-time congressional adds in research and technology 
development.
    Our BRAC program consists of environmental cleanup and caretaker 
costs at prior BRAC locations, and implementation of BRAC 2005 
recommendations.

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

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

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

    The active Marine Corps program consists of:

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

    The Navy and Marine Corps Reserve program consists of two 
Administrative and Boat Storage Facilities for Inshore Boat Units, five 
Reserve Centers, and an Aviation Joint Ground Support Facility.
Incremental funding of Military Construction Projects
    Military construction projects are said to be incrementally funded 
when full authorization and only partial appropriation is sought in the 
first year. None of the annual appropriation requests provide a 
``complete and usable'' portion of the facility. The Office of 
Management and Budget directed a new policy beginning with the fiscal 
year 2007 budget submission that permits incremental funding of new 
construction projects only on an exception basis. Previously approved 
incrementally funded projects, and construction projects for BRAC are 
exempted. This new policy replaces the previous policy, which allowed 
incremented projects in part if the cost exceeded $50 million and 
construction was expected to exceed 2 years. Our fiscal year 2007 
budget request includes only one new incrementally funded project, the 
National Maritime Intelligence Center.
    Marine Corps Special Operations Command (MARSOC)
    On 28 October 2005, the Secretary of Defense approved a Marine 
component within the Special Operations Command. The new Marine 
component will provide approximately 2,600 Marine and Navy billets 
within U.S. Special Operations Command (SOCOM), led by a Marine 
Brigadier General. The MARSOC will conduct direct action, special 
reconnaissance, counterterrorism and foreign internal defense. MARSOC 
will have an initial operational capability this fall and full 
operational capability by 2010. The budget request includes $152 
million for construction projects at Camp Lejeune and Camp Pendleton 
for the standup of MARSOC.
Certification of fiscal year 2007 construction costs
    The conference report accompanying the Military Quality of Life and 
Veterans Affairs Appropriations Act of 2006 directed each assistant 
secretary with responsibility for installations to certify that the 
impact of natural disasters on project costs had been considered in 
preparing the budget submission. Our fiscal year 2007 military 
construction request includes a directed 3.1 percent inflation cost 
adjustment. While we have been experiencing up to a 30-percent cost 
increase for construction costs in the Southeast and Gulf Coast, our 
fiscal year 2007 request contains relatively few projects in this area. 
We expect that labor and material costs will stabilize by the time 
these projects are ready to be executed in fiscal year 2007.
                         facilities management
Facilities Sustainment, Restoration, and Modernization (SRM)
    DOD uses a sustainment model to calculate life-cycle facility 
maintenance and repair costs. These models use industry-wide standard 
costs for various types of building and geographic areas and are 
updated annually. Sustainment funds in the operation and maintenance 
accounts are used to maintain facilities in their current condition. 
The funds also provide for preventative maintenance, emergency 
responses for minor repairs, and major repairs or replacement of 
facility components (e.g. roofs, heating and cooling systems) that have 
reached the end of their service life. Both the Navy and the Marine 
Corps are budgeting and nearly achieving the DOD goal of 95 percent 
sustainment.
      
    
    
      
    Restoration and modernization provides major recapitalization of 
our facilities using Military Construction, Operation and Maintenance, 
Navy Working Capital Fund, and Military Personnel funds. The ``recap'' 
metric is calculated by dividing the plant replacement value by the 
annual investment of funds and it is expressed as numbers of years. The 
DOD goal is to attain a 67-year rate by fiscal year 2008. This is a 
relatively coarse metric, as demonstrated by the dramatic improvement 
in execution from the substantial investment of the fiscal year 2005/
2006 Hurricane Supplemental, which substantially improved only those 
bases affected by the storm. We are working with the Office of the 
Secretary of Defense and the other components to develop a recap model 
similar to the sustainment model.
      
    
    
      
Base Operating Support Models
    The Navy uses business-based models and capabilities based approach 
to budget for Base Operating Support costs. The models use defined 
metrics and unit costs that are benchmarked against historic 
performance and industry standards, and link resources to definable, 
variable levels of outputs. Funding requirements are identified for at 
least three levels of output (or capability level) for each major shore 
service and support function, and the cost and risk of each output 
level. This new CBB process allows us to set funding levels on needed 
output levels, deliverables, and associated risks rather than prior 
funding levels. In a resource-constrained environment, it is imperative 
that we program, budget and execute the right resources at the right 
time for the right service.
Naval Safety
    Navy Secretary Winter has continued former Navy Secretary England's 
commitment to making mishap reduction one of the top five Department of 
Navy performance objectives. We want safety to be an active--not 
passive--aspect of our work and play. In addition to keeping our people 
safe, there are substantial cost avoidance through robust risk 
management. Fiscal year 2005 produced solid progress in Navy and Marine 
Corps mishap reduction. At the end of fiscal year 2005, we performed 
better than the 5-year average in two-thirds of the mishap categories.
    One very successful effort has been the Occupational Safety and 
Health Administration (OSHA) Voluntary Protection Program (VPP), which 
focuses on management leadership and employee involvement teaming 
together to improve safety. Portsmouth, VA; Norfolk, VA; and Puget 
Sound, WA, naval shipyards have successfully achieved VPP STAR 
recognition from OSHA, while Pearl Harbor Naval Shipyard's application 
is under review. Lost workday rates due to injury have been reduced by 
50 percent at Norfolk and 60 percent at Puget Sound in 3 years, 37 
percent at Pearl Harbor in 2 years, and Portsmouth has consistently 
exceeded the DOD 50 percent mishap reduction goal.
    Facilities Management Consolidation
    Commander, Navy Installations (CNI) has now successfully completed 
its second year and has made significant improvements to Navy shore 
services. Among the many significant CNI efforts this year was the 
hurricane disaster recovery response in the Gulf Coast Region. Recovery 
and assessment teams responded promptly to restore infrastructure, make 
immediate repairs and capture critical data to plan for long-term 
rebuilding of devastated bases like the Seabee Base in Gulfport, MS; 
Stennis Space Center in Bay St. Louis, MS; naval bases in New Orleans 
as well as several Reserve centers in the Gulf Region.
    Similarly, the Marine Corps is transforming its bases from 
singularly managed and resourced entities to ones strategically managed 
in geographic regions. Our bases and stations (except recruit training 
depots) will fall under the direction of five Marine Corps Installation 
Commands with the majority of the installations under the oversight of 
Marine Corps Installation Command--East and Marine Corps Installation 
Command--West. Regionalization will enhance warfighter support, improve 
alignment, enhance the use of regional assets, return Marines to the 
Operating Forces, and reduce costs.
Encroachment mitigation
    We are successfully applying the recent authority to enter into 
agreements with state and local governments and eligible non-government 
organizations to address potential development near our installations 
and ranges that could limit our ability to operate and train. In the 
past 2 years, we have acquired restrictive easements from willing 
sellers covering over 3,360 acres in the vicinity of Marine Corps Base, 
Camp Lejeune, NC; Marine Corps Air Station, Beaufort, SC; Mountain 
Warfare Training Facility, La Posta, CA; Naval Air Station, Pensacola, 
FL; and Outlying Landing Field, Whitehouse, FL. We have used our 
operation and maintenance funds and DOD Readiness and Environmental 
Protection Initiative (REPI) funds. Our partners have used our 
contributions together with their own resources to acquire property 
interests from willing sellers and re-conveyed restrictive easements to 
us.
    We expect that this program will continue to grow. Navy and Marine 
Corps are developing service-wide encroachment management programs to 
guide future priorities. Marine Corps is participating in conservation 
forums across the country with a variety of state and local governments 
and conservation organizations. The fiscal year 2007 President's budget 
includes $8.5 million for Navy and $5 million for Marine Corps 
encroachment protection initiatives, and we expect allocation of a 
share of the fiscal year 2007 $20 million REPI funds.
    Energy
    Through the end of fiscal year 2005, the Department of Navy reduced 
its energy consumption, compared to a fiscal year 1985 baseline, by 
nearly 30 percent, thus meeting Executive Order 13123 goals.
    Last year the Navy opened a wind/diesel power plant at Naval 
Station Guantanamo Bay, Cuba. The four--950 KW windmills generate 30 
percent of the base's electrical needs. The Navy also awarded a 
geothermal power plant at NAS Fallon, NV, that will generate a minimum 
of 30 MW of power. Similar to the Navy's existing 270 MW geothermal 
power plant at Naval Air Warfare Center, China Lake, CA, these power 
plants generate electricity from the earth's heat without creating 
pollution. The Navy is testing a wave power buoy off Marine Corps Base, 
Kaneohe, HI, and is finalizing the design of an Ocean Thermal Energy 
Conversion (OTEC) plant off Diego Garcia that will produce the island's 
electrical and potable water requirements using the temperature 
difference between warm surface water and cold, deep ocean water. These 
projects will reduce the Department of Navy's use of foreign oil, 
reduce greenhouse gas production, and improve energy security.
                                housing
    Our fiscal year 2007 budget continues progress in improving living 
conditions for sailors, marines, and their families. We have programmed 
the necessary funds and expect to have contracts in place by the end of 
fiscal year 2007 to eliminate all of our inadequate family and 
virtually all inadequate unaccompanied housing.
Family Housing
    Our family housing strategy consists of a prioritized triad:

         Reliance on the Private Sector. In accordance with 
        longstanding DOD and DoN policy, we rely first on the local 
        community to provide housing for our sailors, marines, and 
        their families. Approximately three out of four Navy and Marine 
        Corps families receive a Basic Allowance for Housing and own or 
        rent homes in the community.
         Public/Private Ventures (PPVs). With the strong 
        support from this Committee and others, we have successfully 
        used statutory PPV authorities enacted in 1996 to partner with 
        the private sector to help meet our housing needs through the 
        use of private sector capital. These authorities allow us to 
        leverage our own resources and provide better housing faster to 
        our families.
         Military Construction. Military construction will 
        continue to be used where PPV authorities don't apply (such as 
        overseas), or where a business case analysis shows that a PPV 
        project is not financially sound.
      
    
    
      
    As of March 1, we have awarded 19 projects totaling over 38,000 
units. As a result of these projects, over 24,000 homes will be 
replaced or renovated. Additionally, close to 3,000 homes will be 
constructed for Navy and Marine Corps families. Through the use of 
these authorities we have secured about $4 billion in private sector 
investment from $453 million of our funds for the 19 projects. This 
represents a leverage ratio of over nine to one.
    During fiscal year 2006 and 2007, we plan to award 10 Navy and 
Marine Corps family housing privatization projects totaling almost 
28,000 homes. By the end of fiscal year 2007, the Navy and Marine Corps 
will have privatized 97 percent and 98 percent, respectively, of their 
U.S. housing stock.
    Our fiscal year 2007 family housing budget request includes $305 
million for family housing construction and improvements. This amount 
includes $175 million proposed for use as a Government investment in 
family housing privatization projects planned for fiscal year 2007 
award. It also includes the replacement or revitalization of inadequate 
housing located at locations where privatization is not planned, most 
notably Guam and Japan. Finally, the budget request includes $509 
million for the operation, maintenance, and leasing of Government-owned 
inventory.
      
    
    
      
Unaccompanied Housing
    Our budget request of $207 million for unaccompanied housing 
construction projects continues the emphasis on improving living 
conditions for our unaccompanied sailors and marines. There are three 
challenges:

          1. Provide Homes Ashore for our Shipboard Sailors. There are 
        approximately 13,000 E1-E3 unaccompanied sailors worldwide who 
        live aboard ship even while in homeport. The Navy's goal 
        remains to program funding through fiscal year 2008 to achieve 
        its' ``homeport ashore'' initiative by providing ashore living 
        accommodations for these sailors. We intend to achieve this 
        goal through a mix of military construction, use of 
        privatization authorities and, for the interim, more intensive 
        use of our unaccompanied housing capacity by assigning two or 
        more sailors per room. Our fiscal year 2007 budget includes one 
        ``homeport ashore'' construction project for $21 million to 
        complete Naval Station Everett, WA (410 spaces).
          2. Ensure our Barracks Meet Today's Standards for Privacy. We 
        are building new and modernizing existing barracks to increase 
        privacy for our single sailors and marines. The Navy uses the 
        ``1+1'' standard for permanent party barracks. Under this 
        standard, each single junior sailor has a private sleeping area 
        and shares a bathroom and common area with another member. To 
        promote unit cohesion and team building, the Marine Corps was 
        granted a waiver to adopt a ``2+0'' configuration where two 
        junior marines share a room with a bath. The Navy will achieve 
        these barracks construction standards by fiscal year 2016; the 
        Marine Corps by fiscal year 2012. We have also been granted a 
        waiver to the ``1+1'' standard to allow us to build an enlisted 
        unaccompanied housing project in Norfolk to private sector 
        standards. We believe this will provide better housing for 
        unaccompanied sailors without increasing the average housing 
        cost.
          3. Eliminate gang heads. The Marine Corps has programmed all 
        necessary funding, through fiscal year 2005, to eliminate 
        inadequate unaccompanied housing with gang heads \1\ for 
        permanent party personnel. The Navy will achieve over 99 
        percent of this goal by fiscal year 2007.
---------------------------------------------------------------------------
    \1\Gang heads remain acceptable for recruits and trainees.
---------------------------------------------------------------------------
Unaccompanied Housing Privatization
    We continue to pursue unaccompanied housing pilot privatization. We 
are in exclusive negotiations with a private partner for our first 
pilot project at San Diego. This project would build 700 apartments for 
unaccompanied E4s and above and privatize 254 existing Government-owned 
unaccompanied housing modules. Although the construction of new units 
does not directly target the Homeport Ashore requirement (unaccompanied 
E1-E3s assigned to sea duty), it will help by freeing up existing rooms 
as other sailors move out of Government-owned unaccompanied housing and 
move into privatized housing. We expect to award this project this 
spring.
      
