[Senate Hearing 110-819]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-819

 ADDRESSING COST GROWTH OF MAJOR DEPARTMENT OF DEFENSE WEAPONS SYSTEMS

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

                                HEARING

                               before the

                FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
                   INFORMATION, FEDERAL SERVICES, AND
                  INTERNATIONAL SECURITY SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 25, 2008

                               __________

       Available via http://www.gpoaccess.gov/congress/index.html

       Printed for the use of the Committee on Homeland Security
                        and Governmental Affairs






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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
THOMAS R. CARPER, Delaware           GEORGE V. VOINOVICH, Ohio
MARK L. PRYOR, Arkansas              NORM COLEMAN, Minnesota
MARY L. LANDRIEU, Louisiana          TOM COBURN, Oklahoma
BARACK OBAMA, Illinois               PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri           JOHN WARNER, Virginia
JON TESTER, Montana                  JOHN E. SUNUNU, New Hampshire

                  Michael L. Alexander, Staff Director
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk


FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, FEDERAL SERVICES, 
                AND INTERNATIONAL SECURITY SUBCOMMITTEE

                  THOMAS R. CARPER, Delaware, Chairman
CARL LEVIN, Michigan                 TOM COBURN, Oklahoma
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
BARACK OBAMA, Illinois               GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri           PETE V. DOMENICI, New Mexico
JON TESTER, Montana                  JOHN E. SUNUNU, New Hampshire

                    John Kilvington, Staff Director
                  Katy French, Minority Staff Director
                       Monisha Smith, Chief Clerk












                            C O N T E N T S

                                 ------                                
Opening statement:
                                                                   Page
    Senator Carper...............................................     1
    Senator Coburn...............................................     4

                               WITNESSES
                      Thursday, September 25, 2008

Hon. James I. Finley, Deputy Under Secretary of Defense for 
  Acquisition and Technology, U.S. Department of Defense.........     6
Michael J. Sullivan, Director, Acquisition and Sourcing 
  Management, U.S. Government Accountability Office..............    18
Steven L. Schooner, Co-Director, Government Procurement Law 
  Program, The George Washington University......................    20
Clark A. Murdock, Ph.D., Senior Adviser, International Security 
  Program, Center for Strategic and International Studies........    22

                     Alphabetical List of Witnesses

Finley, Hon. James I.:
    Testimony....................................................     6
    Prepared statement...........................................    35
Murdock, Clark A.:
    Testimony....................................................    22
    Prepared statement...........................................    79
Schooner, Steven L.:
    Testimony....................................................    20
    Prepared statement...........................................    64
Sullivan, Michael J.:
    Testimony....................................................    18
    Prepared statement...........................................    47

                                APPENDIX

Chart referred to by Senator Carper..............................    53
Questions and Responses for the Record from:
    Mr. Finley...................................................    86
    Mr. Sullivan.................................................   111

 
                    ADDRESSING COST GROWTH OF MAJOR
                     DEPARTMENT OF DEFENSE WEAPONS
                                SYSTEMS

                              ----------                              


                      THURSDAY, SEPTEMBER 25, 2008

                                 U.S. Senate,      
        Subcommittee on Federal Financial Management,      
               Government Information, Federal Service,    
                              and International Security,  
                          of the Committee on Homeland Security    
                                        and Governmental Affairs,  
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:32 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Thomas R. 
Carper, Chairman of the Subcommittee, presiding.
    Present: Senators Carper and Coburn.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. The Subcommittee will come to order. Dr. 
Coburn, how are you?
    Senator Coburn. I am fine. Glad to be with you.
    Senator Carper. Good. I am glad to be with you. I just 
checked in with the cloakroom to see if we are going to have 
any votes during your testimony, Dr. Finley, or the testimony 
of the second panel. It looks like we will not.
    Senator Coburn. I would advise the Chairman that I am going 
to be on the floor at about 3:50 p.m., so I will be leaving.
    Senator Carper. Fair enough. But we are looking forward to 
this hearing. We appreciate the willingness of our Subcommittee 
to address the cost growth of major Department of Defense 
weapons systems. Currently, the financial strain on our country 
and our government is daunting, and government must watch every 
dollar that we spend and stretch those dollars that we do 
collect from taxpayers.
    That challenge has gotten even tougher and the road steeper 
with the President's proposed bailout that we are chewing on 
literally as we speak.
    More and more families every day lose their homes as a 
result of foreclosures, and their neighbors face devaluation of 
homes in their neighborhoods. More Americans are losing their 
jobs as unemployment rates are at their highest level in some 5 
years. I do not know what the unemployment rate is like in your 
State, but we are up to almost 5 percent, which for Delaware is 
very high.
    The cost of food and gas has skyrocketed over the last year 
or so, making it harder for Americans to fill up their tank and 
fill up their stomachs at the same time. And just last week, 
some of our Nation's oldest financial institutions folded, 
warning of a potential stock market crash and threatening the 
security of retirement investments for millions of Americans.
    Given the times that we live in, every dollar that the 
government, our government, spends inefficiently is a dollar 
that is not spent to help the American taxpayer deal with these 
financial strains in their lives.
    This Subcommittee tries to examine every aspect, but a lot 
of the aspects of the Federal Government to better ensure that 
our spending is working for Americans and not against them. 
This means that we need to look to see if the Department of 
Defense--where some of the most costly items in the Federal 
budget reside--is also spending taxpayer dollars efficiently.
    Some of us may remember that at this time last year we 
actually looked at a very small part of the Defense budget, and 
we investigated whether or not we were achieving strategic 
airlift, our ability to move troops and cargo over long 
distances by air in a cost-effective way, and at the time we 
held a hearing to decide whether efforts to modernize our 
largest airlifter, the C-5 Galaxy, remained a cost-effective 
way to meet our strategic airlift needs. And we learned that 
there were ways to reduce the cost of modernizing our C-5 
fleet. And I am happy to say that Under Secretary of Defense 
John Young, whom I think Dr. Finley reports to and serves with, 
was a key player in helping to enact those cost reductions and 
provide more cost-effective airlift. It turns out we can 
modernize two or three C-5Bs for roughly the cost of buying one 
brand-new C-17, and each C-5B carries about twice as much as a 
C-17. C-17s are great planes, but when you have C-5s that you 
can modernize for that kind of cost, we decided it would be 
cost-effective to do that.
    But one year later, we are here to apply the process of 
identifying and enacting cost reductions on a broader scale.
    This hearing will examine the cost growth of some of the 
Department's largest weapons systems and some of the problems 
the Department has had with delivering these systems on time 
and under budget. And this hearing could not have come any 
sooner.
    Last April, the Government Accountability Office released 
its annual assessment of the DOD's major acquisition program 
and revealed that the cost overruns on the Department's 95 
largest acquisition programs have now amounted to some $295 
billion over their original program estimates, putting the sum 
total of these acquisition costs at $1.6 trillion. And as we 
can see on the chart to our left.\1\
---------------------------------------------------------------------------
    \1\ The chart appears in the Appendix on page 53.
---------------------------------------------------------------------------
    In 2000, 75 programs were picked by GAO, I guess, as major 
defense acquisition programs; next year, 91; next year--what 
does that say?--95 in a cost overrun situation. The dollars 
were most interesting. There was not a great growth in the 
number of programs over that 7-year period, although there is 
some significant growth. But the thing that really caught my 
eye is the amount that these programs that are over budget had 
grown from $42 billion in 2000 to some $295 billion in 2007.
    I am not good enough in math on my feet, but if we were to 
run that out for another 10 or 20 years, that would really be 
startling. But it has caught my eye, and it sure did Dr. 
Coburn's as well.
    During a Senate Armed Services Committee hearing on this 
same topic, the Chairman, our friend Carl Levin, outlined what 
the Department of Defense could have bought with that same $295 
billion, and I want to take it just a little bit further and 
ask what the Federal Government, not just the Department of 
Defense, but what the Federal Government could have done with 
that money.
    And right behind Dr. Coburn, we can get an idea. We could 
pay for the Iraq war through the spring of next year worth $85 
billion, and we would still have plenty left over. We could fix 
all the levees in New Orleans for $10 billion. We could go on 
to create the Apollo program to help our auto companies kick 
our addiction to foreign oil. We could pay for the SCHIP 
program for 5 years. We would still have money left over to 
provide universal preschool for the next 10 years, expand our 
Army divisions for the next 10 years by two divisions, and that 
is about 40,000 troops, I believe; and then meet our nationwide 
demand for passenger rail corridors, another $60 billion. And 
that would add up to $295 billion. That is a lot of stuff that 
we could do. I think for the most part really good stuff. And 
we cannot do it because we do not have the money. As it turns 
out, we do not have this $295 billion either, but we are going 
to turn around to borrow it from other countries around the 
world.
    Some young students were in the other day, and they asked 
me about printing money. They said, ``When the Government runs 
out of money, do you just print it?'' I said, ``No. We borrow 
it.'' We borrow it from people around the world. And the 
unfortunate thing about that is that sometimes it puts us at 
their mercy, especially on foreign policy issues. When you are 
borrowing a lot of money from a country like China, the 
question is: Do we do the same thing in our foreign policy that 
otherwise we would do if we did not owe them all that money? It 
reduces our options.
    Let me say that, clearly, we could have tackled a bunch of 
major problems with this money that our country faced, but we 
do not have these funds. And I wish DOD had used these funds to 
buy the silver bullet that would help us to secure Iraq, defeat 
al Qaeda, the Taliban operating in Afghanistan and along the 
borders with Afghanistan, but we do not.
    However, that is for another hearing altogether, and maybe 
we will have a chance to consider those issues then. But we are 
not here to look at what we might have spent this money on, 
what we could have spent this money on. We are here to look at 
flaws in the defense acquisition system which has led to our 
collective wallets being about $295 billion lighter.
    When the Senate Armed Services Committee looked at this 
back in June, Chairman Levin and the GAO identified four 
factors that they believe were most important in leading to 
this situation: First, unrealistic cost and schedule estimates; 
second, unrealistic performance expectations; third, advancing 
the program with immature technologies; and, fourth, changing 
program requirements during development.
    The goal of this hearing is to further investigate how 
these four factors produced the situation we are in today, 
which I believe is untenable, and our witnesses are going to 
help us address these factors and how we can plug the holes in 
the inefficient acquisition process.
    I am delighted to be here with Dr. Coburn.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. Well, first of all, let me thank all of our 
witnesses for being here and to relay on behalf of the Chairman 
and myself that we do appreciate your public service. We 
understand oftentimes you are unappreciated, and so we plan on 
having a fairly frank discussion today with you about what we 
see as a commentary to what Senator Carper mentioned.
    We have enumerated powers in the Constitution, and a lot of 
the problems that we are facing today financially have to do 
with the fact that the Congress got outside of those and did 
not manage them and did not oversight them and did not regulate 
them. And so we see problems. However, the subject we are going 
to be talking about is very specifically enumerated within the 
Constitution, and that is the defense of this country. And when 
we look and see what has happened in procurement, this is not a 
new problem.
    As a matter of fact, if you go back to the first ships 
George Washington ordered, they had a significant problem with 
cost overrun and delay. They started with six ships and went to 
two. So this is a pretty longstanding problem. But I think it 
has very good relevance that we have never addressed the real 
issues.
    One of the things that I hope that we will cover--and I 
know Dr. Finley has, and I know GAO has--is there are 
tremendous incentives to underestimate the cost so you can get 
a program started. And, some unique contracting can take care 
of that. If you underestimate the cost, you pay for it. There 
is a penalty to the contractor who underestimates the cost. 
That will stop some of that. That is not hard to do. That is 
done in business all the time.
    Second is research and development, having the contract and 
having the cost overrun ought to be borne by the developer of 
it, which would, therefore, reflect in the higher up-front cost 
estimate rather than a low-cost estimate knowing that they are 
going to get remunerated for it.
    Sometimes we hear, well, it is the shrinkage in the number 
of contractors that has increased the cost. But we had these 
same problems 30 years ago, and we had three times as many 
contractors. So what we are talking about is not anything that 
is really new.
    Sometimes we hear the fact that, well--and we know, I 
recognize this is a problem, the acquisition force and the 
retirement dates and the decrease versus what we would like to 
see, except we had a full-fledged acquisition force during the 
Cold War, and we had the same problem.
    So some of the reasons that we put forward for why we are 
having a problem today, they do not pass the muster of history. 
They do not answer the question. The real problem is 
underestimate, lack of contractor accountability in cost 
sharing and risk sharing, and then the real major problem is 
called ``requirement creep.''
    And so when you combine lack of proper incentives to get 
the right prices combined with requirement creep, you are going 
to have a disaster. And the Defense Department, unfortunately, 
is not the only Department in the Federal Government that has 
that problem. But if we do not get a hold of it, the problems 
that we are facing in the future are going to be horrendous.
    The latest estimate on Medicare and Medicaid is $100 
trillion unfunded liability. I do not see a way out of this 
unless we really markedly change things.
    So I look forward to our testimony. I believe a lot of what 
GAO has reported is right. But the answers on what the problems 
are, the answers in addressing those markedly having an 
increase in the realistic cost when we start a program rather 
than kidding ourselves so we can get it started and have it 
within our budget, hoping the money is on the come and that we 
will catch up with it, is really fooling ourselves. And in the 
long run, it fools the Defense Department, because you end up 
getting less of what you wanted and not as effective a 
component as what you wanted, and so I look forward to the 
testimony of Dr. Finley, as well as our other witnesses, and I 
hope that we can together, Senator Carper and I can bring to 
bear some common-sense solutions to this in the next defense 
appropriations, defense authorization bill so that we start 
changing the incentives.
    With that, I thank you, Mr. Chairman.
    Senator Carper. You bet. Thank you.
    Jim Finley is the Deputy Under Secretary of Defense at the 
Department of Defense. He is responsible for advising--I almost 
said ``advertising,'' but he is responsible for advising the 
Secretary of Defense and the Under Secretary of Defense for 
Acquisition, Technology, and Logistics on matters relating to 
acquisition and the integration and protection of technology. 
Prior to joining the Department of Defense in his current 
position, Dr. Finley spent over 30 years in the private sector 
and held a variety of operational management positions with 
General Electric, with Singer, United Technologies, and General 
Dynamics.
    And we are delighted that you--in addition to doing all 
those things, you managed to take out time in your life to 
serve our country, and you have been in this job for what, a 
couple years?
    Mr. Finley. Thirty-one months.
    Senator Carper. Thirty-one, OK. And does it seem like 31 
years?
    Mr. Finley. No, sir. Every day seems awesome.
    Senator Carper. Oh, that is great. Well, we are glad you 
are doing it, and we are delighted that you are here today.
    Your entire statement will be made part of the record, and 
we would ask that you summarize as you see appropriate. Thanks 
for joining us.