    
    
      
    We have also started procurement for a second pilot project at 
Hampton Roads, Virginia. This project would build 725 apartments at up 
to 3 different sites and privatize 806 existing unaccompanied housing 
modules. All housing will be targeted to unaccompanied shipboard E1-E3 
personnel. We recently selected four highly qualified teams and invited 
them to submit detailed technical and financial proposals. We expect to 
award this project in April 2007.
    Last year we were evaluating the Pacific Northwest as a third pilot 
site. We have since concluded that the Pacific Northwest is not viable 
because the requirement is linked with one large ship (unlike San Diego 
and Hampton Roads which are fleet concentration areas), the private 
partner cannot recapitalize the housing over the long-term given 
projected cash flows. We will now proceed to use the fiscal year 2005 
appropriated and authorized funds as a MILCON project at Bremerton. We 
are evaluating opportunities at other locations.
                              environment
Marine Mammals/Sonar R&D investments
    The Navy recognizes the need to protect marine mammals from 
anthropogenic sound in the water and has budgeted $10 million in fiscal 
year 2006 and 2007 for research and development efforts. Funding will 
focus on techniques to track the location of marine mammals, their 
abundance and movement (particularly beaked whales); determining sound 
criteria and thresholds; and developing new mitigation and monitoring 
techniques. The Navy has expanded its research on the effects of mid-
frequency sonar to include effects on fish. Navy's Protective Measures 
Assessment Protocol (PMAP) has become a routine operating procedure 
during all exercises. PMAP measures include surface vessels using 
trained look-outs in marine mammal areas, and submarines monitoring 
passive acoustic detection for vocalizing marine mammals.
Shipboard Programs
    The Navy continues to convert air conditioning and refrigeration 
plants on its surface fleet from ozone depleting CFCs to 
environmentally friendly coolants. We plan to spend a total of $400 
million on this effort, including $22 million in fiscal year 2007. We 
expect to complete the conversion of nearly 900 CFC-12 plants by 2008, 
and over 400 CFC-114 plants by 2014.
    The Navy has also been installing pollution prevention equipment on 
16 ship classes. We will have spent $35 million to install suites of 
pollution prevention equipment (e.g., aqueous parts washers, cable 
cleaners/lubricators, paint dispensers) on ships upon completion this 
September.
Natural and Cultural Resources
    The Department spends about $30 million per year on natural and 
cultural resources at Navy and Marine Corps installations. Resources 
are invested in preparing, updating, and implementing Integrated 
Natural Resources Management Plans (INRMPs). Protecting threatened and 
endangered species and their habitats is a major aspect of the INRMPS 
at many bases. The National Defense Authorization Act for Fiscal Year 
2004 included a provision that allowed the Secretary of Interior to 
forgo designation of critical habitat on military lands upon a 
determination that the INRMP provided sufficient species and habitat 
protection. I am pleased to report that all final critical habitat 
designations since 2004 have excluded designations on Navy and Marine 
Corps property.
    Our cultural resources provide a tangible link with our past while 
supporting the mission of today's Navy and Marine Corps warfighters. 
Both Navy and Marine Corps are developing Cultural Resources Management 
Plans similar to INRMP. A major effort is to prepare broad based 
programmatic alternatives to case-by-case consultation similar to the 
highly successful program comments on Capehart-Wherry era family 
housing. DON is also working to expand its efforts to make cultural 
resources management an integral part of our broader asset management 
program.
Alternative Fuel Vehicles
    In fiscal year 2005 the Department of the Navy (DoN) met or 
exceeded the Alternative Fuel Vehicle (AFV) acquisition mandates from 
the Energy Policy Act and Executive Order 13149. The DoN was named 
winner of the National Biodiesel Board's National Energy Security Award 
and the U.S. Marine Corps won a White House Closing the Circle Award 
for meeting Executive Order 13149 requirements 3 years earlier than 
required. Among the AFV related initiatives are increased use of 
Biodiesel (B-20), increased fleet fuel economy, increased procurement 
of hybrid vehicles and increased use of neighborhood vehicles. Ethanol 
(E-85) is becoming a more significant alternate fuel. The Navy has 
approximately 7,000 vehicles capable of operating on E-85. We are also 
investigating the use of hydrogen fuel cell vehicles.
Installation Restoration Program (IRP)
    The DoN has completed cleanup or has remedies in place at 75 
percent of our 3,700 contaminated sites. We plan to complete the 
program by 2014. The cost-to-complete the installation restoration 
program continues a downward trend with efficiencies of $600 million 
over the past 10 years. Use of new technologies, land use controls, 
remedy optimizations, contract efficiencies, and a dedicated 
professional staff has contributed to these efficiencies. Our fiscal 
year 2007 request of $304 million consists of $219 million for IRP, $41 
million for program management, and $44 million for Munitions response.
Munitions Response Program (MRP)
    This relatively new program provides cleanup actions for Munitions 
and Explosives of Concern (MEC) and Munitions Constituents (MC) at all 
DoN locations other than operational ranges. We plan to complete 
preliminary assessments at all 213 known sites on 56 active 
installations by 2007. Site inspections (which include sampling) will 
be completed by 2010. We will not have credible cleanup cost estimates 
until these assessments are completed in 2010. We are conducting major 
cleanups at the former range on Vieques, Puerto Rico and at Jackson 
Park Housing Complex in Washington State, in addition to efforts at 
prior BRAC locations.
                 prior brac cleanup & property disposal
    The BRAC rounds of 1988, 1991, 1993, and 1995 were a major tool in 
reducing our domestic base structure and generating savings. The DoN 
has achieved a steady state savings of approximately $2.7 billion per 
year since fiscal year 2002. All that remains is to complete the 
environmental cleanup and property disposal on portions of 17 of the 
original 91 bases.
    Last year we conveyed the last 427 acres at the former Naval 
Complex, Charleston, SC, and the last acre at Naval Air Station, Key 
West, FL. Additionally, at the former Hunters Point Naval Shipyard in 
San Francisco, the DoN conveyed the first parcel of 75 acres to the San 
Francisco Redevelopment Agency. Of the original 161,000 acres planned 
for disposal from all four prior BRAC rounds, we expect to have less 
than 5 percent (about 8,000 acres, excluding Roosevelt Roads) left to 
dispose by the end of this fiscal year.
Land Sale Revenue
    We have continued our success in using property sales to assist in 
environmental cleanup and property disposal as well as recover value 
for taxpayers. We have used General Services Administration (GSA) 
onsite auctions, GSA Internet auctions, and Internet auctions using 
commercial real estate brokers. Through a combination of cost Economic 
Development Conveyances, Negotiated Sales, and Public Sales, the DoN 
has received over $1.1 billion in revenues. We have applied these funds 
to finance and accelerate our entire fiscal year 2006 and fiscal year 
2007 environmental cleanup at the remaining prior BRAC locations.
    Last year the DoN completed its largest public sale via Internet 
auction consisting of four parcels totaling 3,720 acres at the former 
Marine Corps Air Station, El Toro in Irvine, CA, for a total of $649.5 
million. The Internet auction public sale of 62 acres at the former San 
Pedro housing site in Los Angeles, CA, sold for $88 million. We also 
completed a GSA internet auction for the former Naval Hospital Oakland, 
CA. Known as Oak Knoll, we anticipate closing escrow for $100.5 million 
in early March 2006. These sales have provided the communities with 
taxpayer and community benefits by getting the property onto local tax 
rolls and redeveloped more quickly, with the local community 
controlling that development through traditional land use planning and 
zoning. It benefits DOD and the Federal taxpayer by divesting unneeded 
property sooner and reducing the environmental cleanup time and expense 
incurred by DOD. These sales enabled the buyers to work with the 
homeless assistance organizations to provide the type of services 
needed in that community, either in land and buildings or funds for 
needed programs. In addition, the El Toro sale enabled the community to 
fulfill its vision of creating a public park without using local tax 
dollars.
    We are pursuing disposal of the former Naval Station Roosevelt 
Roads through a mix of public benefit, economic benefit, property 
transfer to Army, as well as property sale planned for late 2007.
Prior BRAC Environmental Cleanup
    The DoN has spent over $2.6 billion on environmental cleanup at 
prior BRAC locations through fiscal year 2005. We estimate the 
remaining cost to complete cleanup at about $482 million for fiscal 
year 2008 and beyond, most of which is concentrated at fewer than 20 
remaining locations and includes long-term maintenance and monitoring 
obligations for remedies already installed and operating at many 
locations. As we have done previously, the DoN will use any additional 
land sale revenue beyond that projected in our fiscal year 2006 budget 
to further accelerate cleanup at these remaining prior BRAC locations, 
which are primarily former industrial facilities that tend to have the 
most persistent environmental cleanup challenges.
    Significant environmental progress is planned for fiscal year 2006/
2007, with nearly half of the funding planned for three bases. At 
Alameda Naval Air Station, progress will include funding environmental 
planning, design, and construction activities for the majority of 
active sites. Hunters Point Shipyard's progress will include completion 
of the radiological program for all land parcels and completion of all 
Remedial Investigations and Feasibility Studies. Progress at the former 
Moffett Federal Air Field includes completion of all remaining 
environmental construction activities.
                        brac 2005 implementation
    The BRAC 2005 Commission recommendations became legally binding on 
the DOD on 9 November 2005. In contrast to prior BRAC commissions, the 
BRAC 2005 recommendations have fewer closures and more realignments, 
particularly realignments that involve more than one military service 
or Defense agency. The Department of Navy has 6 ``fence line'' closures 
and 81 realignment recommendations involving 129 bases.
BRAC 2005 Implementation Funds
    I am pleased to report that the DoN has fully financed its BRAC 05 
implementation plans across the FYDP. We have put in place the 
management structure, oversight, and funding to accomplish all closure 
and realignment actions within the 6-year statutory time frame.
    We are financing our implementation plans through a combination of 
(1) funds previously set aside by OSD for this purpose and recently 
allocated in all years of the FYDP (i.e., the BRAC wedge); (2) 
identification, capture, and reinvestment into the BRAC account of 
savings (primarily infrastructure and civilian personnel savings) 
generated by closure and realignment actions; (3) investment of $500 
million in Navy funds. Additional savings, notably MILPERS savings and 
realignment of Fleet Readiness Centers, are being used to finance other 
Department of the Navy priorities. Annual savings exceed annual costs 
in fiscal year 2010. The budget reflects only modest savings in fiscal 
year 2007, but it is expected that overall savings will exceed $1 
billion annually after fiscal year 2011.
      