TESTIMONY OF HON. JAMES I. FINLEY,\1\ DEPUTY UNDER SECRETARY OF 
  DEFENSE FOR ACQUISITION AND TECHNOLOGY, U.S. DEPARTMENT OF 
                            DEFENSE

    Mr. Finley. Thank you. Let me start off by, first of all, 
saying that I completely agree with your opening remarks and 
the focus of keeping our eyes very sharp on the taxpayers' 
dollars, serving our country and our national security. It is 
the highest on our radar screen.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Finley appears in the Appendix on 
page 35.
---------------------------------------------------------------------------
    Chairman Carper, Senator Coburn, and distinguished 
members--who will hopefully yet appear.
    Senator Carper. Some are coming.
    Mr. Finley. Thank you for the opportunity to appear before 
you today to discuss the Department's policies and practices in 
the acquisition and technology of major acquisition systems. I 
will also discuss the GAO report entitled ``Defense 
Acquisitions, Assessments of Selected Weapon Programs.'' I am 
fully committed to acquisition excellence and the restoration 
of the confidence in our leadership for our acquisition system.
    The history of acquisition reform for the Department of 
Defense covers more than 60 years and over 128 studies on 
waste, fraud, and abuse. At the time of my confirmation 
hearing, February 2006, the consensus seemed to be that the DOD 
acquisition process was broken.
    After my first 90 days in office where I listened, 
discussed, and reflected on the leadership perspectives of 
Congress, industry, and DOD military and civilian personnel, my 
opinion was that the acquisition process was not broken. We 
quickly moved to recruit and fill key positions. We eliminated 
a layer of management to tighten communication. We aligned the 
organization for better accountability and improved efficiency 
and effectiveness.
    My perspectives and actions coming from industry with over 
30 years of experience in aerospace and defense have been 
shaped utilizing that experience to help hold together the 
acquisition workforce and leverage existing and new acquisition 
reform and transformation initiatives. We have added oversight 
discipline into the process to ensure that the basic blocking 
and tackling in executing the acquisition process is being 
done. We have gained insight to help scale and tailor processes 
where and when needed, to implement changes with a sense of 
urgency that streamline and simplify the processes.
    We established three overarching goals: One, to reduce our 
cycle times; two, to increase competition; and, three, to 
broaden communications--up, down, and across the DOD and with 
Congress, industry, academia, and our coalition partners. We 
developed a 3-year plan, established our vision and strategy, 
and implemented goals and initiatives with a sense of urgency. 
Today, we are 31 months into implementing that plan.
    We are striving for acquisition excellence with a vision 
that starts with leadership and ends with predictable 
performance. Our strategy reshapes the enterprise to accelerate 
lasting change. We deployed a broad set of objectives by using 
short- and long-term initiatives. Those objectives include 
enabling decisionmaking for balancing the program and portfolio 
trade space with the convergence of affordability, schedule, 
and performance needs; getting programs started right with 
improved up-front planning and utilization of risk management, 
competitive prototyping, technology and manufacturing readiness 
metrics, early integration and tests; collectively providing a 
basis for cost realism prior to major acquisition decisions.
    Improving process efficiency with a focus on tailored, 
agile, open, and transparent communications; checks and 
balances that utilize Lean Six Sigma methodology, objective 
incentive fee criteria, systems engineering across the 
acquisition landscape, and conducting preliminary design 
reviews prior to milestone B.
    Providing program stability with program management tenure, 
organizational empowerment, stable funding, integrated master 
schedules, and Configuration Steering Boards.
    These objectives and initiatives are also applied to Nunn-
McCurdy breaches. More examples are provided in the semiannual 
Section 804 congressional report in accordance with the John 
Warner National Defense Authorization Act for Fiscal Year 2007.
    A comprehensive analysis of the GAO report ``Assessments of 
Selected Weapons Systems'' has been initiated. Of the $295 
billion of cost growth identified in the report between 2000 
and 2007, $202 billion--approximately two-thirds of the $295 
billion--was incurred before 2004; $93 billion was incurred 
from 2004 to 2007, with a pipeline of about $1.5 trillion, 
representing an approximate 3-percent growth per year for those 
2 years utilizing year 2008 base year dollars. We are still 
analyzing that 3 percent. We do not consider it to be a crisis, 
but need to better understand the uncontrollable elements of 
rising medical costs, rising material costs--i.e., specialty 
metals--rising fuel costs, and requirements changes.
    Another perspective is the definition of the baseline of 
the GAO report of $295 billion cost growth. Between 2000 and 
2006, we added 48 programs and removed 30 major defense 
acquisition programs. That mix change represents a content-to-
content difference and is not fully understood and is still 
being analyzed. For example, the quantity of ships, aircraft, 
vehicles all changed during the GAO report time frame. The DDG 
51 ship baseline went from 23 to 62 ships. The JSF quantities 
were cut by 409 aircraft, reduced the total quantity to 680. 
The future combat systems increased their quantities for 
brigade combat teams. The Virginia class submarine shifted from 
a two-per-year procurement to a one-per-year procurement at two 
naval shipyards and experienced increased shipyard labor and 
material costs.
    Our review of the GAO data reflects the changes, some but 
not all, as characterized here for these four programs 
contributed $147 billion, 50 percent of the $295 billion. The 
GAO data in this regard continues to be reviewed with the GAO 
to better understand the root causes of the cost growth and 
where to focus attention and take action.
    Our perspectives of the five conclusions from the GAO 
report have been summarized in our written testimony. We 
continue to work with the GAO to better understand their data, 
methodologies, and conclusions associated with the assessments 
of selected weapons systems.
    In summary, measurable progress for acquisition excellence 
has been accomplished on a broad front of initiatives. We have 
traction. We will continue to improve. Much work remains to be 
done. A plan for that work has been established. It goes beyond 
this Administration.
    Chairman Carper, Senator Coburn, and distinguished members 
of the Subcommittee, thank you for the support of our troops. I 
will be pleased to address any questions you may have.
    Senator Carper. Thanks, Dr. Finley. Let me just lead it 
off. And thanks very much for your testimony.
    The Department's weapons system acquisition process has, I 
think, been on the GAO's high-risk list--I want to say about 18 
years, since 1990. And since that time, the Department has made 
what GAO has called ``well-conceived changes to its acquisition 
policies.'' But as we have seen from the graphs up here 
earlier, the outcomes still are not improving, or at least not 
the way we would like for them to.
    In your own view, why are the acquisition programs immune 
to the kind of improvement that we both seek? And what are the 
factors that make them so susceptible to cost growth, to 
delivery delays, and to poor performance?
    Mr. Finley. Well, I think there is a lot of agreement 
between the GAO and DOD on some of the issues that are driving 
these, as you summarized on the chart. Technology maturity has 
been a definite problem, and----
    Senator Carper. Talk about that a little bit, if you would.
    Mr. Finley. OK. The technology maturity is now defined to 
be a Level 6 before we go forward with an ACAT I major defense 
acquisition program. At a Milestone B decision, you are to have 
demonstrated a Level 6 of technology maturity. Some programs in 
previous decisions have not achieved a Level 6 and yet have 
gone forward with a Milestone B decision.
    Senator Carper. Who allows that to happen? And whose job is 
it to ensure that it does not happen?
    Mr. Finley. Well, I think it is a collective 
responsibility. OSD--in my case, I am OSD in A&T. We are to 
provide the oversight to make sure that does not happen; or if 
it does, we need some assurances as to how these technology 
maturity issues would be mitigated in a timeline that would not 
be detrimental to the critical path of the program.
    Senator Carper. So you have, on the one hand, your program 
managers for a particular weapons system pushing hard to try to 
get something done, built, through the pipeline. And at the 
other--it is almost like having your car, you have an 
accelerator and you have a brake.
    Mr. Finley. Right.
    Senator Carper. And you have to be able to use both of 
them. Somebody has got to be pushing on the brake.
    Mr. Finley. I think many programs that were coming forward 
were of a PowerPoint design, paper design, and trusting without 
verification was being done.
    Senator Carper. Without prototypes. Is that correct?
    Mr. Finley. Without prototypes. The initiatives of Mr. 
Young to enforce competitive prototyping not only helps provide 
us a cost realism base, but also it promotes competition early 
on in the timeline.
    Part of our objectives are to cut our timelines by 50 
percent. Right now we are taking upwards of 10 years plus to 
field weapons systems. We believe we can cut that timeline in 
half.
    Senator Carper. Any idea why DOD stopped this process of 
prototyping?
    Mr. Finley. I do not have an insight on that. I think part 
of the dilemma that DOD experienced as well as industry was we 
lost systems engineering capability on both sides of the 
equation. And we have been working very actively to bring 
system engineering back into the fold as a key decisionmaker at 
the table.
    Senator Carper. A concern that I have, it sounds like the 
Department of Defense and you and John Young and Gordon England 
are trying to get us back in terms of acquisition on these 
weapons systems, back using common sense, using better business 
judgment. And I have this concern we are going to have a change 
in administration in about 3 or 4 months, and I do not know if 
you want to sign on for another tour or you want to go spend 
time with your grandchildren or other things. But if we do have 
a new team that comes in, my concern is that some of the 
reasonable changes, solid changes that are being adopted may 
not stick. And, Dr. Coburn, I think part of our challenge is if 
we stick around here for a while longer--I think we have a 
couple more years left on our no-cut contracts. But I think 
part of our job is to make sure that the reforms that they have 
begun, some of the smart practices they are going back to, that 
the next Administration adheres to those as well and builds on 
them. And I know GAO is going to be here to help us to ensure 
that happens.
    Mr. Finley. I feel very good--excuse me, if I may, I 
personally feel very good about where we are at. When I came 
into office, I had a very long timeline to get confirmed even 
though I had numbers of years of experience and had all the 
security credentials. But, nonetheless, once I got confirmed, 
when I came in I had six direct reports, and four of my six 
direct reports were not here. And people advised me, ``You are 
in deep trouble.'' I told people, ``I am in great shape.'' 
Because what we did was we recruited people to fill those 
positions that had three ingredients and three criteria that we 
established: One, we wanted industry experience; two, we wanted 
them to have military experience, preferably with MDAP 
programs, and the scar tissue to prove it; and, three, we 
wanted them to have the passion to serve their country.
    I am very pleased to inform the Subcommittee that we have 
filled these positions, and we have had these people in these 
positions now for some years. So they are career SESs at the 
senior level, and this we are talking about now is within OSD. 
And as we build our rapport within OSD and AT&L, going outside 
the AT&L organization into the Comptroller organization, the 
P&E organization, the Joint Staff organization, and now getting 
into the component organizations, we start to build traction 
and respect, and we have to work this as a team very 
collaboratively. It is a contact sport.
    But these are expert people. They know the business, and we 
are now also bringing together, pushing this down into the 
organization to empower people to make decisions. So I believe, 
if I were to leave today, I personally believe the organization 
of Acquisition and Technology is in very strong shape and would 
support Mr. Young and has supported Mr. Young, as well as Mr. 
Krieg before Mr. Young, in an excellent fashion. I believe we 
are on the right path. I think there is at least one other 
additional element on the areas of factors that are giving us 
cost growth, and that is funding stability. And funding 
stability--when I came to be confirmed by the U.S. Senate, 
certainly technology maturity and requirements creep were right 
there on the radar screen, and we are in complete agreement on 
those issues, and I believe today we have those issues 
corralled. And I believe we have them shackled, and I believe 
we have ways as a matter of discipline to hold people's feet to 
the fire to make the hard decisions and say no if they are not 
ready.
    But beyond that, funding stability became a very visible 
issue, and if I looked at PB08 and the 90-some programs that 
are MDAP category, all but one of those programs had funding 
changed from the PB09 submission. Of the Nunn-McCurdys that 
were done in 2007 and submitted as part of the PB08, if you 
will, five of those six Nunn-McCurdys had just been certified 
by the AT&L all had their funding changed as part of the 
President's budget approval.
    So we have got to get a handle on funding stability as part 
of this equation to get better acquisition excellence, or we 
will be struggling with it--and it is not just the Congress, 
sir. Our own OSD Comptroller will play with funding. Our 
planners and programmers will play with funding to pay 
unexpected bills. We simply have to get into a better process 
working together to get more stability in the funding program.
    Senator Carper. We saw that on the C-5 modernization and 
working with John Young. If we ended up ramping up production 
of the C-5Ms, we would go from one to three to five, seven, 
nine--somewhere up around nine is the sweet spot in terms of 
aircraft to retrofit every year. But then if we drop back down 
to three or two and back up to seven, the inefficiencies are 
there, unfortunately, and the costs are just driven up very 
high. That is, I guess, part of our challenge, and as we are 
not appropriators----
    Senator Coburn. We just need to become appropriators, too.
    Senator Carper. Dr. Coburn says we need to become the 
appropriators, too. Actually, I was thinking about that today.
    Let me turn it over to Dr. Coburn. I have some more 
questions, and maybe we will have a second round here in a 
minute.
    Senator Coburn. Dr. Finley, it is your contention that you 
have the systems in place that, without you and the two or 
three people below you, this program change, this culture 
change that has been instituted in the last 31 months will 
continue? That is your contention?
    Mr. Finley. It is a start, yes. But we did not start 31 
months----
    Senator Coburn. That is a different answer than what I--
will it continue?
    Mr. Finley. Yes, I believe it will. But we did not start 31 
months ago. What we did was we built, I believe, on a lot of 
good work that was done back in the QDR time frame, certainly 
before I arrived, and there were a lot of good ideas, and there 
were a lot of good initiatives going on before I arrived. We 
simply picked up a lot of those good ideas, and we joined each 
other at the hip, and we started moving them together, forward.
    We will continue to have good ideas, I believe. We will 
continue to become more innovative in our approach to business, 
things like the Configuration Steering Board, which is now 
going to become law. We certainly appreciate Congress' acting 
on that, and John Young, Mr. Young, brought that forward, in 
particular to help stabilize some of the funding requirement 
changes as well as some of the stability changes for the 
programs.
    So we should never stop looking for new ideas to cut the 
cost and reduce the schedule and find smarter ways to do 
business.
    Senator Coburn. Let me just query you for a minute because 
I am not educated in a lot of these areas and do not have the 
practical experience or the knowledge. Explain to me why when 
we contract for a new weapons system that we do not place more 
of the risk on the contractor.
    Mr. Finley. Well, I think----
    Senator Coburn. I mean, if you are contractor, it is a 
slam-dunk. You are going to make money. Now, I do not know any 
other business in this country that has a slam-dunk no matter 
what they do or what the performance is, they are going to make 
money. So what I do not understand is why we have not 
transferred some of the risks for new technology based on the 
guaranteed reward that is going to be there to these individual 
contractors. Can you teach me or educate me so I can have a 
better understanding of that?
    Mr. Finley. Certainly. Prior to the environment that we are 
in today with cost-plus contracting, we were in fixed-price 
contracting, and the pendulum was, let's say, way over here on 
the left. And as companies were eating the risk and swallowing 
the cost, that pendulum started to swing over to the far right 
to cost-plus award fee and cost-plus incentive fee kinds of 
contracts.
    We have changed the award fee criteria so it is not a slam-
dunk, and we have also advocated and have started to put into 
regulation with the 5000 change that you will now go more 
toward what we call fixed-price incentive contracts and push 
the profit that companies can make more to the right of their 
timelines as opposed to spread closer to the left, which is 
where it has traditionally been that we have discovered, and by 
doing that, we share that risk--industry shares more of that 
risk, if you will, than the government than before. And by 
fixed-price, it starts to definitize what has to be delivered 
and what the expectations, what the requirements are in terms 
of the deliverables.
    The dynamic in contracting is changing dramatically, and 
that is very recent.
    Senator Coburn. Are you seeing that transmitted into a 
decrease in underestimation of costs?
    Mr. Finley. I would say it is premature----
    Senator Coburn. A decrease in the frequency of 
underestimation of costs.
    Mr. Finley. I would say it is premature. The programs where 
we are going to see fixed-price incentives are new starts or 
our program restructures out of Nunn-McCurdy breaches, if you 
will, because we are applying all these techniques both to 
programs that are in the pipeline as well as new starts. But 
programs like Tanker, programs like JLTV, programs like JAGM, 
Joint Advanced Missile program--all these programs are carrying 
fixed-price incentive types of contracting vehicles with them.
    Senator Coburn. Did not the--I am trying to think which 
iteration of the Tanker contract. The one that was recently 
challenged, did it not have a significant component, about 18 
percent, of cost-plus contracting in it?
    Mr. Finley. I am not familiar with all those details.
    Senator Coburn. Well, I may be in error. It may have been 8 
percent or 9 percent. But here is the question for you. Here 
you have something that the Air Force has been trying to buy 
for 15 years, and then we let a contract, and 8 or 10 percent 
of it still cost-plus. I cannot fit that with any modem of 
common sense that the Air Force does not know what it wants in 
the way of a tanker in terms of requirements. Why there would 
still be a component of cost-plus rather than a pure fixed-
price-plus-incentive contract, I do not understand that. And so 
I am trying to get a hold, if we are going to have an impact to 
try to help you do what you need to get more defense for this 
country for the same amount of money, it would seem to me we 
have to figure those kind of--we have to answer those 
questions.
    Mr. Finley. I agree.
    Senator Coburn. OK. Thank you. I will withhold any 
additional questions. Thank you, Mr. Chairman.
    Senator Carper. Dr. Finley, when you reported aboard to 
your present position, were confirmed and moved into your job, 
how long had that post been vacant? Any idea?
    Mr. Finley. I think it was 3\1/2\ years.
    Senator Carper. That is part of the problem. Why was it 
vacant for so long?
    Mr. Finley. I am not familiar with all the details, but I 
believe there was some gridlock for the appointees in 
Acquisition due to the Druyun situation with the Air Force, 
which had a number of people in the Pentagon, like Mr. Wynn was 
Acting AT&L, he could not move. As a result, the AT&L back-ups 
for him could not come in. And then that waterfall just went 
downhill, and the pipeline just got backed up.
    Senator Carper. I see. So your position that you filled a 
couple of years ago, 31 months ago, that position was vacant 
for about 3 years. When you got onboard, confirmed, and moved 
into your post, out of your six direct reports, four positions 
were vacant?
    Mr. Finley. Yes, sir.
    Senator Carper. That helps explain some of this, doesn't 
it?
    Senator Coburn. Yes. That would be our fault.
    Mr. Finley. You did have acting SESs in those positions, 
but they were acting, and they were excellent people. But I 
could have certainly promoted those to be permanent, acting 
directors, if you will. I elected to take the road less 
traveled perhaps, and I wanted an experienced senior military, 
senior industry experience that could really build this team 
for the long run. And we have excellent people up and down and 
throughout the organization.
    Senator Carper. And your six direct reports, those are 
folks that stay, even if you decide to go off----
    Mr. Finley. I have two politicals that report to me: One is 
in industrial policy and the other one is in small business 
programs. Both of those organizations report to me. They will 
be exiting on or about January 20, as far as I know. And we 
have great back-ups for them as well.
    Senator Carper. Well, obviously, the next Administration 
and the next Congress needs to do a better job of addressing 
this.
    Mr. Finley. It is a big issue, sir. It is something I 
believe Secretary Gates is addressing way up front, much 
earlier, I am told, than previous Administrations, even the 
current Administration. And we are very proactive, and very 
open and transparent about what we believe ought to be 
addressed. And we are building our cases for the people that 
come in and relieve us, if you will.
    Senator Carper. In the Navy, we used to have turnover. We 
would be overseas for 6 months, home for 8 months, overseas for 
6 months, and home for 8 months. And whenever we would go 
overseas, the squadron that we were leaving would have a 
turnover document that they would turn over to us and basically 
explain what their jobs were and to help us come up to speed.
    I presume you have a similar kind of turnover, but if it 
had been 3 years since your predecessor left, it is pretty hard 
to have much of a constructive turnover.
    Mr. Finley. Well, we have accomplished a lot. I believe we 
are back at full stride. I believe that there is a transition 
team that has been stood up in the Pentagon, for Secretary 
Gates, and it is in full swing.
    Senator Carper. I think one of the things we will get into 
with our next panel is the number of acquisition personnel that 
we actually have, whether the slots are filled or not, but the 
number that we have and whether or not we give them enough 
clouts, four-star generals, or three stars or two stars, do we 
have people for whom there is a good pipeline to grow to have a 
career? And do we give them enough oomph to do their jobs? Any 
thoughts on that? I think others will discuss that.
    Mr. Finley. Yes, the acquisition workforce is very high on 
my radar screen as well. The legislation last year, initiative 
852, did authorize but not appropriate, but we are taking it as 
if it were appropriated, and we have agreement with the OSD 
Comptroller and the principals of DOD and how we are going to 
do this. But it essentially is about $1.3 billion over the FDIP 
to reinvigorate the acquisition workforce. That is about 12, 13 
different functions that are called acquisition.
    Now, one of the holes that has come up, as you look at the 
personnel situation, and as you have addressed, very 
eloquently, both you, Mr. Chairman, and Senator Coburn, is 
requirements. And what do the requirements people get in 
acquisition? So we have also set up training modules and 
training capabilities and requirements. I think by law by 
September 30, the requirements people must have certifications 
to these acquisition levels of capability, or they will not be 
allowed to provide requirements for the programs of record, if 
you will, that they are making.
    So we are also very encouraged by this. This has been a 
major collaboration between the military and the civilian 
workforce at the Joint Staff level and all the services as well 
as OSD, and the P&R people of OSD as well. So we see very 