    
    
      
Preparing to Implement BRAC 2005
    Due to the complexity of the many joint recommendations, DOD is 
using detailed business plans for each BRAC recommendation to ensure 
consistent, timely execution and all necessary coordination across the 
components. Each of our business plans, which averages 40 pages in 
length, includes extensive details on costs and savings, schedules, and 
supporting Form DD1391s for each construction project. Each business 
plan must be reviewed and approved by the Infrastructure Steering Group 
\2\ prior to any expenditure of funds for a given recommendation. We 
expect approval of the first Navy business plans in the near future. In 
the meantime, the first BRAC 2005 funds are being released by OSD to 
begin formal planning efforts, beginning construction design and 
prepare contracting documents, and initiate National Environmental 
Policy Act (NEPA) studies for disposal and receiver sites.
---------------------------------------------------------------------------
    \2\ The Infrastructure Steering Group is chaired by the Under 
Secretary of Defense for Acquisition and Technology and Logistics, and 
includes the Deputy Under Secretary of Defense and Service Assistant 
Secretaries for Installations and Environmental, and the Service Vice 
Chiefs of Staff.
---------------------------------------------------------------------------
    We prioritized our fiscal year 2006 and fiscal year 2007 
implementation plans to give priority to actions with higher savings, 
funding all NEPA requirements, initiating the necessary military 
construction planning and design, and incrementally funding larger 
MILCON projects based on how much work can be accomplished in each 
fiscal year. All construction projects in fiscal year 2006 use design/
build as the acquisition methodology and qualify as a NEPA categorical 
exclusion. Fiscal year 2007 projects are primarily design build, and 
require no more than a NEPA Environmental Assessment before 
construction can begin. We are working closely with the other 
components to establish firm requirements, schedules, and the scope and 
funding for required military construction for implementing joint 
recommendations.
    The table below depicts our fiscal year 2006 and fiscal year 2007 
plans. At several receiver sites, design and construction will begin in 
fiscal year 2006 in conjunction with planning of closure actions at the 
respective closing installations. Realignments of several commands from 
leased space to owned space in the National Capital Region will begin 
in fiscal year 2006. Five major realignments will start in fiscal year 
2007. Other smaller closure and realignments begin in fiscal year 2006 
and continue in fiscal year 2007.
      