positive traction. Here, again, this is something that I do not 
think will be solved overnight, but the acquisition workforce, 
as people would normally think about the acquisition workforce, 
has been relatively flat for the past several years, but the 
workload on this workforce has doubled or tripled.
    Senator Carper. OK. Now, I am going to follow this up by 
just sharing with you a quote, I think it is a direct quote 
from GAO in the report that they presented to us. But it goes 
something like this: ``The unrealistic cost estimates for major 
weapons systems are developed in an environment where DOD 
commits to more programs than available resources can support, 
which promotes unhealthy competition among programs for 
funding. This competition creates strong incentives for program 
officials to establish requirements that make their particular 
weapons system stand out from others, with less consideration 
given to the resources that will be needed to develop them.''
    Now, you have already answered this in part. I want to ask 
you just to reiterate it and then add anything that you want. 
But that is a pretty serious problem, I think you will agree. 
Share with us again what are we doing in the Department of 
Defense, in the Office of the Secretary of Defense, in your 
shop, what are we doing to address this serious problem with 
DOD's acquisition culture? You have addressed it some. Restate 
some of what you have done if you want.
    Mr. Finley. Well, I think cost realism is a real issue. I 
do not think there has been enough competition. I do not think 
competition has caused people to buy in. I think it is more 
perhaps, if I have it right, if I was correct with Senator 
Coburn, you may bid unrealistically to get the program of 
record approved and through the decision gates to move forward. 
As we sometimes say, once you have the coffee cups, the mugs, 
and the T-shirt, you are good to go. In 2\1/2\ or 3 years, it 
may be predictable that you will have a Nunn-McCurdy.
    So the effort is to start with--the initiative of 852 is to 
start building more of our core competencies that we have lost 
in DOD over the years of attrition and restructuring and 
outsourcing to bring these core competencies that include price 
estimating and cost estimating back into the mainstream of OSD 
for oversight, but also to the services so that they have these 
inherent capabilities.
    Senator Coburn. Just a little rebuttal. When you had those 
core capabilities, you had the same kind of cost overruns. So 
how does that answer the question?
    Mr. Finley. Well, it is a start. Coming from industry and 
the years of fixed-price, more fixed-price development if you 
will, than cost-plus, the leadership I was groomed under and 
the management training I received was to perform. And if we 
had problems, we came and we worked them, and we went eyeball 
to eyeball, to resolve those differences quickly and not let 
them drag out.
    Again, there is no silver bullet, but getting the functions 
back in the right place is part of getting the right people in 
the right place.
    I think the aspects of empowering the workforce, 
recognizing the workforce, fundamentally comes down to a lot of 
discipline issues and leadership issues. And we have got to get 
that back to where it was, with accountability.
    So, again, there is no one piece that is going to do this 
all by itself. It will take time to get back to where we were, 
and I am not sure if where we were was acceptable to you, Dr. 
Coburn. But I would say from my experience of where we were in 
industry, in excellence and performance, the channels I came up 
through, is where I am trying to help steer this for the 
future.
    Senator Coburn. Yes, and I am not meaning to demand that. I 
am just looking back at history of what we have seen from the 
1930s, the 1940s, the 1970s, when we had these varying levels 
of competency and staffing and everything else.
    Mr. Finley. Yes, sir.
    Senator Coburn. This is the same problem. When we had cost-
plus, fixed-price, we had the same problem. To me it goes back 
to the two major problems: One is requirement creep, which 
somebody has to get a hold of so that if you are going to have 
a requirement creep, it does not happen until you do the first 
MOD; and the second is underestimation of costs when you begin 
it so you can get a program started. And the transparency in 
that aspect of it, with a penalty--and, really, the Pentagon is 
complicit in this because they want the program, so they have 
an incentive to have it come in under cost knowing that it is 
unrealistic. And so what happens, the American taxpayer gets a 
program that is supposed to cost this, and we all know it is 
never going to come close to costing that, and that is just the 
way we do business.
    We have to break that cycle because, quite frankly, in the 
years to come the Defense Department spending as a percentage 
of the total budget is going to be less. Our interest costs are 
going to be 27 percent this year. Now, think about that. And in 
10 years, they are going to be 40 percent. Some of it is going 
to come out of the Pentagon.
    So we need to be about making sure--and I applaud your 
service and your leadership. My hope is--and I think, Senator 
Carper, I can speak for both of us--that the leadership that 
you have put in will be followed by similar leadership that 
will continue to penetrate accountability, responsibility, 
integrity, and performance. And that is my worry. And we did 
not even talk--I have got several other questions which I will 
submit for the record, but, of the people who are the worst in 
terms of purchasing IT, it is the Pentagon. This Subcommittee 
has followed all IT problems throughout. GAO has been helping 
us with it. But, by far--and you have the worst IT in the 
country, and the rest of the country is way ahead of you on IT. 
And yet the cost overruns, the programs that are in trouble in 
IT, it is the same problem.
    So our hope is and our appreciation is--we know people are 
trying, are working. There has got to be something we have not 
got, and I think the two things are underestimation in the 
original and requirement creep. And unless we do something to 
change those things, we are going to keep getting the same 
results.
    Mr. Finley. Another major shift in response to those two 
areas, one of the observations we made when we came onboard was 
so much was being done with these programs--and these programs 
are obviously much bigger and much more complicated, to a large 
extent, than we have had in the history of the DOD. But the 
acquisition strategies in these procurements were what we would 
characterize as ``big bang.'' You would have expectations on 
requirements that were unachievable, to a large extent. But 
trust me, no problem, we will get there.
    What we have done is we have gone--again, what we have done 
before--this is nothing new to this--is go back to a more 
incremental strategy that you develop a little, you test a lot, 
and you deliver a capability to the field. And you increment 
this with a strategy that provides the warfighter something 
they can use in the security of the country, and at the same 
time we do not--we can then estimate costs more realistically, 
and we have a better handle on our requirements.
    In parallel with that, in our S&T world, we can be 
incubating newer technologies and newer activities as on ramps 
to come into these programs when and if ready. But they will be 
done in an incremental block fashion.
    Now, there are several programs of record--F-18, F-16--that 
have practiced this in spades since their inception, and they 
do get very favorable write-ups. Of all the programs written up 
in the most recent GAO report, 10 of the programs, in fact, did 
return money. All these ACAT I programs, MDAPs did not overrun.
    Senator Coburn. And what were those, again, tell me? Just 
give me some examples.
    Mr. Finley. The Growler program, F-18G, did underrun its 
budget--on schedule, below budget, meeting performance.
    Senator Coburn. What else?
    Mr. Finley. I will take it for the record. I have it 
somewhere in my notes here.
    Senator Coburn. That is OK. I would love to see that.
    Because our tendency, when we are doing Federal financial 
management oversight, our tendency is to always look at the 
negative. It is great to hear about the positive and to figure 
out what happened there and why and how do we duplicate it. So 
I would very much appreciate it.
    I am going to offer the rest of my questions for the record 
so we can move on.
    Senator Carper. One last quick question if I could, Dr. 
Finley, before you leave us. The hearing that John Young came 
before at Armed Services and testified in early June, I think 
Chairman Levin asked him for the Department's position on a 
proposal by Senator Levin, a proposal to create an independent 
office that would review cost estimates on all major defense 
acquisition programs and would develop its own independent cost 
estimates. And at the time, back in early June at the hearing, 
Mr. Young said that the Department, your Department, did not 
have a position on this proposal. And I am just asking, do you 
all have a position now?
    Mr. Finley. I think there is a DOD position on this. I do 
not have it in front of me.
    Senator Carper. Would you submit that for the record for 
us, please?
    Mr. Finley. Certainly. I would be happy to.
    Senator Carper. OK. Well, I think we will excuse you at 
this point in time. Thank you very much for joining us.
    Mr. Finley. Thank you so much.
    Senator Carper. And thank you for your stewardship. Thanks 
for putting together a good team around you. And if on January 
20th, you decide to head out into the sunset, we wish you fair 
winds and following sea, as we say in the Navy.
    Mr. Finley. Thank you. We appreciate your service as well, 
Senator Coburn as well. We appreciate your support to our 
troops. This is an ongoing efforts. Everybody is committed. In 
my opinion, it does come down to leadership. We need strong 
leadership, and you need checks and balances, and you need 
informed oversight to kick those cans in the right place. I 
think we are making progress.
    Senator Carper. OK. I hope you are right. I think you are 
right. Thank you so much.
    Mr. Finley. Thank you.
    Senator Carper. Welcome, panelists. I am going to take just 
a moment and provide a brief introduction for each of you, if I 
could.
    Mike Sullivan served as Governor of Wyoming when I was 
first elected Governor of Delaware. You looked different then. 
You have a lot more hair now. Actually, Mike Sullivan was a 
Governor of Wyoming, but it was another Mike Sullivan. And I am 
sure there are a bunch of you out there. This Mike Sullivan 
serves as Director of Acquisition and Sourcing Management at 
the Government Accountability Office where he has worked for 23 
years. Most recently, he directed GAO's Annual Assessment of 
Major Weapons Systems Programs, which is the subject of our 
hearing today, and we are grateful to you for being here.
    Steve Schooner is an associate professor of law and co-
director of the Government Procurement Law Program at The 
George Washington University. Before joining the law school 
faculty in 1998, Professor Schooner was the Associate 
Administrator for Procurement Law and Legislation at the Office 
of Federal Procurement Policy in the Office of Management and 
Budget and served for--how many years in the military? Twenty 
good years?
    Mr. Schooner. Twenty good years.
    Senator Carper. Twenty good years in our armed forces. 
Thank you for that service.
    And Clark Murdock--this is the second hearing we have had 
literally in a week where one of our witnesses' names was 
Murdock. The other fellow, we had to call him ``Dr. Murdock.'' 
He is the fellow who is the head of the census.
    Clark Murdock is the Senior Adviser to the International 
Security Program at the Center for Strategic and International 
Studies, specializing in strategic planning, defense policy, 
and national security affairs. He currently directs the four-
phase study on the Defense Department's reform ``Beyond 
Goldwater-Nichols: U.S. Government and Defense Reform for a New 
Strategic Era.'' Mr. Murdock has served in many roles in the 
defense world, including as a Senior Policy Adviser to House 
Armed Services Committee Chairman Les Aspin, with whom I was 
privileged to serve. This Clark Murdock looks familiar to me. I 
know that our paths have crossed before, and I very much 
enjoyed serving with Les Aspin. We thank you for joining us 
today and for your willingness to testify.
    Gentlemen, I have been asked by my staff to remind you that 
we would ask you to try to keep pretty close to 5 minutes. I am 
not one who will gavel you down at 5 minutes, but try your best 
to keep close to 5 minutes, and then we will get into some 
questions. Thank you.
    Mr. Sullivan, why don't you lead us off?