    
    
      
    We are building on our experience with cleanup and property 
disposal from prior BRAC rounds. A BRAC Program Management Office has 
overall responsibility for coordination of BRAC actions, as well as for 
completing cleanup and disposal of the remaining property from all BRAC 
rounds.
    Much has changed since the last BRAC round in 1995. Environmental 
contamination at remaining bases has largely been characterized, and 
cleanup has been completed or is now well underway. In contrast to 
prior BRAC, the cost to cleanup environmental contamination at BRAC 
2005 locations is about $60 million. Private sector capabilities have 
emerged and matured for ``brownfield'' redevelopment and insurance 
industry products to address environmental liabilities when there is a 
CERCLA early transfer of contaminated property. We expect to take 
advantage of these private sector capabilities.
    The Department will use a mix of public and economic benefit 
conveyances, transfers to other components or Federal agencies, as well 
as public sale for property disposal. We expect developers with the 
experience and expertise to complete the cleanup during redevelopment. 
Communities get the property onto local tax rolls and redeveloped more 
quickly, and controls development through traditional land use planning 
and zoning.
                    meeting the execution challenge
    The ambitious programs I have outlined above, encompassing military 
and family housing construction, continuing recovery efforts in the 
Gulf Coast, and BRAC-related construction, represent an execution 
effort of over $3.4 billion over the fiscal year 2006/2007 timeframe. A 
daunting challenge, but one that the Navy is well-positioned to meet. 
The global pre-positioned presence of a highly trained workforce that 
offers the full spectrum of products and services allows us to shift 
execution outside of traditional regional boundaries to balance spikes 
in workload caused by events such as the natural disasters of 2004 and 
2005 and BRAC. The Navy has a wide array of contracting tools and in-
place capacity to efficiently address substantial workload increases. 
We will work to master the challenges with the supply of a competitive 
contractor workforce, and market conditions affecting costs of 
materials and equipment.
                               conclusion
    The Navy cannot meet the threats of tomorrow by simply maintaining 
today's readiness and capabilities of our physical plant. We must 
continue to transform and recapitalize for the future without 
jeopardizing our current readiness and the strides we have made--and 
continue to make--in managing our shore infrastructure. With our 
partners in industry, the acquisition community, and with the 
continuing support of Congress, the Department of Navy will build and 
maintain installations that are properly sized, balanced--and priced 
for tomorrow.

    Senator Ensign. Wow.
    Secretary Anderson.

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

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

             Prepared Statement by Hon. William C. Anderson

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    9. Senator Warner. Mr. Grone, what is the Department's plan to 
expedite the completion of the construction of these facilities in 
order to meet the original construction completion date provided in 
official documents to Congress?
    Mr. Grone. The new hospital at Fort Belvoir must be moved to a new 
site and redesigned as a result of BRAC. The current design cannot 
accommodate the volume of workload required by the BRAC solution. Other 
than to confirm that construction will be complete by September 15, 
2011, it is too early to state the actual date when the new facility 
will open. The Langley Hospital project cannot meet the original 
completion date due to previous unfavorable bid results; however, the 
project design was repackaged and section 2853 notification was made in 
February 2006. A new solicitation for bids has been announced and the 
results are expected in late April or early May.
                                 ______
                                 
               Questions Submitted by Senator John Ensign
                     cleanup of unexploded ordnance
    10. Senator Ensign. Mr. Grone, in the National Defense 
Authorization Act (NDAA) for Fiscal Year 2002, and in the Senate Report 
on the NDAA for Fiscal Year 2005, this committee expressed its concern 
with the problem of cleanup of unexploded ordnance (UXO) at the 
Department's active bases, formerly-used defense sites, and facilities 
closed by BRAC. What are the Department's goals for cleaning up UXO?
    Mr. Grone. For the cleanup of munitions response sites, which 
includes the cleanup of UXO, the Department has established the 
following near-term goals:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    100. Senator Ensign. Mr. Grone, who has responsibility within the 
DOD to ensure compliance with congressional intent and authorization?
    Mr. Grone. The responsibility for compliance rests with the 
Secretary of Defense, the secretaries of the military departments, and 
the heads of the DOD agencies. They have created detailed and elaborate 
procedures to ensure that authorized programs and activities are 
performed in accordance with congressional intent. In addition, they 
have established organizations and assigned officials, including 
auditors, financial managers, and inspectors general, to provide 
oversight of the programs authorized by Congress.
                                 ______
                                 
             Questions Submitted by Senator Daniel K. Akaka
                       cost of relocating forces
    101. Senator Akaka. Mr. Grone, what is the DOD's best estimate of 
the cost of relocating and stationing the forces that are being 
relocated from Germany, Korea, and Japan to bases in the United States?
    Mr. Grone. The estimated net cost for relocating forces from 
Germany to bases in the United States is about $2.36 billion over the 
period fiscal years 2006-2011. The estimated cost for relocating forces 
from Korea is still under review, but will be considerably less then 
the relocation costs from Germany. The U.S. and the Government of Japan 
are not discussing any moves of U.S. forces from Japan to facilities in 
the continental United States. The U.S. and the Government of Japan 
continue to discuss cost sharing related to the proposed move of III 
Marine Expeditionary Force personnel and their families from Okinawa to 
Guam.

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

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

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

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

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

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

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

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

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

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

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

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

    114. Senator Akaka. Secretary Eastin, Secretary Penn, and Secretary 
Anderson, would it be desirable to create mixed developments of single 
and family military housing, and is that feasible, given how far along 
family housing privatization is?
    Mr. Eastin. Currently, the Army does not mix single soldier and 
family housing neighborhoods. However, if single soldier housing 
privatization is determined feasible, we would evaluate whether to 
combine single and family housing neighborhoods and at what locations.
    Mr. Penn. Military members should enjoy the same standard of living 
as that enjoyed by their civilian counterparts. Sailors and marines, 
who reside off-base, do not live in communities where there is 
segregation by marital status.
    With respect to family housing privatization, our private partners 
may rent housing to unaccompanied personnel in addition to others when 
they are unable to rent to military families. We expect the same will 
be true with privatized housing targeted for unaccompanied personnel.
    While it may be generally feasible to pursue combined unaccompanied 
and family housing privatization projects, the separate appropriations 
that fund the construction of military unaccompanied and family 
housing, and the separate funds established by 10 U.S.C. 2883 for the 
privatization of unaccompanied and family housing, make such joint 
projects difficult.
    Mr. Anderson. In accordance with OSD policy, the Air Force looks to 
the community first to provide housing for our military members and 
their families. Military members have the choice of living on or off 
base in a variety of community types, which might include both single 
and family residences.
    The Air Force's privatization program provides quality housing 
primarily for military families. Single members, depending on their 
rank, can reside off base or in on-base dormitories. However, when the 
demand from families is low in privatized housing, the project owners 
can garner rent from other tenants which includes single military 
members. Currently, single military members are taking advantage of 
living in privatized housing and there are 756 residents, which equates 
to 5.8 percent of the overall Air Force privatized housing occupied 
homes, residing in privatized housing. While this ``waterfall'' is 
essential for developers' cashflow in privatized housing, our strong 
preference is for our most junior enlisted members to reside in 
dormitories where we can better provide oversight, mentoring, and full 
support.
                                 ______
                                 
               Questions Submitted by Senator Bill Nelson
                       naval air station key west
    115. Senator Bill Nelson. Secretary Penn, I understand that the DOD 
approved but that OMB subsequently disapproved funds in the current 
fiscal year 2006 supplemental appropriations request related to storm 
damage at NAS Key West. Without this repair important training at Key 
West may suffer. What is the dollar value of the necessary repairs and/
or recovery?
    Mr. Penn. A total of $35.6 million for facilities in Key West, FL, 
was not included in the Emergency Supplemental Appropriation request. 
This includes $18.5 million for the Base Operations Facility, $10.3 
million for the Aircraft Crash and Rescue Station and Fire 
Headquarters, $5.4 million for Trumbo Fire Station, and $1.4 million 
for planning and design. The President has proposed language in the 
supplemental request that would allow reprogramming of available funds 
to accomplish storm damage recovery. This approach would allow the 
Department of the Navy to ensure mission is supported.

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

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

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

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

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

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

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

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

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


DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR 
                                  2007

                              ----------                              


                       WEDNESDAY, MARCH 15, 2006

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

                        GROUND FORCES READINESS

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

       OPENING STATEMENT OF SENATOR JOHN ENSIGN, CHAIRMAN

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

               Prepared Statement by Senator John Ensign

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

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

              STATEMENT OF SENATOR DANIEL K. AKAKA

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

             Prepared Statement by Senator Daniel K. Akaka

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

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

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

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

            Prepared Statement by LTG James J. Lovelace, USA

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

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

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

    Senator Ensign. General Huly.

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

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

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

                              introduction

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

    -- Approximately 40 percent of all Marine Corps ground equipment, 
50-55 percent of communications equipment, and 20 percent of aircraft 
assets are being used in OIF/OEF/Horn of Africa (compared to 
approximately 21 percent of Active Marine forces deployed in support of 
those combat operations). Much of this equipment is not rotating out of 
theater with each force rotation; hence it is being used on a near 
continuous basis at operating tempos that far exceed normal peacetime 
use. To source this warfighting requirement, the Marine Corps forces 
deployed with equipment that was retained in theater upon force 
rotation, the Maritime Prepositioning Ships Squadron-2 (MPSRON-2), the 
Marine Corps Prepositioning Program-Norway (NCPP-N), and Marine Corps 
Logistics Command In-Stores Ready-for-Issue equipment was employed. 
This was first reported last year when I MEF returned from Iraq to a 
degraded readiness level due primarily to leaving so much of its 
equipment (particularly communications gear) behind for II MEF to fall 
in on.
    -- The Marine Corps is executing a number of operational missions, 
including Stability and Support Operations (SASO), Counter-Insurgency 
(COIN), Area and Point Defense, Civil Military Operations, and Foreign 
Military Training, which require additional equipment over the levels 
programmed for expeditionary warfare requirements.
    -- The Marine Corps is operating in western Iraq's (Al Anbar 
province), which constitutes over 28,000 square miles (roughly 
equivalent to the area of the State of Utah). Operations across such a 
wide area necessitates additional convoys/vehicles, communications 
connectivity and crew served weapons over the standard unit equipment 
density list.
    -- The Inspector General of the Marine Corps conducted an in-
theater review of the material condition of equipment in Iraq in early 
2005, which identified the much higher than forecast use of equipment 
and the attendant consequences for which replacement procurement/repair 
needs to be addressed. The levels of useful life expenditure for both 
ground and aviation equipment exceeded those forecast in our original 
fiscal year 2004 Demand on Equipment evaluation, and the primary 
impacts are displayed on chart A-1 on the next page.
      
    
    
      
    -- Recent operations in support of global war on terror have 
highlighted the limitations of Marine Aviation legacy platforms 
operating in the harsh environments of OIF and OEF. CH-46E performance 
has reduced the number of available aircraft to the point where 
available aircraft deployed to global war on terror aircraft are flying 
at 200 percent of their planned utilization rate to successfully 
accomplish the mission. Resetting the Marine Aviation force means not 
merely replacing damaged/destroyed aircraft but getting better aircraft 
in the field sooner. The operational capability enhancements afforded 
by the MV-22, AH-1Y/Z, KC-130J, and Heavy Lift Replacement (HLR) (CH-
53K replacement for the CH-53E) would enhance our effectiveness in the 
current fight and serve as the cornerstone of our future operational 
assault support capabilities.
    -- Higher aircraft utilization rates in extreme temperatures, high 
altitudes, and the corrosive desert environment have created 
maintenance challenges for Marine Aviation. We have mitigated our 
aircraft reset requirements as much as possible through specific 
aircraft modifications, proactive inspections and corrective 
maintenance. While these efforts have successfully increased aircraft 
reliability, sustainability, and survivability, significant reset 
efforts exist. Additional requirements for depot level maintenance on 
airframes, engines, weapons, and support equipment will continue well 
after hostilities end and our aircraft have returned to their home 
stations. With no active production lines for our existing rotary-wing 
aircraft, addressing near-term inventory shortfalls requires revisiting 
the production ramp-up rates for the procurement of the replacement MV-
22 and H1Y/Z aircraft. To accomplish this and in view of inventory 
shortfalls we are examining the H-1Y/Z program for expansion from a 
remanufacture-only program to include new procurement as well.
    In spring 2004 the Marine Corps initiated an effort to assess the 
magnitude of the requirement to repair or replace equipment being used 
at high operating tempos under the harsh environmental conditions of 
Iraq and Afghanistan. At the direction of the Secretary of Defense, the 
Marine Corps prepared a Demand on Equipment (DOE) analysis. That 
analysis was performed for a select number of large dollar value ground 
and aviation systems, and it revealed that the additional wear on this 
equipment in theater was rapidly accelerating platform/equipment aging.
    After completing the DOE analysis of all aircraft and 96 major 
ground systems, the Marine Corps identified $2.2 billion in executable 
repair and replacement costs to begin resetting the force, which was 
reflected in the Marine Corps Fiscal Year 2005 Supplemental request.
    The Marine Corps also expanded its evaluation of reset requirements 
and reviewed the top 300 high cost/high interest items for proper 
quantities, costs, executability and resourcing strategy (these 300 
items equate to approximately 96 percent of the total reset cost 
estimate). For the remaining 2,100 items (approximately 6 percent in 
terms of cost), a common sense review was undertaken. Appropriate, 
approved modernization items (i.e., later type, model, series or 
enhanced capability) were included in the reset estimate.
    Marine Corps reset costs do not reflect all global war on terror 
equipment-related costs, some of which are categorized as costs of war. 
Such items as future attrition losses, spares replenishment and other 
ongoing sustainment, which are dependent upon force levels in theater 
and operating tempo, are inherently difficult to forecast with any 
accuracy beyond one year and those costs have been categorized as costs 
of war that will continue to be incurred as long as marines are 
deployed in support of OIF/OEF.
                         the reset requirement
    Supplemental funding is absolutely essential to continue to address 
resetting the force. The reset requirement is in addition to the 
ongoing cost of war requirement, which addresses annual equipment 
attrition, intermediate and organizational maintenance, second 
destination transportation, replenishment spares and other sustainment 
costs. As an example, our annual Procurement, Marine Corps (PMC) 
baseline budget averages approximately $1.3-$1.5 billion. If PMC were 
required to absorb this cost to reset within the current annual 
resource profile, it would effectively create a pause to all 
modernization and replacement programs for approximately 5 years (see 
figure A-3).
      