TESTIMONY OF MICHAEL J. SULLIVAN,\1\ DIRECTOR, ACQUISITION AND 
   SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Sullivan. Thank you, Chairman Carper. I am pleased to 
be here to discuss the Department of Defense's management of 
its major weapon system acquisitions. My statement today will 
focus on current acquisition program outcomes, the reasons for 
them, and potential solutions, some of which the Department is 
now trying to implement, as you heard from Dr. Finley earlier.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Sullivan appears in the Appendix 
on page 47.
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    With regard to outcomes, the Department is not receiving 
expected returns on its investment. As the table to my far left 
indicates, which mirrors some of the----
    The most important number on that table is the $295 
billion, probably.\2\
---------------------------------------------------------------------------
    \2\ The chart referred to appears in the Appendix on page 53.
---------------------------------------------------------------------------
    Senator Carper. All right.
    Mr. Sullivan. Since we began our annual assessments in 
2000, which is one of the columns on that table, the number of 
major acquisition programs has grown by 20, from the 75 to the 
95. Total investment by the Department in those programs has 
doubled to $1.6 trillion. Development cost overruns have 
increased from 27 percent in 2000 to 40 percent in the programs 
in the 2007 portfolio. And delays in deliveries have increased 
from 16 months to 21 months. All told, this represents the 
total cost growth that you allude to on your pie chart up there 
of close to $300 billion and results in degraded buying power 
for not only just the Department but, as you point out, for the 
Nation as a whole.
    There are systemic problems that contribute mightily toward 
these poor outcomes, and we break them into strategic and 
programmatic. At the strategic level, there simply are too many 
programs chasing available dollars in the Department's 
acquisition budget. As the other graphic up here to my left 
indicates--and I think this gets at some of the questions that 
Dr. Finley was fielding--the Department's organizations and 
processes that identify needs--in other words, candidates to 
become programs--funding, and the acquiring of the weapons 
systems, which together these three processes and their leaders 
more or less make up the Department's overall acquisition team, 
are fragmented and broken. Leadership at these levels is not 
necessarily answerable to each other, and, therefore, there is 
little accountability for the poor outcomes.
    The requirements process, which is led by the Vice Chief of 
Staff, tends to be stovepiped. Each of the services may offer 
different new acquisition programs, sometimes to fill the same 
capability gap, creating an overwhelming number of candidate 
programs that must promise very high, sometimes unachievable 
performance, with very low, often unachievable cost estimates 
in order to fit into the Department's budget. The funding 
process, led by the Comptroller, accepts these overly 
optimistic cost estimates as inputs, which is not a sound basis 
for allocating resources and ensuring program stability.
    Finally, the acquisition process, led by the Under 
Secretary for Acquisitions, initiates these programs, signs 
cost-reimbursable contracts with sole sources, and begins 
expensive product development with little or no evidence that 
technologies, designs, or manufacturing capabilities will be 
able to build the weapons system in question.
    At the program level, the programs begin with an 
unmanageable business case, cost, and schedule estimates heavy 
on optimistic assumptions, light on data. As a result, true 
costs and schedules are usually not known for years on these 
programs until assumptions give way to empirical evidence and 
significant sums of money have been consumed.
    To be sure, problems resulting from a poor business case at 
the outset will quickly cascade into design changes, 
manufacturing inefficiencies, quality problems, and delayed 
deliveries. Solutions are available, and we have made 
recommendations. A well-balanced, well-prioritized mix of 
candidate acquisition programs would alleviate the pressure 
each program now faces in winning the competition for funding 
in the Department. This means the Department must become more 
unified. Each of the three organizations that we have on our 
chart are critical to acquisitions and must integrate and must 
make early hard decisions together concerning needed 
capabilities and limited resources. That is something that does 
not exist today. There is an awful lot of segmentation between 
these three critical organizations.
    If the Department's leadership can get priorities right, 
limit the number of programs to start, and establish sound 
business cases which are executable, program managers that are 
responsible for those programs will be empowered to control 
program execution and then can be held accountable for their 
outcomes.
    The Department understands all this, and Dr. Finley talked 
to some of that today. It has many initiatives underway now, 
which I would be happy to go into in the Q&A. Some of them are 
in response to our recommendations, and some are in response to 
passed legislation that has been designed to address these 
problems. However, we have seen initiatives like this before 
that go back almost all the way to Dr. Coburn's example of 
General Washington needing the ships. The most recent Packard 
Commission in the 1980s is probably a good basis where a lot of 
this stuff has been said before, the answers are out there, but 
they just for some reason have not ever been implemented 
properly.
    Too often in the Department, well-meaning policy just does 
not translate into practice. Cultural barriers, the transitory 
nature of the positions at the top, and the stovepiped nature 
of acquisitions make culture change and improvement very 
difficult. Therefore, we will maintain a healthy skepticism 
until we see some results from these initiatives.
    In conclusion, Mr. Chairman, let me say that significant 
and lasting change in this acquisition process and in the 
requirements process and in the funding process can only take 
place with improved cooperation across the Department and the 
military services, continuing support and advocacy from a 
unified departmental leadership, and perhaps most importantly, 
sustained oversight from this Subcommittee and others in the 
Congress.
    I look forward to your questions on these and other ways to 
solve some of these problems.
    Senator Carper. Mr. Sullivan, thank you very much. Thanks 
for your good work and for being with us today.
    Next we will hear from Steve Schooner. Mr. Schooner? Is it 
Dr. Schooner? It is, isn't it?
    Mr. Schooner. Steve Schooner is fine, but professor is OK, 
not doctor.
    Senator Carper. Professor Schooner, take it away.

  TESTIMONY OF STEVEN L. SCHOONER,\1\ CO-DIRECTOR, GOVERNMENT 
   PROCUREMENT LAW PROGRAM, THE GEORGE WASHINGTON UNIVERSITY

    Mr. Schooner. Chairman Carper and Ranking Member Coburn, I 
appreciate the opportunity to discuss these issues with you 
today, and I will try to briefly offer some explanations in 
context and recommend that DOD could achieve better results by 
more aggressively employing incentives than disincentives and 
making a significant investment in the acquisition workforce, 
all of which you have apparently already heard at this point.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Schooner appears in the Appendix 
on page 64.
---------------------------------------------------------------------------
    Major systems are, by definition, challenging, complicated, 
and inherently risky. We have fundamental pathologies, we have 
absence of market forces on the buyer, an unwieldy 
appropriations cycle, a diffusion of responsibility, and all of 
this makes accountability maddeningly difficult. And that is 
why it is, frankly, overly optimistic to expect any institution 
to consistently and quickly advance the state of the art and 
employ significant untested technological applications while 
still meeting firm budgets and schedules. None of that means 
that we are not going to get superb weapons systems and we do 
not get value for money. And I do not mean diminish the 
importance of costs or schedule, but it is important to keep in 
mind that costs and schedule are not the only metrics.
    The relationships that we have seen discussed today 
typically proceed on the unstated assumption, by both parties, 
that the problems will be worked out during contractual 
performance. The parties do not resolve the ``unknown 
unknowns.'' They do not aggressively reduce programmatic risk. 
The government simply chooses a course of action, it selects a 
partner, and the parties know they will out the problems later. 
Contractors sign these contracts because they know that the 
likelihood of catastrophic failure is particularly low for 
large-scale and important programs.
    But just because DOD either will not or cannot pay for the 
necessary research and development needed for the systems to 
mature does not mean that the contractors have any meaningful 
choice other than to propose immature technologies and commit 
to long-term delivery schedules, knowing that the government's 
needs are rapidly evolving. The contractors enter these 
programs willing to invest and lose money on their bid and 
proposal costs, in their research and development, and 
typically in initial production--all hoping someday they are 
going to recoup that investment during full-scale production 
or, increasingly, foreign military sales.
    But because the government also lacks the patience to 
mandate demonstration and validation, we rarely see functional 
prototypes, and we almost never see competitive prototypes 
anymore. We would need a dramatic cultural change to generate 
the necessary funds and patience to complete R&D before 
production.
    Now, granted, the alternatives to tolerating overrun are 
limited and unattractive. You can stop the contracts and 
squander the investment made. The government can accept 
substandard products, or the contractors can suffer devastating 
losses. But none of that will work. The only way we are going 
to get better cost control and schedule discipline is to slow 
down the process, break the programs down into clearly defined 
stages, and then impose discipline ensuring that nothing goes 
forward until technological and design issues have been 
resolved.
    I just briefly wanted to go back to a point that Dr. Coburn 
made. The underestimation that you describe is caused in large 
part by government policies and practices, and to place all of 
the cost risk on contractors for that is simply not feasible in 
the current environment. Some of the most spectacular 
acquisition debacles we have ever seen in history were fixed-
price research and development contracts.
    So when we go forward, I think what we have to look at is 
meaningful incentives and disincentives, not just disincentives 
but meaningful ones.
    Just last week, Minneapolis unveiled the new bridge 
replacing the I-35 bridge that collapsed just last year. That 
contract successfully employed meaningful incentives, a 
$200,000-a-day bonus. By bringing that contract in on time, the 
contractor made nearly a $20 million special profit for that.
    On a larger scale, DOE employed extremely lucrative 
incentives for the clean-up out at the Rocky Flats 
Environmental Site in Colorado. There, a project that many 
people thought simply could not be done was done for half a 
billion dollars under budget. Now, granted, this made a lot of 
contractors very wealthy, but you have a very satisfied 
government customer.
    But in the modern era, even with the revisions to DOD's 
profit policies with the weighted guidelines approach, we still 
have the problem that many government officials believe that 
artificially suppressing contractor profits is a public good. 
And as long as we live in a world where profit is evil, market-
based incentives and disincentives will not be the primary way 
to ensure that the government gets value for money.
    The human capital crisis is something that we could discuss 
at length. I am mindful of my time, but let me just mention 
three things. We have a legitimate crisis in terms of the 
acquisition workforce; we do not have enough quality program 
managers, and we are particularly short in terms of systems 
integration staff, and the new Defense Science Board study is 
very good in that regard.
    I just want to close with two brief anecdotes, and I will 
try to do it quickly.
    First, if we look at the Future Combat System, which is 
actually in GAO's report, this originally proceeded under the 
OTA, or ``other transactions authority,'' and, frankly, there 
is nothing less transparent or less appropriately managed that 
we have in our arsenal. I am glad to see that this program came 
out of the OTA program, but I encourage Congress to limit OTA 
authority to the maximum extent possible.
    But I would like to close with an anecdote talking about 
the Air Force and the tanker program. The Air Force has been 
saying for years that its aging in-flight refueling capacity 
was one of its highest priorities. We had an original lease 
deal that was ill-conceived, non-competitive, and it was 
ultimately derailed. We followed that up with a competition 
that failed. And, recently, Defense Secretary Gates conceded 
that DOD can no longer complete a competition that would be 
viewed as fair and objective in this highly charged 
environment.
    Looking back, what this saga created was: It cost private 
industry and private shareholders staggering sums of money in 
proposal costs and legal fees; it generated the dramatic and 
destabilizing procurement scandal; it exposed relentless 
protectionist pressures that hamper the procurement system; it 
diluted public confidence in the procurement system; and at the 
end, it achieved nothing in terms of meeting the warfighters' 
needs for restoring the Air Force's in-flight refueling 
capacity.
    So, in closing, let's not forget that the ultimate goal of 
major system acquisition is providing the end user with the 
tools necessary to perform the individual's or the 
organization's role in furthering the agency's congressionally 
mandated mission. Obviously, lots of room for improvement 
remains.
    That concludes my statement, and I look forward to 
answering any of your questions.
    Senator Carper. Professor Schooner, thank you.
    Dr. Coburn said, ``I have got to go. I have just been 
paged.'' He is heading over to the floor, but he expressed his 
thanks to the panel.
    Mr. Murdock, you are recognized. Please proceed. Thanks for 
joining us.

   TESTIMONY OF CLARK A. MURDOCK, PH.D.,\1\ SENIOR ADVISER, 
   INTERNATIONAL SECURITY PROGRAM, CENTER FOR STRATEGIC AND 
                     INTERNATIONAL STUDIES