    
    
      
    Industrial capacity constraints added to the anticipated decline in 
readiness rates make it prudent to begin the reduction of the bow wave 
of resetting the force requirements as soon as possible. Changes to the 
defense industrial base have sharply limited the ability to surge 
requirements without additional facilitization costs. For these reasons 
the Marine Corps has phased its reset requirements over a period of 
several years and believes that Supplemental funding will be necessary 
after the completion of OIF/OEF in order to address all reset costs 
resulting from those operations. Accurately forecasting the total cost 
to reset the force is dependent upon calculations as to what percentage 
of the current inventory in theater will be repairable or will need to 
be replaced, how much equipment may be left behind for Iraqi forces, 
and other such determinations which are highly dependent upon 
circumstances and conditions that cannot be easily predicted years in 
advance.
                                training
    While we adjust to the current operational environment, we also 
keep our eye on the future. We are undertaking initiatives to 
strengthen the training and education of our marines. In the joint 
arena, we are supporting DOD efforts to create a flexible and dynamic 
Joint National Training Capability, and we are making large 
infrastructure investments at our Combat Training Center at Twentynine 
Palms, California. With recent large-scale joint urban operations added 
to our extensive history of urban combat experience, the U.S. Marine 
Corps has a vested interest in the preparation of our forces to fight 
in this challenging environment. Experience shows the need for large-
scale, purpose-built, urban training facilities capable of training 
Marine Expeditionary Brigade (MEB) sized units. This is required in 
order to conduct joint live-fire combined-arms combat training, 
concurrent with live stability, security, transition and reconstruction 
operations in a complex, dynamic, multicultural urban environment.
    In CMC's Revised Guidance issued in mid April 2005, the endstate is 
stated in part as ``a Marine Corps that is a learning organization: 
Embracing innovation and improvement in order to increase its 
effectiveness as part of the joint force.'' Over the past 3 plus years 
the Marine Corps Center for Lessons Learned (MCCLL) has provided 
briefings, information papers and reports on observations and lessons 
from ongoing operations to decision makers and resource managers, Joint 
and Joint Forces Command ``lessons learned'' organizations, coalition 
partners and others. MCCLL routinely has a total of three to five MCCLL 
team members embedded in the MEF units in Iraq, and a team just 
returned from Afghanistan. MCCLL members continue active collection of 
lessons and observations from current operations, and are training 
units on the MCCLL Lessons Management System. Concurrent collection, 
dissemination, archiving, and integrating into our Expeditionary Force 
Development System (EFDS) continues in CONUS.
    To focus our training efforts, all deploying Marine units continue 
to rotate through a standardized training package. Building on home 
station training in mission essential skills, ground units deploy to 
the Marine Air Ground Task Force Training Center at Twentynine Palms, 
California, for in-depth training in current operating environment 
skills to include urban and convoy operations, fire support, rules of 
engagement and escalation of force, detainee handling and counter-IED 
operations, culminating in a 3-day full profile mission rehearsal 
exercise utilizing interaction with Iraqi-Americans serving as key role 
players. Our Marine Corps aviation units participate in a standardized 
training package, Desert Talon, in Yuma, Arizona. All of these training 
events are founded on lessons learned from our operating forces. With 
your continued support, all of these efforts will ensure your Marine 
Corps retains the ability to respond and contribute whenever and 
wherever the Nation calls.
                    modernization and transformation
    As we look into the future, the requirements for naval forces to 
maintain presence, engage allies and potential coalition partners, 
build understanding and operational relationships, relentlessly pursue 
terrorist organizations, and project sustainable forces ashore for a 
wide variety of operations will increase. While we continue to focus 
our efforts on sustaining the current requirements for global war on 
terror, we must not sacrifice our modernization and transformation 
initiatives in the process. Our modernization and transformation 
accounts cannot bear the unfunded costs associated with sustaining the 
global war on terror, which is why the administration is requesting 
funds in the fiscal year 2006 supplemental to continue addressing the 
resetting of our forces. Our modernization and transformation 
initiatives must plan for the procurement of replacement equipment that 
will enable our Corps to be ready for future conflicts and 
contingencies.
                           resource strategy
    While more work and analysis needs to be done, the Marine Corps has 
established a consistent pattern of identifying and acquiring the 
material solutions necessary to sustain the global war on terror while 
continuing to modernize and transform. First, we have embraced the fact 
that the global war on terror has, and continues to have, an impact on 
our ability to restore our warfighting capability. Second, we have 
implemented procedures to allow for the identification of all global 
war on terror-related funding requirements, including both the ongoing 
costs of war and our requirements to reset the force. Finally, we have 
adjusted acquisition strategies to maximize procurement efficiencies. 
As a part of this process we have worked within the constraints of 
several planning factors. Most notable amongst these factors is the 
consistent, sustained deployment of approximately 40 percent of our 
ground assets and 18 percent of our aviation assets in support of the 
global war on terror. Exacerbating the reality of that fact is the 
quantifiable assumption that all the equipment in theater eventually 
will be attrited or beyond economical repair--specifically, it will 
need to be replaced. In some cases, both ground and aviation assets 
will be replaced through normal, yet accelerated, procurement methods 
making maximum use of both the Bridge and full supplementals to 
maintain the cash flow necessary to maintain uninterrupted equipment 
deliveries from our vendors. The continuing use of supplemental funding 
requests to address our global war on terror and reset requirements is 
obvious in the context of the magnitude of those requirements in 
comparison with our annual allocated baseline budget, and based on the 
very real difficulties in projecting out future costs of war when 
conditions such as operating tempo, the speed with which Iraqi security 
forces can transition to full mission capability, insurgent activity 
and sectarian violence cannot be accurately predicted. Our supplemental 
requests are based on our best assessment of what is required to 
address essential wartime readiness tasks, with consideration for what 
is already in our peacetime operating budget to maintain readiness.
    In all instances we have rigorously assessed our ability to 
contract for and obligate our supplemental funding requested to 
expedite the delivery of this equipment; however, due to industrial 
base and other execution issues, a portion of our requirements must be 
deferred until fiscal year 2007 and subsequent fiscal years. To date we 
have obligated over 94 percent of the fiscal year 2005 bridge and 85 
percent of the fiscal year 2005 supplemental funds received, and have 
obligated or committed over 40 percent of the fiscal year 2006 bridge 
supplemental funds we received on 27 December 2005, with 85-90 percent 
obligations anticipated by May 2006. This prudent yet expedited 
execution approach will allow us to mitigate some of the readiness 
issues associated with the heavy utilization of Marine Corps equipment 
in OIF/OEF; however, continuing congressional support for our future 
supplemental funding requests will be necessary to address the totality 
of the requirement. The Marine Corps, while continuing to meet global 
war on terror mission requirements, is operating with increasing risk 
in equipment readiness to support deployed forces. Resetting the force 
requires timely resourcing if the Marine Corps is to remain the 
Nation's premier force in readiness.
                               conclusion
    The readiness of our Corps remains dependent on our ability to 
continue to attract and enlist young men and women dedicated to the 
preservation of freedom and to service to our great Nation. We must not 
take them or their families for granted. With the support of the 
American people, we continue to access and retain the highest quality 
and proper numbers of marines for our Corps during war. We must 
continue to inspire, train, and equip them for success. Our fiscal year 
2007 budget and our fiscal year 2006 supplemental request work together 
to address our essential operational and maintenance requirements to 
sustain our readiness, while providing opportunity for investment in 
the resetting and continued modernization of our Corps. On behalf of 
all marines and their families we greatly appreciate the unwavering 
support of Congress in the readiness and resetting of the Marine Corps.