    Mr. Murdock. Thank you. I am pleased to be here, sir, and I 
commend the Subcommittee and commend GAO for its long record of 
substantial analysis of this problem. I will just say a few 
words in summary. I have a statement that I have submitted.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Murdock appears in the Appendix 
on page 79.
---------------------------------------------------------------------------
    The defense acquisition system is incredibly complex, 
process centric and risk averse. As the Defense Science Board 
(DSB) concluded when it looked into the Darleen Druyun scandal, 
it is so complex that her mastery of the system gave her the 
ability to abuse it and give her a position of invulnerability.
    The system is characterized, as we have been discussing 
throughout, by a loss of competency, a lack of accountability. 
I think that was really demonstrated when the previous witness, 
Dr. Finley, when you asked him why was it that systems were 
passing Milestone B authority when they did not have the 
mandated Level 6 technological maturity, you asked him who is 
responsible for that, and he said, ``Well, it is a collective 
responsibility.'' Committees are not responsible. Individuals 
are responsible. Program managers are responsible. That is one 
of the reasons why I think we have to change the system instead 
of continuing to talk about the system.
    There is a lack of transparency, and we have all talked 
about the dysfunctional incentives system that causes 
everyone--we say it is overpromise, we say it is underestimate, 
we say it is structural optimism in the system. Really what it 
is is everybody lies. The incentive structure is that strong. 
You want to get a program started? You say what you have to say 
to get it. You want to get a program through Milestone B? You 
say what you have to say to get it through Milestone B. You 
want to get a requirement validated? You say what you have to 
say to get it validated by the Joint Requirements Oversight 
Council (JROC). Systems do not fail, yet they continually 
underperform.
    My package depends upon a couple of large precursor 
statements, one of which is addressable, one of which is not.
    The first is, I think, the military services get out of the 
requirements generation business. Only the combatant commanders 
have operational requirements. They are the warfighters. They 
are the only ones with the requirements. The services provide 
capabilities to meet the combatant commanders' needs. We need 
processes--and there has been progress in that direction, but 
it is incomplete--processes that increase and enhance the 
authority and the influence of the combatant commanders over 
the definition of requirements. We have made a number of 
proposals on that. It is something we can examine in questions.
    The second one is an issue that has been referred to a 
number: Budget discipline, too many programs chasing too few 
dollars. Secretary Young earlier this year urged in an early 
2008 memo that programs should be properly priced and that he 
was ready for the resulting budget increases to squeeze 
programs out so that we would have a fully funded acquisition 
program budget left. Well, good luck with that. We say these 
things all the time. We do not do them. There is nothing harder 
in Washington to kill than a bad weapons program, as we all 
know.
    What is the goal here? I think it is a very straightforward 
one. As I indicated, it is an acquisition system characterized 
by accountability and realism, and by that we mean the 
accountability of institutions, decisionmakers, and program 
managers based on realism in cost, schedule, and performance 
goals, based on realistic assessments of technological 
maturity. And I think the way you get there is through much 
greater transparency to both the Office of the Secretary of 
Sefense (OSD) and to the Congress on how acquisition programs 
are managed.
    We suggest briefly four things: Restore the service chief's 
authority and responsibility for the management and execution 
of acquisition programs. We have had civilians in AT&L and 
service secretariats managing these systems for the last 20 
years. Look at the track record. GAO has documented it. They 
cannot do it, and uniformed bodies tend to be much better on 
accountability than those in civilian suits. There is a crisis 
in the C-17 scandal. Two general officers and one civilian were 
involved in it. Two general officers lost their jobs. The 
civilian was Darleen Druyun. She went to NASA for an extended 
stay.
    The second thing, we need to establish four-start systems 
commands back in each of the services to build a cadre of 
acquisition generals that you need.
    We also need an acquisition process that has shorter, more 
frequent programs phases that are aligned with the tours of the 
program managers, and the program managers held accountable for 
the performance during that phase of the acquisition program, 
not one big one like Acquisition B, many smaller ones.
    And, finally, we need to establish independent assessment 
offices in both OSD and the military services that provide 
independent estimates, not just of costs, as Senator Levin 
suggested, but also of performance and also of technological 
maturity that would be available to those who have oversight. 
And then we need a Nunn-McCurdy on steroids that really 
punishes programs that fail.
    Thank you, sir.
    Senator Carper. I know both Sam Nunn and Dave McCurdy, the 
idea of them being on steroids, I am trying to sit here and 
think what that would look like. But I think I understand what 
you are saying.
    All right. I think I am going to start off by asking Mr. 
Sullivan and Professor Schooner just to respond to some of what 
Clark Murdock has said here in his testimony.
    Mr. Sullivan. Yes, I think one of the points that Mr. 
Murdock talked about I think I would agree with is that as you 
start to maybe try to take apart some of the basic problems 
with organizations and accountability in this, writ large, the 
acquisition process, which takes up those three--requirements 
and budgeting and acquisition processes as a whole--and, in 
fact, Mr. Murdock has done a lot of work in this. There is a 
Defense Science Board study that backs up a lot of what he 
says, that the services should stick to acquisitions. The 
services should get out of the requirements business. The 
COCOMs should have a lot more to say about requirements. They 
are fighting the wars, they are matrixed, they are joint. They 
are not as stovepiped. They can have representatives that bring 
prioritized needs forward. The funding process then should--the 
idea of an independent office I think is a good idea. It should 
be studied. It should be done properly. But right now cost 
estimates that come with the requirements that come forward 
with candidate programs are unreal. I mean, they basically have 
no founding in reality most of the time, and the reason for 
that is because the acquisition community and the S&T 
community, quite frankly, do not have a good handle on the 
technologies that they are asking for to get the capabilities 
that they want. They do not have a lot of the design experience 
that they need on these. These are revolutionary needs that 
they bring forward, things like the F-22 fighter.
    So these programs begin with an initial business case that 
I do not think anybody in the business inside the Pentagon even 
takes seriously. You have to wait 4 or 5 years, usually, and a 
lot of money spent and sunk into a program before you start 
getting to the reality of things. We are looking at a program 
right now, the Joint Strike Fighter, that is about midway 
through development, and real costs are beginning to come out 
on that.
    So I think that is one thing. The services should stick to 
proposing solutions. The Under Secretary for AT&L should make 
the decision. The Comptroller should accept better cost 
estimates based on knowledge. And the COCOMs, who have real 
skin in the game in terms of what they need to fight, should be 
more involved with the requirements.
    Senator Carper. Professor Schooner.
    Mr. Schooner. Both Mr. Murdock and GAO have focused on the 
issue of accountability, and I think this is a great 
opportunity just to look at one slice of the acquisition 
workforce crisis. In major programs, leadership is tremendously 
important, and there are a lot of people who believe that you 
need a visionary or one particularly dynamic individual, and 
that is critical to the success of any major program.
    But what private industry does is completely different than 
the approach the government takes. First of all, they use very 
significant monetary incentives, and they also provide key 
personnel with stability. Among the uniformed ranks and among a 
lot of senior government people, stability is anathema. 
Frequent rotation and diversity of assignments are necessary 
for promotion.
    Dr. Finley concedes that program managers on average are in 
their position for slightly less than 2 years, and that is an 
improvement. That is simply not going to get the job done, and 
we are nowhere close to really making significant progress on 
that.
    Senator Carper. Mr. Murdock, one of the things that 
Professor Schooner talked about was trying to introduce 
incentives, financial incentives, whether you are building a 
bridge in Minnesota or whether you are trying to clean up Rocky 
Flats in Colorado, to offer incentives for contractors. And I 
think back, I mentioned this to Professor Schooner in a 
conversation earlier this week that we had. When I was Governor 
of Delaware, we basically closed I-95 between the Pennsylvania 
line and Wilmington, Delaware. Initially we did it to the 
southbound lanes, just closed them, did not move them over to 
the northbound lanes, but we just closed them, and provided 
incentives for the contractor to get the lanes ``rubble-ized'' 
and rebuilt and repaved, and offered incentives for doing that. 
Then we did the same thing for the northbound lanes. And it 
worked. It was ahead of schedule. We were very pleased with the 
outcome, provided the incentive payments as well.
    But it works in highways. It works on I-95 in northern 
Delaware. It works on bridges in Minnesota. It apparently works 
out in Colorado at Rocky Flats. Is this idea a good one? Would 
it work and is it applicable to these major weapons systems?
    Mr. Murdock. There are aspects of it that I think would 
work, but I think there are many concepts that come out of the 
private sector that depend upon a healthy infrastructure to 
operate. I will give several examples--a few examples.
    In the private sector, people say best value, and they mean 
it; that people will pay for high-end performance if it is 
genuine high-end performance. The government is a very dumb 
customer. It has a very weak acquisition force. They say best 
value. They do not. They mean cheapest. And so you always have 
a mismatch right there at the very beginning where a contractor 
does not know what kind of incentives to respond to.
    My feeling is that I very much believe in making 
individuals accountable for different phases of the acquisition 
process. That program managers stay there for only 2 years is 
shocking. What you do is have shorter acquisition phases, you 
overlap the tours of program managers with those phases, and 
you make their PARs, their performance reviews, dependent upon 
what they inherited at the beginning of the phase and what they 
performed at the end of it. The incentives that they will have 
and the disincentives they will have, if you poorly perform, 
you are not going to get promoted. If you poorly perform, you 
are not going to go up the chain.
    So my belief is that you have to start with the 
individuals, and I believe there should be educational awards, 
there should be perhaps cash bonuses for good performance 
during that time the way we do with SES'ers. But I would do it 
at the individual level first before you start talking the 
large kind of incentives.
    In the private sector, there are two things that can change 
the performance of a company on a dime: One, performance 
metrics that are quantifiable and that you can measure; and 
two, performance-based compensation. Those two things are 
extremely hard in the government.
    And so my feeling is that, yes, you can use incentives, but 
I would start on a smaller scale before going to a larger 
scale.
    Senator Carper. Mr. Sullivan.
    Mr. Sullivan. Yes, I think my perspective on that is we 
have had a good discussion here about the development contracts 
that contractors get into and the risk that is assigned to 
those development contracts and the length of time they take. 
And if you look at a traditional, a current, typical DOD big 
acquisition--I will use the F-22; you could use anything else--
you are looking at a program that begins with a cost estimate 
that is not grounded in any really firm data. You are looking 
at usually a 15-year development program, and you are looking 
at having a program manager who is going to be there maybe 2 or 
3 years to start it.
    So, we have done an awful lot of work in the commercial 
world to go out and find best practices for how to develop 
products. We have tried to find some very complex products, 
low-volume products that would match up with DOD, things like 
satellites, and oncology systems, medical devices. And what we 
found consistently is that in those best practices, the things 
that they have to have before they would start a program 
similar to what they do in the Department of Defense is they 
would limit it in terms of schedule. So they immediately would 
say we are going to build something, we are going to try to hit 
the market with cutting-edge technology, but we are going to 
limit ourselves to 3 to 5 years to do that. We are going to 
have the same person responsible for that program from the 
outset to the end. And if we have to call a contractor in to do 
this, we are going to do the proper systems engineering and the 
requirements analysis that is required to understand exactly 
what kind of technologies and technical problems and design 
issues and manufacturing issues we are going to have, and we 
are going to have that in the first business case that we have; 
and then we are going to baseline that cost and schedule.
    So they are limiting time frames, they are understanding 
their cost estimates before they begin the program, and they 
limit the technologies to what is available to them at the 
time. So requirement, in essence. Again, we are back to these 
three arrows. So the requirements are limited, and they have 
evolutionary product development.
    Now, the way that they--usually, these companies will have 
a revolution within 20 years, which is the same amount of time 
it took the F-22 to be the revolutionary fighter over the F-15 
and F-16. In fact, if you go back to the F-15 and F-16 
acquisitions and look at how they did it, they were kind of 
incremental in the way they did that. They had block upgrades 
to those aircraft. Those aircraft are still pretty good today. 
They hold their own up in the air today. And they were done 
pretty good on cost and schedule, too.
    The idea of this, the companies that we looked at that were 
really pushing technologies and trying to get to market as 
quickly as possible, they took on a lot of risk in that product 
development. Basically a fixed-price environment for them 
because they were going to invest a certain amount of money and 
they were going to have to recoup all that money. The 
Department can do the same thing, and the defense industry 
should be able to do the same thing. What they need to do is 
they need to get requirements under control, do them in quick 
spurts, and continue to upgrade their products, and they can 
move to more fixed-price kind of development contracts.
    I think Professor Schooner said that we have tried that, we 
have been there, we have done that, and it did not work. But we 
mandated development contracts in the 1980s without any of 
this, and requirements were just the same. So there was nothing 
else really done at that time to try to make that fixed-price 
environment work.
    Those are the kinds of things that we learned, and what we 
brought to this study that we did here is keep requirements 
simple, keep your S&T base vibrant, let them take the risks 
there, but keep product development pretty much fixed-price and 
fixed-schedule and deliver to the warfighter quickly, no bells 
and whistles, except the 80-percent solution.
    Senator Carper. OK. Thank you.
    Let me just ask Professor Schooner and Mr. Murdock, 
anything in GAO's report that you especially agreed with or 
maybe disagreed with that you would like to just underline?
    Mr. Schooner. Well, let me just underline two things 
because I think they emphasized both of them. I think they did, 
in fact, emphasize the acquisition workforce, which is 
tremendously important. And we can sit there and kick that dead 
horse as long as we want. But it is going to be a generation 
for us to undo what we have done. I think that Dr. Finley 
undersold the amount of damage that was done. Congress started 
taking apart the DOD workforce in the late 1980s, and we took 
an entire half-generation of cuts, and then we have been flat 
during this decade. And procurement spending has gone from the 
low $200 billion to over $435 billion in this decade alone, and 
we do not have the workforce to do it. And even worse, the 
workforce we have were not hired to do the work we need them to 
do today. So this is a legitimate crisis, and I think that is 
really important.
    I think that overall the report is really good. The one 
thing that I do take issue with is I think in the end, in an 
abundance of kindness, GAO suggested there were reasons for 
optimism, and I think they were being a little bit kind in that 
regard.
    Mr. Sullivan. Well, if I could address that this goes back 
to how I opened with, we have been here before. And I would 
agree with that. But I would say that the Under Secretary of 
Defense for Acquisitions now, Mr. Young, and Mr. Finley as his 
Deputy, they have--in fact, we have looked at policy revisions 
they have made to their acquisition policies, and we have 
looked at all these policy memos that Mr. Young has issued over 
the past year. And they are really right on what we think would 
be best practices. But I agree with Professor Schooner. As I 
said, we have been here before.
    The problem is sustained leadership, and I think you talked 
about that earlier. How do you keep someone in place who has 
the leadership capability and the ideas? I mean, how do you 
sustain that leadership? How do you hold accountability when 
you have got three processes and three process owners that can 
say no to each other? These are the critical things that have 
to be solved: Who is in charge? Who is going to be held 
accountable? And how do you sustain that, given the appointment 
process that we have? That is a real problem.
    Mr. Schooner. But I think you heard from all of us, I think 
GAO is absolutely right, that if you wait until you have mature 
technology, then you have a fair chance of controlling costs 
and schedule. Without mature technology, it is a pipe dream.
    Mr. Sullivan. If you have technologies that are mature 
enough to meet the requirements, you are way ahead of the game. 
I would agree with that.
    Mr. Murdock. And I believe that the way you get there is 
through transparency and accountability. The transparency is 
why I think it is so important to have an independent 
assessment office that gives people assessments of cost, of 
performance, and technological maturity, and a schedule that 
OSD has, that Congress has, that empower a program manager, 
because he or she has them and they cannot be changed through 
requirements creep, they should not be changed through program 
instability, funding instability and so on. And I think you 
have to have transparency to do that because there is a lack of 
transparency right now.
    I will give one vivid example. If there was ever a source 
selection that the Air Force had to get right, it is the KC-135 
replacement. Given its baggage, had to get it right. And yet I 
am told that when the Air Force outbriefed Boeing on why it did 
not win the competition, in that briefing the sections were 
left blank on the front of the cover: Who is the source 
selection authority, what was the composition of the group of 
people who advised the source selection authority, and who was 
the composition of the special overarching board, somewhat like 
the Configuration Steering Boards that Secretary Young has 
called for, who composed those. Before the protest was upheld, 
Secretary Young was quoted as saying, ``Well, we created this 
board, and Sue Payton, the Assistant Secretary, said it was 
very useful and very helpful.'' Total fiasco. The decision of 
the GAO was a slam-dunk, the procedural infractions were so 
great.
    Now, accountability, the standards of accountability have 
been established by Secretary Gates with the Chief of Staff of 
the Air Force and the Secretary of the Air Force on the nuclear 
mission, or with the person who headed up Walter Reed and the 
persons in the Army who were not moving fast enough. The whole 
Air Force acquisition unit had failed, but it was a broader DOD 
failure because there was some kind of overarching committee 
with it as well, and satisfaction being expressed by the Under 
Secretary, the defense acquisition executive for the process.
    These are--not these individuals, because these individuals 
are relatively new. Some of them had to wait 3\1/2\ years 
before they could get into their job, whether it has been these 
individuals that have been running the process since Goldwater-
Nichols and implemented the Packard Commission results. We need 
a different process, and we need a different structure to do 
it.
    Senator Carper. A friend of mine who began and has run a 
great nonprofit nationally in this country likes to say--and 
his program is designed to help young people to improve their 
lot in life and improve their futures. He likes to say, 
``Programs do not change people. People change people.'' And a 
good program puts a person who needs change in their life with 
somebody who can help them change.
    I do not want to do a play on words here, but when it comes 
to programs and cost overruns, rather than saying that programs 
do not change people, we need people who can change programs. 
We really need people who can oversee these programs. And the 
idea that Dr. Finley's position was vacant for 3 years, the 
idea that he walked into his job and four out of his six direct 
reports were not around, and he had to go out and hire them--
hopefully--he says he thinks he got good people and they will 
be around for a while. But that is just--talking about a system 
that is broken or at least a situation that was broken.
    I went back in my head trying to think through 2 years ago, 
did we have a majority Democrat Congress in place at the time 
who was denying the Administration their appointments? And, 
actually, 2 years ago we did not. It was a Republican majority 
in the Senate and a Republican Administration. So I am not sure 
that would have played a role.
    I look and I think about all the different positions within 
the Executive Branch for which we require Presidential 
appointment and Senate confirmation. And I am wondering if--we 
talked about requirement creep in programs. I wonder if we have 
some kind of creep in terms of Senate confirmation for some of 
these positions. We really need it for all of them.
    Let me just ask you to think about that last point. Have we 
run amok? I remember when I was Governor of Delaware, I was 
nominated to be on the Amtrak Board of Directors. I loathed the 
process. I had been a naval flight officer for 23 years, a 
Congressman and State Treasure and Governor. I was nominated to 
serve on the Amtrak Board, and the disclosure process I had to 
go through was maybe not outrageous, but it was just so time-
consuming and laborious. Finally, I got confirmed, served for 4 
years, enjoyed my service. But, boy, there was a lot to put up 
with to get confirmed.
    Do you think we require too many Presidential appointments 
to be confirmed by the Senate? Is this an issue that is part of 
the problem?
    Mr. Schooner. I believe Mr. Murdock's testimony 
specifically cites to the Defense Science Board study that was 
done after the Druyun debacle, and I actually served on that 
group when we did it. And one of the things that was discussed 
in there at great length--and there is even a terrific chart in 
there that shows the level and the extent of the vacancies at 
the highest level of the Defense Department--and it is 
complicated for a number of reasons. I think the one thing we 
have to think about is there are a lot of reasons why these 
jobs are simply not attractive to the kind of people you need 
to do the jobs.
    The Under Secretary position is one where we are 
specifically looking for someone with significant business 
experience. The pay stinks. Nobody ever brings them down here 
to talk about all the good news that they have achieved. They 
are inheriting problems. They have got staggering budget 
problems. They have a grossly inadequate workforce. And they 
are given impossible tasks. The jobs are not attractive. It is 
tough to find the right people to do it, and the incentive 
structure is totally broken.
    Senator Carper. But other than that? Does anybody else want 
to comment on this? [Laughter.]
    Mr. Sullivan. That is a very interesting question. I think 
it is a huge problem. I do not have any particular specific 
answers to that. I know that GAO is very much involved this 
year, more than ever before, in the transition process. I know 
the Congress has reached out with GAO to try to help--we are 
looking a lot harder at issues, some of the issues that we are 
talking about here today, to bring people up to speed quicker 
and maybe grease the skids a little bit more for these 
appointments. But to me it is one of the key problems. I do not 
know how you--if it is politically possible to take away these 
appointments or, to have some politically appointed or part of 
the bureaucracy or how you would do it. But it would certainly 
help if there were a CEO-type mentality in the Under Secretary 
of Defense for AT&L who had the time--as we said before, there 
is a transitory nature. People can wait John Young out, quite 
frankly. But he has got good ideas. He has got the will to fix 
these things. And if he were there for a while and he was able 
to sustain that and push that down through the culture--it has 
got to be a culture change, and that takes years.
    So how do you do that with political appointments? That is 
the question of the day, I think.
    Mr. Murdock. I do not think there is any question; there 
are too many political appointees.
    Senator Carper. Did you say there is no question but there 
are too many?
    Mr. Murdock. There are too many political appointees. And 
it is not just confirmable appointees. It is political 
appointees that go deep down into the bureaucracy. You are 
taking the entire leadership essentially from the Deputy 
Assistant Secretary on up and switching them out every 2 years. 
Only there are lots of staggered empty spots in that, so that 
you will have a place that is empty, filled by an Acting for 
10, 11 months; somebody comes in for 2 years, gone; another 
gap.
    The vetting process that we go through now for somebody to 
take a confirmable position is onerous. And it is actually, for 
somebody who is a successful career person, humiliating in 
terms of the kinds of questions they are being asked. And it is 
also very limiting in terms of what happens when you come out 
the other end. You take somebody like myself, I am at the end 
of my career. I do not have a future. Maybe I will take that 
kind of a job. But you know something? I am too old to go 
through that. So I am not going to do that. I do not want to go 
back into the government now, in part because of the process 
that is involved with it.
    So you do what you can from the outside during that time, 
and you enjoy being a grandfather, and you make your balances.
    Senator Carper. As we come to a close here, I again want to 
thank each of you for your participation and your preparation 
and the input you have provided for us. Each of you have 
already spoken to this question I am about to ask, at least 
indirectly, but in terms of what--setting aside the Executive 
Branch and things that they need to do better or differently--
and we have talked about that a good deal--talk about the 
Legislative Branch. And we have talked about it to some extent 
in confirming people whose names are submitted to us.
    I remember when I was a governor, I served with Tommy 
Thompson, Governor Christie Whitman from New Jersey; Mike 
Leavitt, Utah; Tom Ridge, Pennsylvania--a lot of governors in 
this Administration ended up--former governors ended up being 
cabinet secretaries, and what I would say to each of them, when 
you nominate good people to be your key direct reports, and you 
are having trouble getting them confirmed, let me know and I 
will do what I can from the inside to try to move those names. 
And most of them took me up on it, and there is just--it is 
easy for names to get just hung up for reasons large and small. 
Sometimes you have somebody in the Legislative Branch who is 
interested in getting a person in a whole different part of the 
government confirmed or nominated by the President, and they 
will hold up confirmations completely over here in order to get 
somebody nominated over here that they are interested in. So it 
is not a good situation.
    But advice for us in the Congress? One of the other pieces 
of advice I think I heard here today was in terms of providing 
an appropriate level of funding for weapons systems over 
multiple-year periods of time so that we do not have this going 
on all the time and it is difficult to come up with any kind of 
efficiencies. But that is the kind of thing I am interested in 
for us. What advice do you have for just----
    Mr. Sullivan. If I could start with the funding levels--
really I would take issue a little bit with what we heard from 
Dr. Finley. The trend has been upward. We are probably in the 
highest spending trend for development and procurement, the 
acquisition budget itself, since the late 1980s. So the money 
is there. I think the legislature has funded the Department 
fully. And I do not think--the funding instability that the 
doctor talked about, I know that I would get a lot of debate on 
this and probably a lot of argument. But I think that most of 
that is done by the Department itself, I think, because they 
come in with such shoddy cost estimates for programs, and they 
begin things on such risky levels that the funding instability 
builds in the program, about midway through you start figuring 
out what you really have there.
    I think that the legislature, that Congress' biggest role 
is oversight, obviously, and when we do reports like this, this 
$300 billion--which, by the way, is really $300 billion. I know 
that Dr. Finley said that if you look at the last 5 years it is 
3-percent growth per program. Well, if you have 3-percent 
growth on a program that takes 15 years, you have 45-percent 
growth on the program. These are really real dollars.
    So, we have been through some potential answers for this. I 
think we have raised some issues concerning how do you run the 
shop over there, how do you get accountability out of these 
three processes. I think the Congress has to continue oversight 
over that, quite frankly, maybe ask for information more often 
than when we come up and have to show the $300 billion cost 
growth. That is a real portfolio. That is 95 programs that 
exist today, and it is $300 billion. And that is an eye-opening 
pie chart that you have over there. So, to me, it is oversight.
    Mr. Murdock. I would like to respond second on this one. 
Actually, I take the province of having worked on the Hill 
myself for 5 years but on the authorizing side. And when I 
worked for the House Armed Services Committee, Les Aspin was 
the Chairman of the House Armed Services Committee, and Sam 
Nunn was the Chairman of the Senate Armed Services Committee, 
and authorizers ruled. That is not the case anymore. 
Appropriators rule today. And that does create a very difficult 
problem in terms of actually killing programs. Appropriators do 
not do policy oversight. The Congress does not do things like 
Goldwater-Nichols. And then when they do do something like 
enact all of the reform recommendations out of the 9/11 
Commission, they reform everything but Congress during that 
time.
    So, for me, as a former Congressman who works--I mean a 
former staffer who works for a former staffer, John Hamre, 
somebody said Admiral Pollack said--and I am sure he was 
quoting somebody--``A problem that doesn't have a solution 
isn't a problem. It is a fact.'' And that is why very few 
people talk to you about congressional reform because it seems 
like such an intractable process.
    One of the recommendations, for example, of the 9/11 
Commission, reduce the number of oversight committees. They 
point it was reduced from--what?--66 to 65. This does not help. 
So there are a number of things that Congress could do to 
strengthen its ability to do oversight, and I believe close 
congressional involvement via the transparency of a process 
that could be produced through an independent cost and 
performance and technology assessment office would give 
authorizers who cared the tools to bring more transparency and 
responsibility to the Department of Defense because the 
Department has clearly demonstrated it cannot do it itself. 
Many of the wounds are self-inflicted. But I believe a more 
effective congressional role is essential to solving that 
problem.
    Senator Carper. Professor Schooner, the last word.
    Mr. Schooner. Three things, quickly.
    Workforce, workforce, workforce. We need some really 
creative solutions, and they are going to have to be outside of 
the civil service system because it is not going to get done.
    Second, overall the profit policy and weighted guidelines 
system that DOD has to work with is fundamentally broken, and 
we need meaningful incentives and disincentives to do any of 
the things that we are talking about.
    But we also need, third, real discipline on behalf of the 
government. If you want the government to break things into 
small pieces and lock down their technology before they go 
forward, then you are going to have to actually do something. 
And maybe what you say is, ``I will give you program stability, 
but the price of that is I am going to hold you to your actual 
promises.'' And the one thing that Congress should never forget 
is the power of anecdote. And when it is all said and done, all 
you have to do is stop a couple of major programs, and you will 
get some people's attention.
    Senator Carper. All right. Well, gentlemen, before you 
close your books and walk away, let me again say thank you. I 
am glad that Dr. Coburn and I were here to participate in this 
hearing. I am glad our staffs are here. I know we have folks in 
the audience and people who may be watching on television. But 
this has been, I think--I turned to our staff, and I said to 
Wendy Anderson and Harlan Geer, this is such an important 
issue. The dollars are so substantial. And at a time when our 
Federal budget deficit issue even before this President's $700 
billion, if you will, bailout to address our financial 
problems, even before that our deficit was running between $400 
and $500 billion this year. Our national debt in this 8-year 
period of time will have doubled from about $5.5 trillion to 
about $11 trillion. And we have got to find a way, all kinds of 
ways to begin turning that back.
    You have helped provide us with some very good ideas, and I 
am encouraged, knowing about Dr. Coburn's tenacity, knowing a 
little bit about my own, that we might just take this ball and 
run with it.
    I want to close by saying the hearing record will be open 
for 2 weeks for the submission of some additional questions and 
statements, and I would just ask, if you do get those 
questions, that you try to respond promptly to them for the 
record.
    Again, we thank you very much, and with that, this hearing 
is adjourned.
    [Whereupon, at 4:22 p.m., the Subcommittee was adjourned.]




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