    Senator Ensign. General Vines.

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

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

              Prepared Statement by LTG John R. Vines, USA

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

    Senator Ensign. General Sattler.

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

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

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

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


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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    25. Senator Ensign. General Vines, how far along are we with that 
training?
    General Vines. Accomplishing all these goals simultaneously in a 
resource-constrained environment (as well as developing Police and 
Infrastructure Protection Forces) required significant prioritization 
and for this reason combat maneuver units were fielded first to give 
the Iraqi Army the capability to control battle space, albeit with 
coalition logistical support, with a view toward gradually 
transitioning them to independent operations once their attendant CS 
and CSS formations are operational. Now that the preponderance of 
combat maneuver formations are formed, the priority shifts to manning, 
training, and equipping CS and CSS enablers in order to accelerate the 
pace of transitioning battlespace to the Iraqi Army and the 
corresponding off-ramp of U.S. and other coalition forces.
                                 ______
                                 
             Questions Submitted by Senator James M. Inhofe
                           reserve components
    26. Senator Inhofe. General Vines and General Sattler, you have 
both commanded troops in Iraq. What was the status of the training of 
both the Active and Reserve component units that you got?
    General Vines. The ability of the Active component to change 
mission profiles and retrain in other skill sets demonstrated the 
adaptability, leadership, and caliber of the Active component soldier. 
The Reserve component units were also adaptable and trained but for a 
specific mission set. Time is a critical factor for Reserve component 
adaptability. Some Reserve component units were more ready than others. 
Those Reserve component units that quickly integrated into the 
battlespace conducted a longer than average post-mobilization period, 
attended critical MOS producing schools to meet mission requirements, 
and/or were augmented with Active component officers and soldiers.
    General Sattler. The baseline level of training for all Marine 
units deploying to Iraq continues to improve daily as we take lessons 
learned and incorporate them into our training, all units go through a 
cycle of equipping, forming, training, and deploying for combat. The 
current Pre-deployment Training Program, which all units conduct, and 
the current structured Mojave Viper (Ground) and Desert Talon (Air) 
field training exercises have greatly improved the readiness and 
operational capability of each unit since OIF I. Training has become 
more rigorous and standardized since early deployments and now includes 
transition team training and improved combat vehicle operator training.
    For Marine Corps Reserve units, pre-deployment training 
effectiveness seemed to be a function of pre-activation preparation and 
time allotted to training. Reserve units were required to undergo the 
same training as Active units, but faced challenges in meeting all 
timelines due to unique requirements attendant to activation of Reserve 
units and individuals. Reserve units possess capabilities equal to 
their Active-Duty counterparts.
    Training does not stop once units deploy to Iraq. Commanders at all 
levels routinely conduct after-action reviews of events and take action 
to ensure skill levels are maintained and meet the requirements of 
changing enemy tactics and techniques.

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

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

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

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

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

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

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

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

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

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

    37. Senator Inhofe. General Lovelace, the Army has listed five UH-
60 Blackhawk and 10 CH-47 Chinook helicopters on the unfunded priority 
list as battle losses. Why aren't these included in the supplemental?
    General Lovelace. We requested and received funding for 3 UH-60s in 
the fiscal year 2006 bridge supplemental, 20 UH-60s in the fiscal year 
2007 bridge supplemental, 1 CH-47 in the fiscal year 2006 bridge 
supplemental, and 17 CH-47s in the fiscal year 2007 bridge 
supplemental.
                                 ______
                                 
             questions submitted by senator daniel k. akaka
                            reserve callups
    38. Senator Akaka. General Huly and General Lovelace, what 
percentage of your Reserve component personnel are available to be 
called up again under the statutory limit of 24 consecutive months, and 
under the more restrictive DOD policy limiting reservists to 
involuntary callups of 24 cumulative months?
    General Huly.
Reserves on hand (AR, IMA, SMCR, IRR, AND IADT) = 97,545
    Mobilized 24 consecutive months or more = 1,911
    Percentage available for Mobilization = 98 percent

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR 
                                  2007

                              ----------                              


                        WEDNESDAY, APRIL 5, 2006

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

                    IMPROVING CONTRACTOR INCENTIVES

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

       OPENING STATEMENT OF SENATOR JOHN ENSIGN, CHAIRMAN

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

               Prepared Statement by Senator John Ensign

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

    Senator Ensign. Senator Akaka?

              STATEMENT OF SENATOR DANIEL K. AKAKA

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

             Prepared Statement by Senator Daniel K. Akaka

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

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

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

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

                 Prepared Statement by David M. Walker

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

         DOD generally does not evaluate contractors based on 
        award-fee criteria that are directly related to key acquisition 
        outcomes. In addition, the link between the elements of 
        contractor performance that are included in the criteria and 
        these outcomes is not always clear. As a result, DOD paid out 
        an estimated $8 billion in award fees over the life of the 
        contracts in our study population (from their inception through 
        our data collection phase), \1\ regardless of whether 
        acquisition outcomes fell short of, met, or exceeded DOD's 
        expectations.
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    \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.
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         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\
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    \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.
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    \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.
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    \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.]

                                 
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